The Law Microsoft Hates (Should You, Too?)





Mr. Friedman is the Ralph W. Aigler Professor of Law at the University of Michigan and a writer for the History News Service.

Microsoft is one of the preeminent firms of the Information Age. But its fate will be decided under the Sherman Antitrust Act, which Congress passed 111 years ago in an attempt to curb excessive industrial power in the Railroad Age. Like so many complex cases decided under that statute, this one will take years for a final resolution.

The substance of the Sherman Act -- the scope of what it prohibits -- is amply flexible to meet modern conditions. But the procedures of the act, which commit antitrust decisions to the judiciary and the processes of litigation, are a misfit, a product of the era in which it was passed.

Congress passed the Sherman Act before the creation of the modern administrative state. The statute is very brief. The section principally bearing on the Microsoft case prohibits monopolization without amplifying what monopolization means.

Congress left the job of elaborating and implementing the broad-brush statutory language to the only plausible federal officers then available -- the judges. Though since supplemented by other statutes, antitrust remains a largely judicial matter.

This is troublesome for several reasons: First, judges are lawyers with no particular expertise in economics or with respect to the industries involved.

Second, antitrust cases, particularly giant ones, raise major issues of national economic and industrial policy. Litigation procedures are inappropriate for deciding them. In American litigation, the decision-maker does not control its own factual investigation, but rather is confined by the choices made by the parties. Moreover, the fact-finder -- trial judge or jury -- is chosen essentially at random.

Consider how deeply affected the course of this litigation has been by the random choice of the initial trial judge, Thomas Penfield Jackson. If the name of another, less gutsy, judge had been called, there might never have been a real possibility that Microsoft would be broken up. And had Judge Jackson not exercised poor judgment in speaking prematurely to reporters about the case, the matter might be much closer to resolution than it is now.

Third, legal principles are the wrong basis for deciding the issues at stake in cases like Microsoft. Whether Microsoft remains intact should not be determined as a matter of legal doctrine, of what rules Microsoft has violated and of what has been done in the most closely analogous cases, but of what is best for the future of the nation.

This last difficulty is mitigated somewhat, ironically, by the vagueness of the statute. This vagueness has allowed antitrust law to ebb and flow, responding to changes in the state of the economy and of economic theory. But the law also depends on who is on the Supreme Court and in the Antitrust Division of the Justice Department, which decides whether and how to pursue a case for the Government.

During the Depression, for example, antitrust took a back seat to recovery efforts. In the decades following World War II, a period of great economic confidence, antitrust enforcement was extremely aggressive -- so much so that Justice Potter Stewart famously remarked that the only common theme he could see in merger cases was that"the Government always wins."

Inevitably, reaction set in. Several factors played a role: widespread belief that overly zealous enforcement was hampering rather than helping the economy, increased concern over American competitiveness in the world, the ascendancy of conservative Republican administrations and an increasingly conservative Supreme Court.

The court has emphasized efficiency and its benefits to consumers as the principal goals of antitrust. This belittles the enactors' concern with the ability of"small dealers and worthy men," as one early Supreme Court opinion put it, to survive in the market. In some settings, antitrust law has become virtually toothless.

But in recent years, with renewed economic confidence and a somewhat more aggressive Justice Department, the pendulum has begun to swing detectably in a more activist direction; how the Department, newly restored to Republican control, pursues the Microsoft case will be an important indication of whether this trend will continue.

One of the enduring sources of tension in antitrust law is the difficulty of knowing why a company has won most of the business in its industry. Has it invalidly acquired or exercised market power, perhaps using power in one market to gain an advantage in another? Or has it grown to an efficient size and developed an efficient, integrated scope of operations?

This uncertainty accounts for one of the notable features of monopolization law. Since the breakup of Standard Oil in 1911, the courts have generally shied away from dissolving large monopolies; aware at some level of their own limitations, they have been afraid of destroying an operation that has been working well. (The AT&T breakup of 1982 may appear to be an exception, but AT&T consented to the dissolution, which offered some improvements to its regulatory status.)

The decision of the appellate court suggests that the Microsoft case will continue this historical pattern. That court accepted Judge Jackson's factual findings and legal conclusions, thus establishing that the company had committed serious violations of antitrust law. And yet the court's expressed hesitation makes it unlikely that the judiciary will eventually decide to break up the signature company of our era.


This piece was distributed for non-exclusive use by the History News Service, an informal syndicate of professional historians who seek to improve the public's understanding of current events by setting these events in their historical contexts. The article may be republished as long as both the author and the History News Service are clearly credited.


comments powered by Disqus