FC: What Ralph Nader would like to do to Microsoft (ouch)

[Declan McCullagh <declan () well com>]

*********

From: James Love <love () cptech org>
Subject: Ralph Nader and James Love: Remedies article in Legal Times
Date: Wed, 15 Dec 1999 10:12:56 -0500 (EST)

This is an article on remedies that Ralph Nader and James Love 
wrote for Legal Times.  It covers four topics, OEM licensing, 
breaking up Microsoft, Interoperability remedies (the longest 
and most value added section, with discussion of the 1984 IBM 
understaking as a model, and Richard Stallman's proposals 
regarding Interface information and patenting issues), and 
a requirement to port a divested MS Office to 2 new platforms.  

  Jamie Love

Published in Legal Times on: Monday, December 13, 1999 
Web Published Tuesday, December 14, 1999 


http://www.legaltimes.com/expcfm/display.cfm?id=2411&query=microsoft

            A Very Public Remedy

We need a much wider debate on potential
outcomes in the first great antitrust case of
the e-commerce age

By Ralph Nader and James Love

A public dialogue on potential remedies in the Microsoft
antitrust case has been slow to develop. In part, that's
because remedies have not yet been addressed in the
litigation. But the judge's Dec. 5 findings of fact invite -
indeed, demand - a much fuller discussion of what comes
next.

And that discussion should not proceed solely within the narrow
confines of the antitrust bar. We need a broader public
debate to ensure that the interests of all Americans in greater
competition, innovation, and consumer choice are recognized when
the remedies are chosen.

Everyone who expresses an opinion about the Microsoft
case works from a set of basic beliefs about markets and
technology. Here are ours:

Original equipment manufacturers are important. Many
consumers do not feel comfortable installing or
reconfiguring software or hardware. They're likely to use
their PC in the condition in which it was bought. Therefore,
the original equipment manufacturers (OEMs) play a crucial
role in the distribution of software and computing devices.

With the exception of Apple (and maybe even Apple), all
major PC OEMs license software from Microsoft. This gives
Microsoft the power to discipline "uncooperative" OEMs by
charging higher prices and by discriminating in areas such as
technical support. Not surprisingly, Microsoft rivals often
find it difficult to distribute their software through the OEM
channel.

Internet navigation is important. Since the time and
attention of computer users is scarce, companies can
profitably use control of the "first screen," or default
choices, of an Internet browser to promote e-commerce
sites. If a single firm exercises too much control over
Internet browsers, competition in e-commerce markets will
suffer.

Interoperability is important. The usefulness of software
programs often depends on their ability to work with other
software programs. As indicated by the record in the trial
and extensive documentation elsewhere, Microsoft has used
interoperability as a weapon against its competitors.

Applications are important. People buy PCs to run
applications, and these applications have to work with other
applications. Happily for those who place themselves entirely
in the hands of Microsoft, files can be easily shuffled
between the dominant Windows applications and the
company's Microsoft Office applications. Indeed, Microsoft
Office is as much a source of monopoly power as is
Windows. They present many of the same issues - OEM
licensing, bundling, product integration, access to
programming interfaces, etc.

Remedies should be forward looking. They should look at
problems that will be faced tomorrow, not yesterday. There
has been much criticism that the Justice Department's
earlier antitrust cases against Microsoft focused on battles
that the company had already won and offered little to
address new technologies.

Microsoft can't be trusted. The past six years have
demonstrated that Microsoft cannot be trusted, and one
should not predict that Microsoft will carry out any
settlement in good faith. The company's conduct during the
trial itself was the best evidence. When the judge ordered
Microsoft to offer OEMs a version of Windows that did not
include the company's Internet Explorer browser, Microsoft
served up an outdated 1995 version of Windows that
wouldn't even work with modern PC hardware. If Microsoft
was willing to insult a federal judge in the middle of an
antitrust proceeding, it's likely to be pretty bold after it
enters into a consent degree.

So what's the solution? How can we break Microsoft's lock
on the market in ways that will encourage a competitive,
innovative future for the computer industry?

Here are four remedies that the Justice Department, the
court, and the rest of us should consider.

Reforming OEM licensing. There are more than 300
references to OEMs in the court's findings of fact and lots of
details about Microsoft bullying. Nondiscriminatory
licensing of Windows to OEMs would go a long way toward
helping those companies stand up to Microsoft. At least,
OEMs should be able to say no to Microsoft's pressures to
eschew its rivals' products.

There may be enough in the trial record to justify changes in
Microsoft Office licensing, as well. This would be useful,
particularly since Microsoft continues to eliminate
competitive office productivity tools and is turning Office
applications into Internet authoring tools that embed
proprietary technologies into a new generation of Web
documents.

Breaking up Microsoft. In many respects, this is the
obvious option because Microsoft itself has made it clear
that it will resist change without strong economic incentives.
Separating the operating system and the applications into
different companies would remove Microsoft's incentive to
make alternative products crash.

Ideally, the court would go further. Microsoft has anticipated
an adverse ruling on bundling Internet Explorer by seeking
to make the program an integrated part of Microsoft Office
and other applications. If Internet Explorer itself were a
separate divestiture, the entire browser market might
become competitive again. The owner of Office would find a
way to make his program function with more than one
browser.

Fixing interoperability problems. As indicated by the
record in the trial and extensive documentation elsewhere,
Microsoft has used compatibility and interoperability as
weapons against its competitors. Some have proposed
opening up the Windows source code. While we think it
useful to require such disclosures, they aren't enough.

