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Washington
vs. Microsoft: Don't Repeat the IBM Debacle The Senate Judiciary Committee is holding a much-publicized hearing today, highlighted by a raft of computer CEOs, on whether Microsoft and other companies should be the subject of antitrust action. Before going any further down this road, the Senate and the Justice Department should refresh their recollection about some not-so-distant history. In early 1982, William F. Baxter, assistant attorney general for antitrust, signed a stipulation of dismissal in US v.IBM. It is a short document, only five paragraphs, declaring that the government had conducted a review and "concluded that the case is without merit and should be dismissed." This ended a matter that consumed six years of investigation and 13 years of litigation, 726 trial days, 17,000 exhibits, 950 witnesses, and at least $200 million in direct expenses to IBM and the taxpayers. Its impact on IBM was incalculable, as the company was forced to make decisions for 19 years based not on the marketplace but on "What will the lawyers say?"-- an approach that breeds timidity and stasis. The pursuit of IBM was a travesty of legal procedure. The case was filed in 1969; in late 1974, on the eve of trial, the government was allowed to amend its complaint drastically. By 1977, eight years into the case and two years into the trial, IBM had produced 61 million pages of documents -- whereupon the government issued a new subpoena for five billion pages, which were located in 2,000 different IBM facilities. IBM estimated that compliance would have taken 62,000 work-years and cost $1 billion. The government never prepared a definitive statement of triable issues. And the government got enmeshed with private citizens who stood to gain greatly from the litigation. Plaintiffs in private suits were the most obvious examples, but a cluster of experts and consultants also attached themselves to the case. One government consultant collected $465,000 in fees, was involved in the case longer than any government lawyer, and, according to The American Lawyer, "in most respects . . . had virtually taken over the litigation." Successive heads of the Antitrust Division admitted in retrospect that the whole thing was an error but were paralyzed during their terms of office by fear of political fallout. In the years since the dismissal, it has become conventional to blame the trial judge, David Edelstein, for letting the case spin out of control. He was indeed hopelessly biased. But the judge was not at the root of the problem. The basic failure was the absence of a coherent government theory of the case. IBM was supposed to be a monopolist, but the relevant markets were never clearly defined. When asked, different government lawyers gave different answers. Nor was it clear what specific IBM conduct was supposed to violate antitrust law. An economic autopsy of the case written later by some of IBM's expert economists noted that the government assumed that the company was a monopolist even though it did not act like one. The government dealt with this embarrassing inconsistency by "distort[ing] IBM's competitive acts into anticompetitive' ones. Nothing is more revealing about the government's case than its constant complaint of low rather than high prices as the symptom of monopoly." This lack of intellectual coherence allowed the volume of paper to get out of control. Because of the vagueness of the theories, every fact, document, and witness was potentially relevant. There could be no boundary on the inquiry. On the other hand,this vagueness also meant that no fact, document, or witness could ever be determinative. There was no way either to prove or disprove the case once and for all, so there could be no end to it in court. The unfolding parallels to the Microsoft case should scare anyone, and especially the government lawyers. Again, the government's interest seems driven more by the interests of competitors and the imperatives of politics than by solid legal analysis. Again, the government lawyers, especially the head of the Division, have laid their egos on the line; it will be difficult for them to withdraw. Again, the case is collecting a coterie of special prosecutors and consultants who will be loath to let go. Most important, again the government's theory is hopelessly muddled, or perhaps non-existent. Microsoft is assumed to be a monopolist, but of what? If you look at the total software market, the company's share is about 5%. If you look at PC's alone, it has somewhere around 90% of the operating systems, but quite a bit less of applications. And even in this more restricted sphere, Microsoft's power looks wobbly. A major reason for its high market share is that it keeps prices low. If it raised them, other companies would flood the market with cheaper systems. Microsoft is also attacked for "tying," because it wants to bundle its internet browser into its operating system instead of selling the products separately. But, except under unusual conditions of monopoly power, scholars and courts no longer view tying as a serious antitrust concern; there has not been a major tying case in at least 20 years. Critics also worry about Microsoft's $6 billion pot of cash, claiming it creates power to intimidate everyone else in industry. This sounds plausible, until one notices that venture capital firms areinvesting at least $10 billion per year, about 70% of it in high tech companies. Any Silicon Valley top gun with a convincing claim that he can knock of Microsoft will get all the money he needs. So what is left, except for another free-floating crusade in search of a viable rationale? U.S. v. IBM was a disaster. All antitrust lawyers should be forced to review it every couple of years, just to remind them how bad these things can get. JAMES V. DeLONG Washington |
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