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WASHINGTON — An economist called by Microsoft Corp. to court today to defend the company against stringent anti-trust remedies said that consumer interest might be best served if the government were to take no actions at all against the convicted monopolist to improve software interoperability, but added he did not know for sure.
Kenneth Elzinga, an economics professor at the University of Virginia, took the stand today in the case brought by nine states and the District of Columbia, now in its eighth week. Microsoft called on Elzinga to support its settlement proposal, which the Department of Justice agreed to in November, but the professor criticized numerous provisions in the settlement as not necessarily leading to enhanced consumer welfare.
When asked by Steven Kuney, an attorney for the states, whether consumer welfare would be better served if interoperability between Windows and rival middleware were left to the marketplace, Elzinga said he was not certain. When Kuney asked him whether implementing the proposed federal settlement is better than doing nothing, Elzinga replied, “On that Im not sure.”
Despite his criticism for the settlement proposal, Elzinga depicted the states alternative remedy proposal as the worse of two potential evils. Both proposals encompass costs to consumer welfare, he said.
Among the proposed federal settlement provisions that the professor criticized are requirements regarding uniform licensing terms, communications protocol disclosure, anti-retaliation and OEM removal of end-user access to Microsoft middleware.
Microsoft retaliation against OEMs that it does not look favorably on is not necessarily bad for consumers, Elzinga testified. When Kuney asked him whether he was aware that other witnesses called to testify on Microsofts behalf said it was unclear whether Microsoft could engage in the kind of retaliation it used against Apple when Apple chose not to promote Microsoft middleware, Elzinga said he was not familiar with that testimony.
It is also not certain that consumers would be disadvantaged if OEMs were not allowed to remove end-user access to some Microsoft middleware, including Instant Messaging, according to Elzinga. “Sometimes if you put everything on a Christmas tree its not as attractive anymore,” Elzinga said. “We have to consider the costs.”
After considerable semantic wrangling, Kuney got Elzinga to concede that one of the possible consequences of giving OEMs the flexibility to remove end user access to Microsoft middleware is that Microsoft would have to compete for OEM attention. “That is one vector of competition,” the professor said.
Requiring Microsoft to disclose communications protocols for Windows could possibly reduce consumer welfare by serving as a disincentive to innovate, according to Elzinga. If Microsoft had to give away its technology to rivals, it would be less inclined to invest in research and development to create new technologies, he said, adding that rivals might use the anti-trust laws to procure new technologies rather than innovating themselves.
“To the extent that either of the remedies . . . permits an [intellectual property] grab by Microsofts rivals . . . then that sets up a very problematic incentive structure,” Elzinga said.
When pressed Kuney about whether the federal settlement proposal includes and “IP grab” and whether it would stimulate anti-trust lawsuits brought by rivals, Elzinga said that he did not know.