Do not pass Go, do not collect 200$

Are you using Windows ? Most people do. Some people love it, some hate it. Microsoft products in general, as for most important things, tend to elicit polar reactions. Some people refuse to use them because they are not perfectly stable (the Blue Screen of Death comes to mind) or because they allow less flexibility. On the other hand, home users benefit from Windows’ simple, multitasking interface and general ease of use, as well as software base. No one, however, can stay indifferent towards the software giant. That’s a question of personal opinion, and perfectly normal.

However the litigation levelled against Microsoft by the government is another matter entirely. You probably know that the company has been on trial againt the Department of Justice, under accusations of being a monopoly, as defined by our antitrust laws. More precisely, Microsoft has been accused of using its market dominance to prevent competition.

The general consensus seems to be that this attack is a good thing, based on the supposed low quality of Microsoft products – however that is not the point at hand. Arguing whenever Windows is a good OS or not is completely irrelevant to whenever we should break up a company because of its “predatory tactics”. The greater issue here is Microsoft’s violations of the law and the validity of antitrust laws in general.

You will have noted that I’m not suffering from the prevalent “Microsoft is always wrong” syndrome. If you’re a long-hair, tough. I could always give you my barber’s address.

We anti-trust you

Microsoft was the company that brought about the Windows revolution – popular graphic interfaces, which made computers available to everyone in the marketplace. But by doing so, they have appropriated themselves a large slice of the market. And some people didn’t like that. As human beings, we tend to associate with people we find, or think, to be at our level. Most people find big corporations to be impersonal. Thus, despite the constant success of Microsoft, the general opinion was negative. It’s a perfectly natural reaction.

But it all started to spin out of control in 1990, when bell bottoms and platform shoes went back in fashion… no wait, this is for the fashion review. I’m all confused again. What was I talking about ? Oh yea, Microsoft history. Anyway, it started to spin out of control in 1990, when the Department of Justice (which is part of the Executive Branch) reared its ugly head and began to investigate Microsoft’s practices. The end result was that it forced the company to sign a consent decree in 1995. This decree was to the effect that Microsoft, amongst other things, had to stop forcing Windows licensees to also license other MS products. This type of contract is known as “tying” products. This is prohibited because a company can use his leverage in one area to dominate other markets.

Nevertheless, Bill Gates refused to uphold the decree and continued to tie Windows with the Office suite and MSN, adding Internet Explorer to the list. This state of affairs prompted the lawsuit that you know, and Microsoft has been taking an agressive stand against the government at every turn, fighting against a possible break-up of the company.

Bill Gates has resigned from his post as CEO on January 14th, leaving Steve Ballmer to take over. This has not been a surpising move, as Ballmer was president since last year, and is mostly a cosmetic change. Ballmer is, not surprisingly, as hostile as Gates towards governmental intervention in this matter.

News have it that the Department of Justice is discussing whenever to declare open war on Microsoft – by filing a lawsuit of a much greater scope. This case would be a landmark in the enforcment of antitrust laws against the software industry. Experts assess that the goal of this new lawsuit would be to deal a fatal blow to Microsoft, leaving the market open for a new corporation to take its place. Further speculations are to the effect that they also plan to add insult to injury by kicking Bill Gates in the crotch and pissing on his prone body. I mean, if they’re going to be so open about it, they should at least go all the way.

On January 7th of this year, Microsoft settled with Caldera, which sued for predatory tactics against its operating system DR-DOS (some people would ironically say the doctor was in.. to treat Windows fans). It was found that Windows was rigged to crash when DR-DOS was detected. The settlement in this case may, according to some analysts, have important repercussions on the market, and heighten the possibility of a settlement in the DoJ case, despite their stated intention to break up Microsoft. At the time you are reading this, both sides will have presented their arguments about the facts presented at the trial, and Judge Jackson should take a decision, if it has not already been done.

The official complaint against Microsoft reads as such [1] :
“The complaint charges that Microsoft violated Sections 1 and 2 of the Sherman Anti-Trust Act. 15 U.S.C. 1-7.”
“…the complaint identifies Microsoft’s use of per processor licenses and long term commitments as “exclusionary and anti-competitive contract terms to maintain its monopoly.” A per processor license means that Microsoft licenses an operating system to an OEM which pays a royalty to Microsoft for each PC sold regardless of whether a Microsoft operating system is included in that PC.”
“The complaint further alleges that Microsoft’s use of longterm licensing agreements with or without minimum commitments, and the rolling over of unused commitments unreasonably extended some licensing agreements with Microsoft. These practices allegedly foreclosed OEMs from licensing operating systems from Microsoft’s competitors.”
“The other anticompetitive practice cited in the complaint is the structure of Microsoft’s non-disclosure agreements (“NDAs”) with ISVs [Independant Software Developers] during the development of its new Windows operating system.”

