Fair Use of Antitrust Law

In a recent op-ed article in The Post [Sept. 1], Berkshire Hathaway vice chairman Charles T. Munger attacks both the Justice Department for bringing the antitrust case against Microsoft and Judge Thomas Penfield Jackson for his landmark decision agreeing with the department and recommending the company’s breakup. In Munger’s view, Microsoft is being penalized for having developed a successful product, and if Jackson’s ruling is upheld, “virtually every dominant high-tech business in the United States will be forced to retreat from what is standard competitive practice for firms all over the world.”

With all due respect to Munger, he’s wrong. In fact, the antitrust laws allow companies to gain dominant positions in their markets if they do so fairly. What they do not allow is for monopolies to entrench their dominance through means that have no legitimate business purpose. Jackson found against Microsoft because it ran afoul of this simple maxim.

Thus, not every dominant high-tech company effectively requires its customers to enter into exclusive contracts, preventing other suppliers from gaining a foothold in the market. Nor does every dominant high-tech company attempt to divide markets with its competitors. Yet this is what the judge found Microsoft had done.

To be sure, one dominant high-tech company, Intel, recently settled an antitrust complaint brought by the Federal Trade Commission that the company had thrown its weight around against certain customers. But judging from the stunning improvements in the processing power of its new processors, Intel certainly doesn’t seem to have suffered the harm that Munger has warned against. Nor do other high-tech companies that are leaders in their fields—Cisco and Oracle come to mind—look like they’ve been damaged by obeying the antitrust laws.

Munger trains much of his fire on Jackson’s finding that Microsoft violated the antitrust laws by bundling its browser, Internet Explorer, with the Windows operating system. He says this finding punishes the company for improving its product, much as Ford long ago improved its cars by replacing the crank with a self-starter. The Ford analogy is misplaced. There was no evidence of anticompetitive motive behind Ford’s innovation. In contrast, Jackson had overwhelming evidence before him from Microsoft’s own e-mails that the real reason the company wanted to add the browser was not to benefit consumers but instead to prevent Netscape from becoming an alternative computing platform that could render Windows unnecessary. By leveraging its Windows monopoly, Microsoft officials asserted internally that they could cut off Netscape’s “air supply.” Faced with evidence of this sort, Microsoft effectively had the burden of showing that the package of the browser and the operating system provided very real and compelling benefits to consumers, not just some “plausible benefits” (the legal test Munger urges). Microsoft never came close to meeting that test.

In the end, the Microsoft case stands for a very simple proposition: If you have monopoly power in our economy, don’t abuse it. Continue to make better products, as Intel, Cisco and other high-tech leaders have done, and the government will leave you alone. But if you arm-twist customers and competitors, then watch out.

Finally, Munger attacks the government and Jackson for requiring that Microsoft be split into two pieces: one devoted to software applications, the other to operating systems. His main complaint is that this remedy “will end up hobbling [the nation’s] best-performing high-tech business.”

Earlier this summer, I and three other economists submitted a brief to Jackson arguing against a simple two-part split-up, but for very different reasons from Munger’s. Rather than hobbling Microsoft, we feared that a remedy that preserved the operating systems company—the part of the enterprise that holds monopoly power, which Microsoft abused—would do very little to change the competitive environment, replacing one monopoly with two. We argued that the remedy most consistent with the judge’s finding of abuses would be one that split the operating systems company into three identical firms so consumers would be guaranteed competition in that market.

But regardless of what one thinks about the particular remedy in the Microsoft matter, the fundamental fact remains that our economy has profited greatly from sound antitrust enforcement. So have consumers. And, yes, so have American businesses that are not forced to compete in a world where monopolies are given free rein to abuse their market power.

The writer is former deputy assistant attorney general, antitrust division, Justice Department.