U.S. District Court Judge Thomas Penfield Jacksons findings of fact reflect serious misunderstandings of the origin of Microsoft Corp.s dominance in PC operating systems. To the extent that his finding of monopoly power is based on these misunderstandings, the rest of his rulings will stand on a shaky foundation.
Jackson cites the competitive weakness of IBMs OS/2 Warp and Apple Computer Inc.s Macintosh OS as what he calls “empirical evidence of the applications barrier to entry.” In plain words, this is the argument that most developers write software for Windows because it is the most popular platform, creating a vicious circle.
Jacksons narrative gives IBM and Apple too much credit. It ignores the fact that for two years, IBM tried to sell a 16-bit OS/2 1.x against a Windows 3.x that exploited the 32-bit 386 architecture. The 16-bit OS/2 could run only one DOS application, badly, and not at all as a background task, while Windows 3.x could multitask DOS sessions with ample memory and surprisingly good task protection.
If one were looking for an example of abuse of monopoly power, one could find it in the spectacle of IBM urging customers to abandon their DOS investments and convert en masse to OS/2 — while Microsoft enabled IT buyers to choose their own pace of converting from text-based to graphical applications.
Seeing the marketplace through blinders
Similarly, Jackson asserts that the base of Macintosh applications (which he numbers at some 12,000 products) “is not sufficient to enable Apple to present a significant percentage of users with a viable substitute for Windows.” This is an odd finding, given the availability of Microsoft Office on the Macintosh and given the Macintoshs popularity among many avid Internet users.
Jackson is seeing the marketplace through the blinders of a case that turns on competition in software, ignoring Apples long delay in fostering a competitive market in MacOS-compatible machines. Again, who was abusing monopoly power? Not Microsoft, whose dominant applications (Word and Excel) made their debut on the Macintosh and only later emerged on Windows.
It was Apple that maintained profit margins substantially greater than those of other PC makers, for as long as its edge in proprietary software made this possible — until Windows closed, or appeared to PC buyers to close, the gap in ease of use. When PCs appeared to be just as friendly, and were clearly less expensive, Apples sales imploded, devastating the market for independent software developers.
One has to wonder who writes Jacksons material when he says that “consumers have by and large shown little inclination to abandon Windows, with its reliable developer support, in favor of an operating system [Linux] whose future in the PC realm is unclear.” It is, to no small extent, customer disappointment with Windows support that leads IT buyers to consider Linux at all.
There are many other elements of Jacksons findings that are more within his realm of expertise, such as the evaluation of commercial agreements to determine their anti-competitive nature and the comparison of differing accounts of crucial conversations to determine if Microsofts monopoly power was abused in coercive dealings. Microsoft should not underestimate the significance of the judges findings in these areas, and the possibly sweeping extent of the remedies that Jackson may impose.
In particular, Jacksons emphasis on the marketplace leverage of applications availability lends itself to speculation that he might divide the company. An applications company, with Microsofts sophistication in user interaction but without a Windows agenda, would arguably create substantial consumer benefit.
But one has to wonder if any sanction that Jackson could apply could be more severe than what the Internet environment has already done to Microsofts formerly unassailable position. The company is being forced to redefine its business in fundamental ways. Moreover, Microsofts allegedly criminal abuse of monopoly power took place during a period when the costs of personal computing plummeted; when speed and capability both rocketed upwards; when the enormous growth in PC-equipped homes and offices set the stage for a mass-market Internet.
Jackson has found that a monopoly existed, and has found that monopoly power was abused. But he must also find that harm occurred as a result before the definition of a crime can be satisfied.
Jacksons findings do use the word “harm,” or some variation thereof, 14 times and in broad and significant contexts — but the judge will do well to ensure that his decision looks at least as much to the future as to the past.