A much better framework for dealing with interoperability
concerns comes from Europe. In the early 1980s, the Reagan
administration dismissed the government's long-standing
antitrust case against the IBM Corp, but the European
Commission's antitrust authorities did not quit. In 1984,
they reached a settlement with IBM over a long history of
complaints that echo today's concerns about Microsoft.

In December 1980, the EC had found IBM to be a dominant
supplier and accused it of abusing that position by failing to
supply its competitors "in sufficient time" with technical
information needed to create products that would work with
IBM's mainframe computers. The EC also complained about
hardware and software bundling and about various refusals
to supply services to customers who used non-IBM
hardware. There were extensive hearings and negotiations
about remedies, including discussions with an advisory
committee of national experts.

After tough bargaining, IBM agreed to a sweeping remedy to
ensure competitors' access to mainframe interface
information. The so-called IBM Undertaking covered the
company's System/370 computers, the dominant platform
for mainframe computers. It began in Aug. 1, 1984, and it
worked like this:

IBM agreed to provide interface information to competitors
by specific benchmark dates, such as "as soon . . . as such
interfaces had become reasonably stable." That information
would be provided either through established documentation
and related materials (such as source code) or through some
other adequate means, including newly prepared documents
containing only the interface information.

IBM acknowledged the "widespread interest in
interconnecting systems and networks of different
manufacturers," and agreed to publish extensive information
to facilitate the attachment of competitors' systems or
networks to IBM networks.

Any company that was doing business in the EC and
developing relevant products, including U.S. and Japanese
companies, could ask IBM for such interface information.
And IBM would charge only reasonable and
nondiscriminatory fees for the information.

IBM was required to support international standards for
interconnection - including "open system" interconnection
- for the products, systems, and networks of rival
manufacturers.

In addition to signing the Undertaking, IBM agreed to a
system of oversight that required the company (1) to meet
with EC authorities every year to "take stock of the
implementation of the Undertaking and its effects," and (2)
to present the EC with an annual report describing in detail
"IBM's response to each question or request received under
the terms of the Undertaking." IBM would also discuss the
outcome of these cases with EC antitrust authorities.

After five years, the company could have ended this
arrangement. But IBM seemed to recognize that the EC
process had created a new level of comfort for companies
that made third-party products for the IBM mainframe
platform and, in the eyes of some observers at least, helped
protect IBM from itself. Thus, IBM voluntarily permitted
the agreement to run for 11 years - six more than the
minimum requirement.

The EC reported that by July 1995, IBM had received 262
requests from 24 competitors and addressed 2,001 individual
questions. In the 11th year alone, there were 50 requests and
436 individual questions.

The IBM Undertaking sets a benchmark for evaluating the
remedies currently proposed in the Microsoft case. It also
provides a model of ongoing oversight that few so far have
been willing to apply to Microsoft, but that may be needed to
ensure that Microsoft follows through on its commitments.

Another means of ensuring that Microsoft discloses
information in a nondiscriminatory way has been suggested
by Richard Stallman, founder of the modern free-software
movement. Why not bar Microsoft from requiring
nondisclosure by other companies as a condition of receiving
interface information? Stallman's rule is: "If they cannot
publish the interface, they cannot release an implementation
of it."

The most recent twists on interoperability remedies
highlight concerns of the free-software movement. By "free
software," we mean the type of software, like Linux or
FreeBSD, that is largely developed by volunteers. Stallman
and others are rightly worried that Microsoft will seek to use
software patents to cripple the free-software movement - a
strategy mentioned in internal Microsoft documents.
Therefore, Stallman also suggests that Microsoft only be
allowed to use its patents defensively, possibly through a
mutual-defense pooling agreement. Microsoft patents would
be cross-licensed to other companies and individuals who
agreed to join the mutual-defense pool.

Porting Office to new platforms. Finally, once the court
separates Microsoft Office from Windows, it should require
the owner of Office to port the entire platform to at least two
additional operating systems. For five years, the owner would
be required to release simultaneous updates to the four
supported platforms (Apple, Windows, and the two new
ones). This would be expensive but hardly unreasonable
since Office generates billions of dollars a year with huge
profit margins.

The extension of Office to more operating systems may also
be necessary to generate real competition in the operating
systems market. Right now, Windows is perhaps the
fourth-best operating system for people who use a PC for
everyday tasks such as word processing or browsing the Web.
BeOS and Linux are potentially important alternatives, and
Gateway is also working on a new operating system. But
Windows will not likely face much competition in the PC
market until popular applications can run on the new
operating systems.

Ultimately, the purpose of debating Microsoft remedies is to
address not only the immediate problem, but also the next
generation of competitive challenges in the new information
technologies. The remedies for anti-competitive conduct
that may be ordered by the court here will have enormous
impact on consumers, the Internet, and the computer
industry. Indeed, we would not be exaggerating if we said that
the Microsoft case could be instrumental in defining the
nature of competition in electronic commerce in the coming
century. 

Ralph Nader is a consumer advocate, and James Love is a
director of the Consumer Project on Technology.

Web Published Tuesday, December 14, 1999 
Published in Legal Times on: Monday, December 13, 1999 
-- 
James Love / Director, Consumer Project on Technology
http://www.cptech.org / love () cptech org
P.O. Box 19367, Washington, DC 20036
voice 202.387.8030 / fax 202.234.5176




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