In short, the three accusations against Microsoft are : asking computer manufacturers to pay royalties according to the quantity of computer sold instead of copies of Windows sold, forbidding manufacturers from licensing other OSes, and asking its independant developers to refrain from disclosing confidential information about new products (which has the effect that developers cannot make their own programs for that platform). That’s all that the fuss is about – voluntary contracts between corporations being considered as anti-competitive.

What about a more global antitrust case ? The main thrust of such an attack would be on Internet Explorer integration. There has also been some examination of this tactic during the present trial – indeed it has been the focal point of attention in the media. The same principle of leverage applies here : Microsoft is using its monopoly on operating systems in order to boost the market share of other products. The integration of software, especially Internet interfaces, in the operating system is a natural step of software evolution, one that can potentially lead to the emergence of powerful properties. But it is also a step that the almighty government declares anti-competitive.

The United States of America vs freedom of action

Where is the big crime behind all these accusations ? When all the facts are examined closely, and the emotion-filled terms like “predatory tactics” (raptors in penguin suits), “monopoly” (oooh… monopoly, capitalism, bad bad) and “chokehold” (which sounds suspiciously like a wrestling move… “and now, Bill Gates has Steve Jobs in a chokehold ! that’s gotta hurt”) are set aside, we see that all that Microsoft is accused of is concluding exclusionary agreements with manufacturers and developers, and integrating their web browser to their operating system. That’s it. No use of force, no threats, only voluntary contracts and software engineering. So what’s the big deal ?

People are funny, you know. They advocate all sorts of things, even the craziest ideas. Yet there is also a driving need to have one’s ideas accepted to the public, in order to advance their cause. So you get a problem there – how do you turn the tides of public opinion ? Using doublethink is the easiest way – associate your ideals with positively-charged words. This way, people associate the cause, whatever it may be, with the positive terms.

Take the popular nomenclature for people who oppose abortion at a political level : “pro-life”. Why, those people must be good people ! After all, who could ever be anti-life ? Nobody wants to be associated with the likes of the Boston Strangler or Jeffrey Dahmer, therfore any rational person will want to be called “pro-life”. It is, of course, a misuse of terms – by promoting the life of the foetus, the anti-abortion fanatics destroy the lives of countless mothers and doctors.

Look, on the other hand, at a less charged, yet still interesting, expression : “predatory tactics”. It evokes a gruesome image : a pack of ravenous raptors tearing apart the tender flesh of their victim, blood dripping from their scaly jaws. It’s a cruel, heartless expression : we are supposed to feel appalled at the viciousness of this “predator”.

But there is a more important and profound meaning to it, and this is what I am getting at (what, you thought I was just rambling ?). In human terms, predatory means “living by victimizing or destroying others for one’s own gain”. What does this try to convey to us ? Why, this is a description of competition : people who fight for their own gain. Predation in nature is nothing more than the expression of competition in the survival of the fittest. By attacking “predatory tactics”, “chokeholds” and the “monopoly” of the fittest, antitrust fighters reveal themselves to be against the very idea of competition.

Now, monopolies are not how we usually see the idea of competition : we all have this image in our mind of competition being an endless fighting amongst dozens of equally-matched contenders constantly trying to get the edge in. This may come from the observation we make about government monopolies. Since a monopoly necessarily has only one company involved, then competition must be the contrary, right ?

The problem is that this is not necessarily the case. When the market is not big enough to accomodate many competitors, or when customer preference goes towards one company in particular (as in the case that concerns us), the process of competition favours that company as the competitive monopoly at that particular point in time. The process does not stop, either : there is nothing that prevents someone else from entering the market with a superior product and use his own leverage. The same thing applies to the principle of using one’s leverage in another field to compete more efficiently – it is simply one of the ways that we have to capitalize on our initial advantages. The laws of the market do not suspend themselves because products are tied together : customers, and manufacturers, are still free to choose the package of their choice. And indeed we see that one-third of computer users still do not use the Windows operating system : nobody forced them to.

On the other hand, governmental intervention in the market in order to cut down a dominant player is not a help to competition – it stops a successful company in its tracks without reason, frustrates the customers from reaping the benefits of their support, and helps companies that do not deserve, according to the market, to be helped. It suspends the process to let them get “off the hook”, so to speak. Another consequence of such intervention is to hinder overall progress – having to thread lightly in the field of possible actions makes for passive competitors.

The arguments that propose that we cut down competitive monopolies in order to restore competition are, in fact, opposed to the natural order of offer and demand : they are anti-competitive.

What are the practical consequences of such policies ? Going against the cost-reducing effects and efficiency of competition can be deadly. Breaking up Microsoft, according to research from the University of Texas, could mean a loss of as much as 30 billion dollars in development, marketing and support costs only (attributable to the new fragments of Microsoft operating separately), which would translate in higher retail prices for the customer. Furthermore, and this is considerable, the lack of integration that would characterize such an endeavour would deprive the customers of much-needed tie-ins solutions, as well as their potential ramifications. Considering the frustration that we already feel (and the time lost) at incompatibility today, this seems as the most time- and money-costly problem.

