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Sunday, April 30, 2000 - Page updated at 12:00 AM

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Microsoft breakup? Not a sure-fire remedy

MICROSOFT'S aggressive behavior certainly brought trouble onto itself, but that doesn't make a breakup of the company appealing or necessarily the right course.

The Justice Department and a coalition of states have asked U.S. District Judge Thomas Penfield Jackson to split Microsoft into two companies. One would get the Windows operating-system software. The second would get everything else, including Word, Excel and other Office applications programs, and the Internet businesses.

Jackson is wrestling with a question of enormous impact on the Seattle area, the future of software development, and a major element of the new economy. He will be guided by case law that rarely ends in breakups and seeks minimum government intervention. The overall goal of a remedy is to restore competition in the marketplace, not to seek punishment.

The government wants to end Microsoft's alleged use of Windows as a club to bully industry players and to restrain the growth of rival technology. By splitting Windows from Microsoft applications, according to government logic, the incentive to use the club goes away, as do barriers to the creation of alternative software. The separated applications company would write software for competing platforms or operating systems, such as Linux, that represent strategic threats to Windows.

All this supposedly would mean more choices for consumers, lower prices and more innovation. That presumption is questionable. Would the separated applications company spread its resources across several operating systems? Or would it act like most independent companies and focus on the biggest existing market, Windows? The latter seems more likely.

Apart from deciding whether a breakup is excessive, Jackson also will be guided by a consideration of consumer benefits. Would this make sense for consumers? From that perspective, this idea lacks appeal for two reasons.

First, Microsoft has persuasively made the case that software integration benefits consumers who don't like learning a multitude of commands for different programs and who often save money from combined functions. Microsoft also argues that it should be free to enhance Windows in whatever ways it thinks will serve customers.

Second, separating the operating system from applications would artificially impose a limit on Windows and set a direction for how it should evolve. A judge should not try to influence technological evolution. Jackson should avoid that step.

Jackson, however, should concern himself with making sure the marketplace is open to innovation by everyone, not just on terms set by Microsoft. That - not Microsoft's important but narrow self-interests - is what's important for the future of the digital economy.

The factual basis for some sort of intervention is strong. In earlier rulings, Jackson identified attempts by Microsoft to maintain a monopoly and to strangle competition. He found that the company had pressured industry players to drop development of rival technology and to drop or downplay products that competed with Microsoft. Those actions reduced consumer choice and drove up costs, the judge found.

Jackson also found that Microsoft's principal reason for folding the Internet Explorer browser into Windows was not to help consumers but to serve a coordinated goal of snuffing Netscape's Communicator browser. That example undercuts some of Microsoft's argument that folding functionality into Windows is always benign.

Jackson said Microsoft's actions with the browser was product tying, which is illegal under antitrust law. But he also recognizes that there were potential differences on that point between himself and an appellate court.

The government argues that a breakup, as a structural remedy, is preferable to policing a company with a history of wiggling out of agreements. That may be a valid interpretation of Microsoft's aggressive, unrepentant style, but even the breakup plan calls for Microsoft to change certain business practices for the next three years. Short- or long-term, a remedy involving conduct is unavoidable.

Fairly or not, Microsoft won the desktop war, and the government's proposal is an attempt to re-ignite an old battle. Jackson should focus on the next fields of competition - interactive TV, hand-held and wireless devices, networked systems and improvements to Internet services. Microsoft is already becoming a strong presence in those markets, but strength alone is not the government's concern.

Jackson should find a way to keep Microsoft from using its overwhelming desktop presence to determine future winners and losers. But how? He has no attractive choices. The government has offered one idea that's too flawed to go forward.

Copyright (c) 2000 Seattle Times Company, All Rights Reserved.

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