Drop the Microsoft Suit!

In all the din of pontification over every aspect of the Microsoft antitrust trial, the theory has arisen that the best way out of the case is for a mass settlement between Microsoft and the U.S. Department of Justice and the 18 remaining states—including Michigan—suing it.  While both sides in the matter could make the argument that a settlement may be the most expedient path toward ending the thing, clearly the most courageous path would be for Attorney General John Ashcroft to drop the matter all together.

That way, the entire episode could be washed clean and left to decompose on the ash heap of history—as it very well should.  The case began not as a cause or a statement against a malevolent monopolist, but as a marketing scheme on behalf of Microsoft's competitors.  These companies and their legal teams—bankrolled by billions in corporate profits—persuaded the Clinton-Reno Justice Department to take the case in the first place.  The action was strange because no one ever asserted that Microsoft, despite its success in the market, had ever hurt consumers.

Nevertheless, the federal government, urged on by frustrated Microsoft competitors, started digging into Microsoft's business practices in hopes of finding some evidence linking the company to consumer harm.  What they found were typical aggressive tactics, some more embarrassing to the company than others, used by powerful companies in competitive markets for centuries.  Vibrant competition—though obviously unappreciated by some companies in this case—is what built the New Economy to heights it now enjoys, after all, and all Microsoft argued was that it had as much right as anyone else to compete and to innovate.

The logic of the government's case was that, given Microsoft's success, it had a responsibility not only to the consumers it hoped to woo, but to the competitors it hoped to defeat.  The government's case—that is, the talking points provided by Microsoft's competitors—was that antitrust law not only protected consumers, but also protected competitors, a divergence from every understanding of antitrust law to that point.  In other words, the rules were different for successful companies than they were for slightly less successful ones. 

As many economists feared, the government's next step was to ask the court to break Microsoft up into several smaller companies—all so that its competitors could become monopolists themselves when faced with less vibrant competition from the so-called "Baby Bills" or "Mini-softs."  Rather than try to find a reasonable way out of this mess, the government simply wanted to take over—via regulation and court edict—one of the most complex and important competitors in the most important industry in the global economy.  (For an idea of how this would have worked, think about the same people who have trouble delivering the mail trying to run high-tech Internet service, and software industry.)

After pondering that concept, consumers and investors from all walks of life called their brokers, and the result has been a precipitous drop in the value of retirement and pension funds, education savings, and other investments.  The fallout included a rise in unemployment, a drop in consumer confidence, dried-up investment for new companies and in research for innovations in the old companies.  In economic terms, it was a "big mess."

Then, like a cowboy on a white horse, the U.S. Court of Appeals slapped down the breakup scheme, threw the biased Judge Thomas Penfield Jackson off the case, and struck down his ruling on monopoly maintenance in the Internet browser market.  In essence, every substantive argument the government made was rebuffed by the court.  Which brings us back to the odd consensus among the chattering class that the case should be settled.

It's obvious that Microsoft—with its ambitious next-generation Windows platform on the way—wants to make the case go away under almost any circumstances short of breakup.  It's also in the interest of state attorneys general to recover some of the money they've wasted on the case and walk away having maybe broken even with their justifiably confused constituents.  It also makes sense for the federal government—now back at square one and under a new administration—to settle the case.

But from the perspective of intellectual honesty, not to mention for the sake of sending a clear signal about this administration's commitment to free markets and the fair administration of justice, the single best course of action would be to drop the case altogether.  A settlement would, in the public view, serve only to justify the false claims. 

After three years and $30 million, American taxpayers—and the employees, investors, and consumers who rely on Microsoft—deserve better.