It has been proven again and again that industries accused of being trusts are far more customer-friendly than the general price level, and expand output faster than the GNP grows, as much as ten times faster. They are usually the most innovative and fastest-growing industries [2]. This is perfectly logical, and can be seen as the corollary of the increased efficiency and allocation of systems based on competition.

Playing with Monopoly money

Why do we distrust antitrust ? One possible answer is the a priori idea that we have of competition as being the antithesis of monopolies. But what about the antitrust laws already in place ? What is the philosophy behind them, and why does the government enforces them ?

It is an obvious fact that any collectivist government thrives on power. Without the power to impose its own rules and regulations, or with diluted power, such a structure cannot be sustained. Therein lies a possible explanation for the repression of competitive monopolies, especially in important markets : a struggle for power.

It’s no secret that Bill Gates was, until he resigned, the third most powerful man in the United States [3]. Having a “chokehold” on a market gives enormous power in that regard. It would seem perfectly normal that the government, which seeks a monopoly on power, would establish mechanisms in order to prevent this from happening. Because of this, divided business, and not competition, becomes important, and this is what we observe in antitrust laws, and in the government’s dealings with business. The key maxim here is “divide and conquer” (not the computer game, the strategy). When business is divided, the mechanism of interest groups in our mixed economy takes care of the balance of power.

To see how absurd this strategy would be in real life, imagine that Michael Jordan, or another star basketballer, got accused by the NBA of using his speed to leverage his total of points and that his monopoly on the league is based on unfair competition – and that he would be forbidden to shoot to the net after running for more than two seconds. How would basketball fans react ? It would no doubt make an incredible ruckus, even riots ! Wars have been declared for less.

Now, imagine that Stephen King, or another immensely known and popular writer, was accused of using his reputation to unfairly sell more copies than his book deserves. Courts of justice would then look into the situation, declare the writer as using predatory tactics, and condemn him to stop putting his name on the cover of his own books. How would you react ?

Now compare this with the situation we have examined. A widely popular software company uses its popular operating system to sell more copies of his other software packages. The judiciary system looks into it, and declares that the company is using unfair leverage, and is planning to either dismantle the company, or insure that such leverage does not happen again. Do you see a difference ? The difference is that this last scenario is quite real.

Of course, the government itself forces a monpoly in many sectors, and does not condemn itself. But if they were really so concerned about competition, they would open these sectors to private companies. They condemn themselves by their very words !

You may think that my assessment of the government’s intentions is rather akin to a conspiracy theory. The problem is that such protectionist tactics have been common in our history. The whole origin of the Sherman Act (which was passed in 1890) is protectionism : Sherman himself said that trusts are bad because they “subverted the tariff system; they undermined the policy of government to protect… American industries by levying duties on imported goods”. Can it be any more clear than that ? In short, the price-cutting capabilities of trusts undermines the cartel created by high-tariff policies.

The underlying political philosophy behind such actions is simple big-brother rhetoric : it’s nothing more than anti-producer and anti-consumer altruism. Behind the conceptual fog of excuses and semantics lies two main statements.

First, that companies, and producers in general, exist for the sole goal of furthering society. Progress and employment must be subservient to the survival of the governmental superstructure. Secondly, that the consumer’s choice is irrelevant. The consumers, who willingly made Microsoft a competitive monopoly (as we see with its market share), don’t know what’s good for them, and must be subservient to the survival of the governmental superstructure. In short, it all amounts to “we know what’s good for you, now shut up”.

Microsoft has broken its agreement with the government, and this is debatably reprehensible. Not because it was unlawful (considerations of law do not stand when confronted with such obviously immoral laws), but because it may be ethically undesirable. The dilemma can be subsumed by imagining a boy being confronted by a schoolyard bully who tells him : “stop using my swing or I’ll �/�@$� the shit outta ya”. What do you do ? Stand up to the bully and risk getting pounded, or keep a low profile and hope the bully doesn’t notice you again ? As for all other moral issues, it depends on the context of the situation.

Now, I’m not talking against Open Source software or any other competitor of Microsoft as being necessarily bad or unproductive. I think OSS has a lot going for it, and operating systems like Linux, if made more user-friendly and support-oriented, have the potential for success. But as long as they are solely driven by their hatred of Microsoft, they are destined to an eventual failure when the market will become fragmented, as a result of the trial or otherwise. In the end, I believe that both sides will be forced to adapt and learn from each other.

Everyone involved in the computer industry – producers, manufacturers, and especially customers – should vigorously oppose anti-monopoly regulations. Imagine a digital age regulated by paper-pushers, as all other media sources are today – hardly what the founding fathers of the computer envisioned fifty years ago.

[1] UNITED STATES OF AMERICA vs. MICROSOFT CORPORATION, civil action #94-1564 (US District Court of the District of Columbia).
[2] International Review of Law and Economics, 1995
[3] The president is the first one. I’ll let you guess the other one.