Microsoft and the Mythology of Anti-trust

The biggest question about anti-trust law is whether there really is any such thing. There are anti-trust theories and anti-trust rhetoric, as well as judicial pronouncements on anti-trust. But there is very little that could be called law in the full sense of rules known in advance and applied consistently.

Federal judge John Penfield Jackson's November 1999 ruling in the anti-trust case against Microsoft is a classic example of lawless "law." Just what specific law did Microsoft violate and how did they violate it?

While Judge Jackson's long pronouncement opens with a brief reference to sections 1 and 2 of the Sherman anti-trust act, this is little more than a passing formality. What follows is a lengthy exposition of theoretical conclusions about the economic meaning of Microsoft's actions. Is Microsoft supposed to have violated a theory or to have violated a law? What was it that they should have known in advance not to do?

Courts have declared laws against vagrancy to be void because of their vagueness, which gives the individual no clear understanding of just what they are supposed to do or not do. But vagrancy laws are a model of clarity compared to Sections 1 and 2 of the Sherman Act, which forbid conspiracies "in restraint of trade" or any "attempt to monopolize."

Just what does that mean? It means whatever Judge Thomas Penfield Jackson or any other federal judge says it means -- at least until they are reversed on appeal.

But what does it mean to a company that is supposed to obey this law? It means that there is no law, just a cloud of legal uncertainties, from which lightning can strike at any time.

In economics, "monopoly" means simply one seller. If you could invoke this provision of the Sherman Act only when there was just one seller, lots of Justice Department lawyers would be out of work, because there are very few products sold by only one company.

The ploy that prevents unemployment among anti-trust lawyers is to claim that some company sells a high percentage of some product -- or, in the rhetoric of anti-trust, "controls" a large share of the market. And the way to produce statistics showing large shares is to define the market as narrowly as possible.

Judge Jackson does this by defining the market for operating systems like Microsoft's Windows as being only those operating systems using Intel's processors and their clones. That means we don't count Apple computers or computer systems relying on the Linux computer language.

These kinds of definitional games have been played throughout the history of anti-trust "law." The net result is that there are statistics showing many more "dominant" companies with "market power" in these narrowly defined industries than there would be if industries were defined in some economically meaningful way. Judge Jackson's pronouncements are larded with such ominous rhetoric.

What also runs through Judge Jackson's statements -- and through the whole anti-trust tradition -- is a confusion between competitors and competition. Harm to Microsoft's competitors is equated with harm to competition in the software industry. But nothing harms particular competitors like competition.

When Microsoft spent $100 million to develop its Internet browser and included it in Windows free of charge, to Judge Jackson that showed monopoly power and hurt competition. But why would a monopoly have to blow $100 million to improve its product?

It was precisely because Microsoft was not as optimistic as Judge Jackson about a lack of competition that they spent the money to keep their customers. Is it a violation of law to operate on a different economic theory than the one a judge believes in?

But suppose, for the sake of argument, that Microsoft was guilty of every terrible thing the Judge came up with. All the contract provisions he doesn't like can be forbidden and all the competitors who were supposed to have been harmed can be compensated to the tune of millions of dollars.

Why then is the Justice Department involved? Because they want the power to oversee and second-guess the computer software industry. Microsoft's competitors in Silicon Valley may rejoice at its legal misfortunes, but once Washington bureaucrats start calling the shots in the computer industry, their joy may be very short-lived. Silicon Valley rivals of Microsoft could turn out to be like those Democrats of a few years ago, who voted for special prosecutors as if they were only going to prosecute Republicans.

Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college.

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