Archive [May 2000]

How much wealth will the U.S. Justice Department destroy today?

As we go to press, a front-page Washington Post story reports that the Justice Department — or, rather, the Clinton Injustice Department — and 19 states, party to an antitrust suit against Microsoft, are “leaning toward” asking a federal court to split the computer-software giant into two or three separate companies. Get the SWAT team ready.

Janet El Reno has been hounding and terrorizing Microsoft and Bill Gates for nearly two years now, spending over $7 million of the taxpayers’ money. The Clinton Administration clearly believes that it knows better than the marketplace what’s good for the high-tech economy.

Last month, the semiconductors came home to roost. On April 3rd, U.S. District Judge Thomas Penfield Jackson gave El Reno a “victory” over Gates. The ruling allows the federal government to seek penalties against Microsoft, ranging from breaking up the company to forcing it to share its proprietary software code with its competitors. States will also be able to seek penalties under their own anti-competition laws.

Obviously, this is not the end of the long legal battle; Microsoft maintains that it has done absolutely nothing wrong and will be taking the case to the Court of Appeals. Nevertheless, El Reno immediately bulldozed her tank to the nearest microphone and announced: “Thanks to this ruling, consumers who have been harmed can now look forward to benefits.”

And look at the benefits already! The Nasdaq stock index, filled with technology stocks, plunged some 350 points, or 7.6 percent, to close at 4,224 on the day of the ruling. It was easily the Nasdaq’s worst point drop in history. The following week, Nasdaq was bottoming at 3,500. Like a posse of U.S. marshalls snatching a six-year-old in the dead of night, the United States Justice Department destroyed all of the 24 percent gain the index had achieved as of March 10, when it closed at an all-time high of 5,048.62.

Funny thing was, not just Microsoft got hurt. Those Microsoft competitors, too, like America Online, the owner of Netscape, all the tech stocks, took a beating. (Of course, no one has yet explained to me how, if Microsoft is a monopoly, it can have competitors; but I digress.)

Millions of investors in high-tech companies got a dropkick right smack in the 401k nest egg, courtesy of Ms. Reno — all in the name of “helping consumers.”

The idea here is that Microsoft is a monopoly. That the computer software giant has violated the Sherman Act, the same law used in the past to humble corporate giants from Standard Oil to AT&T. And how has the eeeeevil Microsoft done that? By “bundling” one product with another product and giving it away for free.

Look, I hold no brief whatsoever for Microsoft. I don’t even use Windows. I’m a loyal Mac user, always have been. But do you hear me telling my 20 million listeners that they must go throw out their PC and buy a Mac, just because that’s what we use here at the EIB Network? Do you hear me whining that the vast majority of computer users in this country use an operating system that I know to be inferior? Oh, and by the way, has the dominance of the Windows operating system ever stopped me from using and continually upgrading my Mac? No, no, and no.

Yes, Microsoft includes its Internet browser — for free! — when you buy a computer with Windows installed on it. And you know what? In spite of that, millions upon millions of people still prefer Netscape’s browser. And they go to Netscape’s website and they download Netscape Navigator and they use it instead of Microsoft Internet Explorer. And Netscape makes mucho dollars — giving the thing away.

But in his ruling, Judge Jackson charged Microsoft with “aggressive measures” against computer manufacturers and Internet providers. These measures “successfully ostracized” Netscape Navigator in favor of Microsoft’s browser. Substantial business was lost to competitors “as a result of Microsoft’s decision to bundle Internet Explorer with Windows,” Jackson wrote. The bundling “caused Navigator’s usage share to drop substantially from 1995 to 1998, and that as a direct result Netscape suffered a severe drop in revenues from lost advertisers, Web traffic, and purchases of server products.”

Well, good grief! Imagine a successful company being aggressive. Imagine a successful company taking business from its competitors. Causing its competitors to lose revenue and advertisers. If only we could have stopped Microsoft earlier. Then we’d all be so much happier, still using IBM Selectric typewriters.

As Robert Levy, senior fellow in constitutional studies at the Cato Institute, noted. Judge Jackson’s opinion “is remarkable for its naive view of the business world and its skepticism about healthy competition.” Hudson Institute economist Alan Reynolds estimates that Microsoft’s real market share is actually under 70 percent. As Levy points out, “If that constitutes a monopoly, the Justice Department had better investigate Quicken, AOL, and Intel — each of which has a larger share than Microsoft.”

It sounds like sending a six-year-old back to Fidel Castro doesn’t make for enough kicks for Bill Clinton and his Attorney General. Now they get to ruin the portfolios of millions of investors, too. Icing on the cake.