Wednesday, May 23, 2018

What the Microsoft Antitrust Case Taught Us (NY Times Op-Ed by Senator Richard Blumenthal and Prof. Tim Wu)

Were Big Oil monopolists -- like Henry Morrison Flagler and John Davison Rockefeller -- pikers by comparison to Gates, Zuckerberg and other computer-based pirates of today?

What the Microsoft Antitrust Case Taught Us

By Richard Blumenthal and Tim Wu
Mr. Blumenthal is a Democratic senator from Connecticut. Mr. Wu is a law professor who who specializes in antitrust.
The Microsoft co-founder and chairman, Bill Gates, spoke out against an antitrust suit in 1998.CreditDan Levine/Agence France-Presse — Getty Images
Twenty years ago today, Microsoft was sued by the Department of Justice and a coalition of 20 state attorneys general (including one of us, Mr. Blumenthal, of Connecticut) for violating federal antitrust law.
Microsoft, the world’s dominant software firm, and Bill Gates, the world’s richest man, faced a challenge from the upstart company Netscape and its internet browser, Netscape Navigator. The suit accused Microsoft of illegally protecting its operating-system monopoly and seeking a new monopoly for its own browser, Internet Explorer. The fear was that Microsoft would kill Netscape, monopolize the browser market and use that point of control to dominate the coming age of the web.
After a tough fight, the government won the case. There is now no browser monopoly, and the world has come to rely on the many apps, firms and ideas that were born after Microsoft’s control was broken. Microsoft has become a gentler giant, and Mr. Gates has become a philanthropist.
Yet it is worth remembering that at the time, challenging Microsoft was not a popular decision. Microsoft was a well-liked company and Mr. Gates was widely heralded as a visionary genius. Many, Microsoft most of all, argued that enforcing the antitrust laws against Microsoft would damage innovation and impede the economic growth fueled by the technology sector.
This view turned out to be wrong. Innovation surged in the newly opened markets and the United States continued to spearhead growth in the technological world. The enduring lesson of the Microsoft case was that keeping markets open can require a trustbuster’s courage to take decisive action against even a very popular monopolist.
Imagine a world in which Microsoft had been allowed to monopolize the browser business. Holding a triple monopoly (operating system, major applications and the browser), Microsoft would have controlled the future of the web. Google, the tiny start-up, would have faced an unfair fight against Bing. Microsoft-Myspace might have become the default social network instead of Facebook. And who knows whether Netflix or any other online video service would have been started?
It took the power of law enforcement to rebut Microsoft’s claims that everything it was doing was pro-competitive, innovative and innocent. The discovery of candid internal company memos, a famously revealing deposition of Bill Gates and a full trial made it clear that Microsoft saw the internet as a major threat to its monopoly rule and was seeking to tame it.
The presiding judge, Thomas Penfield Jackson of the United States District Court for the District of Columbia, was right to propose that Microsoft be broken into two companies — one for the Windows operating system, one for other products. In the end, unfortunately, Microsoft was kept whole.
Some limitations were placed on Microsoft’s behavior, such as a requirement that it share certain programming information with third-party companies. The appropriateness of that remedy is still debated. But what we do know is that the remedy pushed Microsoft to act with more caution, creating an essential opening for a new generation of firms.
It might seem like a cruel irony that the immediate beneficiaries of the Microsoft antitrust case — namely, Google, Facebook and Amazon — have now become behemoths themselves. But this is how the innovation cycle works: It creates room for saplings to grow into giants, but then prevents the new giants from squashing the next generation of saplings. (Microsoft was itself, in the early 1980s, the beneficiary of another antitrust case, against IBM, the computing colossus of its time.)
Which takes us to the present day. Unfortunately, ever since the Microsoft case there has been remarkably little oversight of the technology sector, despite the obvious signs of corporate consolidation and outsize market power. Enforcement of the antimonopoly laws has fallen: Between 1970 and 1999, the United States brought about 15 monopoly cases each year; between 2000 and 2014 that number went down to just three.
Antitrust efforts have become too fixated on the idea that the only real harm consists of raising of prices for consumers. Yet in the Microsoft case, Internet Explorer was “free,” even though Microsoft was bent on destroying competition with it. Today, both Google and Facebook offer products that are free. Society has grown to rely on them, but because they have no dollar price, antitrust regulators have been hesitant to take action.
Any American can tell you that there is no free lunch. Everything has a price. We pay for these products and services with our time and our data. And like Microsoft, these firms have come to exert too much control over our shared technological future.
Mark Zuckerberg of Facebook testifying at a Senate hearing last month.CreditTom Brenner/The New York Times
At a hearing before the Senate, Mark Zuckerberg, the chief executive of Facebook, was asked to name Facebook’s biggest competitor — a company providing a similar service that consumers can go to if they are unhappy with Facebook. Mr. Zuckerberg could not name one. Part of the reason for this is that Facebook bought its most obvious competitors, Instagram and WhatsApp, and continues to acquire upstart companies before they can reach that point.
The pattern is familiar. And if the Microsoft case showed us anything, it is that we should not trust any one company to decide our future.
Richard Blumenthal is a Democratic senator from Connecticut. Tim Wu is a law professor at Columbia, the author of “The Curse of Bigness: Antitrust in the New Gilded Age” and a contributing opinion writer.
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