DOJ's Klein Speaks Out on Antitrust Policies

SAN FRANCISCO (05/09/2000) - One of the U.S. government's key figures in the ongoing antitrust case against Microsoft Corp. spoke publicly today about whether current U.S. antitrust policies should be rethought for the Internet economy. He also talked about the perceived benefits surrounding a breakup of Microsoft's operations which is the government's remedy to the antitrust case.

Not surprisingly, Joel Klein, assistant attorney general with the antitrust division of the U.S. Department of Justice (DOJ), said that the basic principles enshrined in existing U.S. legislation such as the Sherman Antitrust Act don't need to be altered in order to be applied to the emerging Internet economy.

The judge in the Microsoft case, U.S. District Court Judge Thomas Penfield Jackson earlier this year in his conclusions of law agreed with the government's arguments that Microsoft is a monopoly and illegally used that power in violation of the Sherman Antitrust Act. [See 'UPDATE: Judge Rules Microsoft Broke the Law," April 3.]"The framers of the (U.S.) constitution surely could never have imagined electronic eavesdropping; but the Supreme Court had no trouble ruling that this form of invasion of privacy was subject to the Fourth Amendment," said Klein according to a transcript of his speech delivered today at the Haas/Berkeley New Economy Forum at the Haas School of Business, the University of California at Berkeley.

Klein stressed that the present U.S. antitrust policy isn't out to get at large and profitable companies, explaining that "sound antitrust policy does not believe that big is bad or that success must be punished." However, given that antitrust issues all relate to market power, the illegal ways of gaining that kind of power "deter innovation and restrict consumer choice," he added.

Alluding to both the ongoing antitrust case against Microsoft and the DOJ's monopoly case against AT&T Corp. back in the 1970s, the assistant attorney general said that he had been doing a good deal of reading about the merits of regulation vs. structural solutions. He said where possible, the DOJ tries to find structural, market-based solutions to competitive issues rather than ongoing regulation.

Klein pointed to the benefits consumers had received following the breakup of AT&T, particularly in regard to lower costs for long-distance phone calls, although many observers at the time of the proposed breakup had gloomy predictions about its likely impact. "We now know, of course, that the divestiture in the AT&T case, far from making things worse, has unleashed unprecedented competition, innovation and consumer benefit," he said, adding that the breakup had helped the growth of technologies including the Internet and broadband services.

"We believe that the proposed divestiture in the Microsoft case similarly would produce substantial innovation and competition in the software business," Klein said. He added that in the case of Microsoft, the government's proposal to split the company into two -- an operating systems business and an applications business -- would mean the pair would be "entirely free to compete with each other in all lines of business."

Reiterating comments he made late last month, Klein said that a Microsoft company concentrating on its Office applications business would be no longer tied to the vendor's Windows operating systems family and could come up with software optimized for rival platforms such as Apple Computer Inc.'s Macintosh or the open-source Linux OS. [See "Klein Spells Out Government's Proposed Remedy," April 28.]"Indeed, much like the browser was in 1995, before Microsoft commenced its illegal campaign, Office has the very real potential to be a cross-platform threat to the dominance of the Windows monopoly," Klein said.

There are already 100 million copies of Microsoft's Office suite of applications in worldwide use today, according to Klein. Should Office run optimally on other OSes, the operating system market itself would become more competitive, he said. "As these other computing platforms grow and proliferate, moreover, we would expect the Windows operating systems business to face real competition for the first time."

The two Microsofts would be able to exchange technical information provided third-party vendors also had access to it, Klein said.

He continued to draw similarities between the AT&T case and the current Microsoft one. "In both AT&T and Microsoft, antitrust enforcement became an issue not because of the acquisition of market power but because of how that power was protected and/or expanded," Klein said.

Klein maintained that antitrust enforcement in the new Net economy is much the same as in the old bricks-and-mortar world. "The anticompetitive techniques used to protect and extend monopoly power in the new economy are essentially no different from those used throughout history, he said. "Put a bit differently, while technology changes, human nature, as (economist) Adam Smith taught us long ago, does not. There are, to paraphrase (pop duo) Simon & Garfunkel, only so many ways to illegally hurt your competitor."

One of the ways is that employed by Microsoft, repeatedly intimidating its OEMs (original equipment manufacturers) when they sought to distribute software from Microsoft's rivals, as well as employing the use of exclusionary contracts, Klein said. He also singled out Microsoft's tying of its Windows OS to its Web browser Internet Explorer as another anticompetitive practice.

Microsoft's response to the U.S. government's plan to break up the company is due out tomorrow.

The DOJ, based in Washington, D.C., can be reached via the Internet at http://www.usdoj.gov/.

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