Experts debate remedies in Microsoft case

By Patrick Thibodeau
Computerworld, 02/28/00

The most difficult problem of the Microsoft Corp. case has always been the question of remedies. Now that Judge Thomas Penfield Jackson is nearing a verdict, and is almost certain to find the software giant guilty of some violations, he must decide what remedy to impose.

The goal of remedies, say antitrust experts, is not to punish a company but to restore competition. But how the judge will go about achieving that has been the proverbial million-dollar question in this case.

Jackson, who heard closing arguments earlier this month, has offered no clues about what remedy he may impose. But a ruling against Microsoft - unless some last-minute settlement is reached - is almost a certainty in light of the judge's harsh findings of fact about the company's business practices.

Legal experts, who debated the remedy issue recently at a Progress & Freedom Foundation forum, a Washington think tank, divide the remedy possibilities in roughly two camps: a conduct or behavioral remedy or a structural fix, such as a breakup.

Conduct remedies attempt to restrain anticompetitive behavior, but are intrusive and require ongoing governmental oversight, said Thomas Lenard, vice president for research at the Progress & Freedom Foundation and author of a proposal to divide Microsoft's Window operating system operations into three separate companies. This plan, he said, "would immediately replace an operating system monopoly with competition."

But Kenneth Elzinga, an economics professor at the University of Virginia who has testified for Microsoft in its Bristol Technology Inc., antitrust case, said splitting the company's Windows operations into separate companies "would be enormously draining and diverting for Microsoft's management."

"No wonder Microsoft's competitors want structural relief," said Elzinga, who favors a conduct remedy.

There are also the mechanics of breaking up the company, said Elzinga. When the government broke up Standard Oil Co. and America Tobacco Co., it focused on breaking up physical capital, not human capital.

"Past mergers have typically yielded a starting point for structural relief," said Elzinga. "Microsoft doesn't have production plants scattered around the world to form the building blocks for the so-called Baby Bills," he said.

A conduct remedy, however, would require ongoing government oversight, said Robert Litan, a former deputy assistant general at the U.S. Department of Justice who is now with the Brookings Institution.

"That's the one thing the government and Microsoft can agree on - they don't want the judge running the computing industry," said Litan.

Stanley Liebowitz, a professor of managerial economics at the University of Texas, argued that a breakup of the Windows operating system functions into separate companies would result in few changes to the operating system while raising software cost as developers seek to make compatible versions.

His paper on the subject was presented by the Association for Competitive Technology, a group that has supported Microsoft in this case.