Editorials and Opinion Pieces

Prelude to Regulation

BY: Ron Nehring, special to the Washington Times
DATE: April 6, 2000
SECTION: PART A; COMMENTARY; Pg. A16
LENGTH: 843 words

This week's ruling in the Microsoft anti-trust case makes one thing clear above all else: the government's litigators believe they, not consumers and businesses, are the most qualified to make decisions about high-tech product development and innovation. Judge Thomas P. Jackson's decision to declare Microsoft a monopoly sets a dangerous precedent that threatens the long-term health of California's high-tech sector, and our economy.

In making its case against Microsoft, the Clinton administration's Justice Department relied on strained interpretations of the Sherman Antitrust Act to justify its claims that Microsoft is a belligerent monopoly that stifles competition and thus harms consumers. If the government succeeds in dramatically lowering the bar to what qualifies as a monopoly, it marks the beginning of a whole new era in government regulation of high-tech. The government claims Microsoft uses its dominance in the operating systems market to stifle competitors, and consumers suffer as a result. The facts, however, do not support this assertion. In California alone, Microsoft works with more than 16,000 resellers and develops products in conjunction with more than 1,400 technology partners. To get its products to market in 1999, Microsoft relied on more than 2,000 California companies to supply more than $700 million in goods and services.

This is not to say that what is good for Microsoft is automatically good for California. Indeed, Microsoft competes directly with many well-known California companies, including Apple Computer, Sun Microsystems and others. Yet, the Microsoft case threatens the long-term health of these companies as well because the regulators may no longer need to prove consumer harm in order to justify interfering in the marketplace.

In the Microsoft case, the government failed to demonstrate consumer harm, normally the backbone of any anti-trust case. Rather, anyone who walks into the local Comp USA or Best Buy knows that we continue to benefit from falling prices across the technology sector, including hardware, software and services. Consumers purchase computers today with far more power than just six months ago, at the same price. E-mail, Internet and other applications that used to cost hundreds of dollars, are now thrown in free.

The fact is that genuine consumer harm is nowhere to be found in the government's arguments, or in the judge's "findings of fact." Instead, the real story is how a small group of Microsoft competitors convinced the Clinton administration to come to their aid by weighing in against their biggest competitor. Court records show that Joel Klein, the Justice Department's point man on the case, took up the Microsoft cause after repeated meetings with Netscape CEO Jim Barksdale. (Netscape, which charged $40 for its Internet browser software, felt threatened by Microsoft, which was giving away its browser for free.)

Shockingly, the New York Times further reported on Monday that government mediators shared details of the proposed settlement drafts with officials at Microsoft rivals (including Apple Computer) and solicited their opinions during the settlement talks. Such ex-parte communications raise serious ethical questions, and beg the question: for whose benefit is this case being fought, consumers or a small group of high-tech competitors trying to regain market share?

If consumer harm is not central to the Microsoft case, then the door has been flung open for cases against numerous other high-tech companies. Cisco Systems' marketshare in the critical Internet server market exceeds 90 percent, and its market capitalization just exceeded Microsoft's. Apple Computer has a 100 percent market share in the Macintosh hardware and operating systems market. If action against Microsoft is justified on the basis of its dominance in the PC operating systems market, despite the surging growth of an alternative operating system (called LINUX) and Internet appliances that do not use Microsoft systems, then no high-tech company is completely safe from government scrutiny.

In California and across the nation, America's high-tech sector is driving economic growth. The Commerce Department, for instance, reported that between 1997 and 1999, one-third of GDP growth was attributable to high tech, and workers in the sector earn an average of more than $62,000 per year, compared to $32,000 for non-high-tech jobs.

Much of this growth can be attributed to the fact that government has kept high-tech free of special taxes and regulation. History teaches us that once the government begins regulating an industry, it is reluctant to stop, regardless of how much harm it does. (The trucking industry was regulated for 30 years, airlines for 30 years, and banking for 70, to name a few.) The companies that begged the government to get more involved with the technology sector may soon regret issuing the invitation at all.