Microsoft Remedies

As the titanic antitrust case against Microsoft moves into its end-game, the question of the hour is what remedies will be effective in taming this wealthy and ruthless monopoly.

The goal of any set of remedies should be to ensure that there will, in fact, be innovation, competition and reasonable prices in some of the most important sectors of our economy: software, computers and telecommunications.

Consider the following remedies:

• Free PC manufacturers from Microsoft’s grip. Microsoft has used its monopoly power to bully original equipment manufacturers (OEMs) into installing only Windows on computers.

A court-ordered remedy of non-discriminatory OEM licensing of Windows would go a long way toward solving this problem. Pricing and licensing should be “transparent” ? openly published and even-handedly applied.

• Don’t let Microsoft use its other software monopolies to limit competition. Just as Microsoft used its Windows monopoly to threaten the competition, so it is using its Office franchise to scare off competitors and dominate new Internet markets. Its preferred strategy is the notorious “embrace, extend and extinguish” gambit: embrace the new Internet authoring tools as part of the dominant Office software suite; extend control of the new market by introducing proprietary standards that are incompatible with competitors’; and extinguish competing software through manipulative licensing and bundling deals with OEMs.

The court should require Microsoft to separate Microsoft Office from Windows, and the new owner of Office should be required to port the entire platform to multiple non-Windows operating systems.

• Ensure that “Internet navigation” options remain open. Microsoft has insisted to OEMs that it retain control of the “first screen,” or default choices for Internet navigation menus. It has done so in order to retain control over the time and attention of computer users, whose reliance on the default “first screen” can be used to channel them to certain e-commerce sites.

Here’s the danger: If any single firm exercises too much control over Internet navigation, competition in e-commerce markets will suffer. Microsoft should be prohibited from imposing such terms.

• Protect interoperability of hardware, software and network protocols. The usefulness of software programs depends upon their ability to work (and coexist) with other software programs, with hardware systems, and with the protocols of telecommunications networks.

It should come as no surprise that Microsoft frequently and deliberately introduces barriers to compatibility and interoperability, preventing competitors from working with Microsoft’s monopolizing Windows or Office products. One remedy is to force Microsoft to support open standards for software and to provide extensive technical information in a timely manner to any requesting company in usable formats and protocols.

• Adopt structural remedies, because the record shows Microsoft cannot be trusted. The past six years of antitrust problems with Microsoft have demonstrated that the company cannot be trusted. Its conduct during the trial itself offers the best evidence of this point. The company subverted the intent if not the language of a 1995 consent order, by integrating its browser into the Windows operating system.

Effective remedies should, as much as possible, avoid “conduct remedies” that require continuing court oversight. A better alternative is “structural remedies” — such as a breakup — that permanently alter Microsoft’s organizational structure and the incentives by which it operates.

Ideally, a breakup of the company would go further than the Justice Department proposal to divide the operating system line of business from the application and other lines of business. The court could insist that Microsoft separate the Internet Explorer browser from Microsoft Office. That way, the browser market could become competitive again and the owner of Microsoft Office would find a way to function with more than one browser. This would be an important result in a world where the browser is key in setting web publishing standards and links to e-commerce sites, and where Microsoft is driving for dominance in Internet authoring tools.

The court should also consider forcing Microsoft to spin off, as a separate company, all of its online services and minority interests in networking companies. There is no legitimate tie between the software businesses and online/network services — only anti-competitive mischief.

The antitrust remedies that ultimately bring the marauding Microsoft to heel will have far-reaching consequences ? on future software design and choices, on consumer prices, on the competitiveness of e-commerce, on the very structure of the Internet and hence our culture. The factual case against Microsoft has been made devastatingly clear. If Microsoft’s long record of deception and untrustworthiness is to be ended, the public remedies must be as bold, sweeping and effective as the company’s private power.