The Microsoft Case: Is Modern Technology Pressing The Limits Of Antitrust Litigation?

The following are excerpted remarks from Representative David McIntosh (R-Ind.) to the Federalist Society, Washington, D.C., Sept. 23, 1998.

The Microsoft case has consumed a great deal of time in Congress, in the industry, and especially in the Clinton-Gore Justice Department. As I've told members of Congress, there is a proper role for antitrust laws in our economic marketplace. That role, I believe, should be limited to when there is a barrier to entry that allows one corporation to have an unfair competitive advantage in the marketplace, and thus enables them to exercise monopoly power.

It is my deeply held belief that with the ever-changing competitive and volatile nature of the computer industry, and particularly in the software industry, antitrust laws must not be used as an impediment to growth and innovation, and must not be used to artificially balance an industry where the high tech future will determine, I think, the future of America's competitiveness in the world.

In the past, big government advocates used the tax system to stymie achievement, to punish those who have succeeded. Essentially, they implemented a policy of envy that was defeated by those of us who advocate limited government. We opposed taxes, and we won the political fight. Liberals then turned their eyes towards regulation, as a way to seeking to balance out the equities in the marketplace. That strategy we also proved wrong.

Now, those who would seek to dampen the achievements of Bill Gates, Michael Dell, Scott McNealy and Jim Clark are looking at the antitrust laws as their new tools to oppress ingenuity, profit, and the free market system. To the contrary, it is the highly innovative nature of the software industry that has led the United States to be the world leader in that area. Innovation leads to new products, new products lead to new market shares, and quite literally as we've seen with the Internet, those new products can lead to the creation of an entire new marketplace.

Consider the intersection of antitrust laws with these new frontiers of intellectual property. As Mr. Gates testified in the Senate, if his company, Microsoft, does not remain innovative and produce the best operating systems and software -- as judged by the consumer -- one of its competitors will step into the void, and immediately have an opportunity to become the leader in this new marketplace. So we must be mindful that the natural resource in the software industry is not a limited, tangible, physical asset, like natural gas or oil, or steel. In the software industry the natural resource is the limitless capacity of the human mind to create, and to think, and the commodity is knowledge, which is ever growing in today's world.

No single company can corner the market on brainpower and smarts. As an example of how raw talent and good ideas changed this industry, consider the case of IBM. Twenty years ago, that company was the leading computer manufacturer, and quite frankly was the dominant actor in the computer industry. But, they didn't see the changes coming in the software industry and lost that dominant position to the corporation that we are talking about today.

I'm reminded of a wonderful quote from Ross Perot from several years ago. As a young executive he left IBM and decided to tackle the software side of the industry, which at the time only constituted 3 percent of the entire computer market. Many years later, long after EDS had become a dominant player in the software industry, a friend asked him why he would take that risky challenge. He said, "three percent looked pretty good to me!"

Now, coincidentally, and maybe instructively, during IBM's reign, and leading up to the loss of its market share, the Justice Department was pursuing a vigorous and some would say ruthless antitrust investigation of that company. Was IBM's innovation and capacity to develop limited or distracted by the federal government's encroachment through its investigation? I don't think we'll ever know for sure. But, that case, as well as the Microsoft case, should make us all ask: should the government put itself in a position of deciding what products consumers want in the software marketplace? My answer is no.

In a free market demand decides from which supply it will choose. That is, the consumer decides whether or not he will buy one product or another. The supplier, on the other hand, makes a determination, again based on his intelligence and innovation, what products will appeal to the consumer. If the supplier gauges the consumer correctly, he wins. If not, the bankruptcy court awaits him. That is the risk that every innovator -- even the giant Microsoft -- takes in the free marketplace.

Many issues must be kept in mind, and I would urge consideration of the following: Who do you trust to decide what's better for the consumer, a government attorney, or the consumer himself? Is Microsoft's attention to an aggressive distribution network good business, or an illegal monopoly? Can there be a monopoly on intellectual property? To what degree can antitrust laws be an impediment to consumers in the high tech frontier? And one should also examine Judge Bork's counter view that there may be problems with monopolistic tying arrangements between products. Examine not only the precedent he cites, but also whether it makes any sense in today's rapidly changing market for information.

If antitrust laws are not limited to preserving consumer choice, a federal bureaucrat or a judge could decide whether the consumer will be able to buy two products that do two things reasonably well, or one new product that does those two things better and more efficiently. That is not the definition of a free market when you have a bureaucrat or a judge making that decision on the consumer's behalf. Moreover, if the antitrust laws focus on eradicating barriers to consumer choice, we can decide for ourselves what type of products is best, fits our needs, and is available at the price we are willing to pay. Certainly, one theory of antitrust that has been decisively discredited by the "Chicago School" and others is that big is inherently bad. We must reject antitrust theories based on the envy rather than efficiency.

Some years ago, Microsoft looked at the marketplace and made a decision that consumers wanted an Internet browsing capacity in an operating system, and the company set out to create that product, a product that would do many things more efficiently. At the time, one can suggest that Microsoft was caught with their pants down with respect to involvement in the Internet revolution. Other browsers had already come on the scene and were dominant in the marketplace. Microsoft created its browser, advertised their product, engaged in a distribution network, and today accounts for 50 percent of the browser market.

Now, the fruits of Microsoft's success and the benefits consumers gained are being met with harsh opposition in the Justice Department. In fact, one suspects that the old mind-set of big is bad has crept back into the left-leaning lawyers at the Clinton-Gore Justice Department. Indeed, we should consider the possibility that the Justice Department's conduct with Microsoft, and with respect to IBM before, threatens to establish a trend that itself will act as a barrier to new entry into the marketplace, and whether the Justice Department conduct acts as a barrier to consumer benefit through new product development.

If we believe that that is the case, that in fact this vigorous pursuit of antitrust policies creates an impediment for consumers having the best product at the lowest price, we must conclude that their application of the antitrust laws is in error. I would strongly urge those at the Department, and members of Congress, and individual lawyers to be cautious not to misapply the antitrust laws, so that we do not stifle American innovation and our position in the world marketplace. Rather, look to the market, and ultimately the consumer, so that all Americans can take advantage of this better technology that will be available in the future, take advantage of the revolution in personal computing, and have the benefits of human creativity that that new technology unleashes.

*Representative David McIntosh was a founder of the Federalist Society, and serves as Chairman of the House of Representatives' Subcommittee on Regulatory Affairs.


2001 The Federalist Society