WORKSHOP
WHICH REMEDIES?
APPRAISING MICROSOFT II
INTRODUCTION BY RALPH NADER
PANEL #1: DIVESTITURES, STRUCTURAL REMEDIES
PANEL #2: UNBUNDLING, PRICING, CONTRACTING PRACTICES
PANEL #3: INTEROPERABILITY REMEDIES
PANEL #4: OTHER REMEDIES
ESSENTIAL INFORMATION
1530 P STREET, NORTHWEST
WASHINGTON, D.C.
FRIDAY, APRIL 30, 1999
8:30 AM.
Transcript by:
Federal News Service
Washington, D.C.
MR. LOVE: My name is James Love. I work in this building
for the Consumer Project on Technology. The opening speaker for
the conference is going to be Mr. Ralph Nader. He's going to
provide opening comments. We're going to move on to the first
panel directly after that, which will run from 9:00 to 10:30.
Then, we'll have a break for coffee for 15 minutes, and start the
second panel.
If anybody needs a copy of the program, it's downstairs by
the people by the people that are doing the registration.
There's a room where there are two computers hooked up to the
Internet in the back, called the Mayor's Room, if people need to
check on anything during the course of the day.
Mr. Nader is here, and I think we can begin. Thank you.
MR. NADER: Thank you very much, Jamie.
Thank you all for coming. Good morning. The subject of
this conference is: Which Remedies? Appraising Microsoft II.
I'm Ralph Nader, and I'm going to make a few introductory
remarks, and also note that the conference is sponsored by
Essential Information.
We are gathered here to exchange ideas about remedies for
the Microsoft antitrust case. On November 13 and 14, 1997, we
held our first conference to evaluate Microsoft's global strategy
with an emphasis on problems presented by Microsoft's anti-
competitive conduct. When we announced the first
Appraising Microsoft Conference on October 6, 1997, Sun
Microsystems had not yet filed its Java lawsuit against
Microsoft. The state attorney generals had not announced their
investigation into Microsoft's anti-competitive practices. The
U.S. Department of Justice had not filed their lawsuit against
Microsoft for the bundling of Microsoft's Internet Explorer, and
there had been no announcements of investigations by antitrust
officials in Japan, the European Union, or elsewhere.
Today, about one-and-a-half years later, the public knows
much more about Microsoft's global strategy and the nature and
scope of Microsoft's various anti-competitive practices. The
current Department of Justice and state attorneys general
antitrust lawsuit against Microsoft has not yet concluded, and no
one knows how Judge Jackson will rule.
There is, however, now, such an overwhelming amount of
evidence of anti-competitive practices by Microsoft that assuming
the antitrust statutes still have teeth, it's time for a broader
public debate on the types of remedies that would be useful in
promoting greater competition, innovation and consumer choice.
The issue of remedies for anti-competitive conduct is a
difficult one, and this appears to be the first public forum to
focus entirely upon this topic. We hope that this workshop will
encourage others to broaden the public deliberation. The program
today will focus on a number of different remedies, many of the
proposals go far beyond those imposed on Microsoft in 1995 in the
first Department of Justice-Microsoft Consent Decree. Some will
have a familiar ring, such as breaking the software giant into
different lines of businesses, like the earlier AT&T or Standard
Oil antitrust cases did.
Other remedies are more novel. Among other things, the
government might require Microsoft to, one, auction off several
licenses for Microsoft's intellectual property, creating instant
competitors for its main software products; two, provide
competitors with the technical information they need to make
products work properly with Microsoft Windows or Microsoft
Office; three, stop using discriminatory pricing to discipline
computer manufacturers who offer software from competitors; four,
support or not interfere with open or third party protocols that
run on top of Windows or Microsoft Office; or, finally, unbundle
various components of Windows or Microsoft Office. Some of these
sanctions could be implemented on a standalone basis while others
would work together.
We'll also consider other types of remedies today to anti-
competitive conduct by Microsoft from private antitrust action to
purchasing strategies by individual consumers, businesses,
especially governments, and others. The government procurement
approach is a particularly instructive one to analyze. On a
number of occasions, we have asked Microsoft to join this debate.
Indeed, we asked Microsoft to co-sponsor this workshop and to
choose half of the speakers. Microsoft's representative declined
this offer, but did support speakers that reflected Microsoft's
views. We have included some of these people as speakers today.
Our objective is to begin a broader discussion of remedies,
not only for the Microsoft case, which is of immediate interest,
but for the next generation of competitive problems in the new
information technologies. The remedies for anti-competitive
conduct that may be ordered by courts in the United States,
Europe, or elsewhere, will have enormous impact on consumers, the
future of the Internet, and the computer and software industries.
Corrective measures should facilitate innovation and competition,
and be forward-looking, aimed to prevent any future harm as well
as addressing past transgressions. New rules, whatever the
outcome, will be instrumental in defining the nature of
competition in the coming century.
I would like to thank all the panel members for their
participation, and also the audience, who will participate in
discussions throughout the day.
Our first panel is entitled Divestitures, Structural
Remedies, and it will be moderated by Marc Cooper, an economist
and research director for the Consumer Federation of America.
Thank you very much.
(Applause.)
MR. COOPER: Good morning, all. As Mr. Nader mentioned, I
am Dr. Marc Cooper, director of research at the Consumer
Federation of America. In 20 years in the consumer movement, I
have testified about 250 times at legislatures and at public
utility commissions, been on more of these panels than I can even
count, but I've never been a moderator before. Giving up the
adversarial role is not in my makeup, but I will try.
At least this conference starts from a place with which I'm
comfortable and asks a question that I can sympathize with. CFA
has done three research reports on this issue. We've looked at
the evidence in trial, and we think that the case against
Microsoft has been proven.
And so we move on to the question of what do we do about a
pattern of anti-competitive behavior that has resulted in an
abusive monopoly? Antitrust law, economic practice and, in fact,
the consumer movement's preferred alternative is competition. To
break the company up into enough entities to ensure a vigorously
competitive marketplace. Competition is the consumer's best
friend, and best form of consumer protection. Chicago School
economists would say three is enough. More traditional
economists would say six. And that would be the long-standing
remedy.
But many in the public policy arena believe that the
operating system software market will not work well if it's
organized in that fashion. The consumer might be hurt by trying
to break the industry up into a number of little pieces. Well,
then we still have the problem, how do we prevent the abuse of
market power where there cannot be vigorous, head to head
competition on a day-to-day basis to win each and every customer
one by one. If this is an industry, because of externalities,
economies of scale, tipping effects, that tends to have one
dominant firm, how do we protect consumers in that marketplace?
And in particular how do we prevent market power from one segment
of the industry, the operating system, from polluting other
segments of the industry that could, in fact, be vigorously
competitive? Those are difficult questions for an economy that's
obviously based upon a new, emerging industrial and technological
paradigm, and those are the questions that our panelists will
answer today. That is a debate that I am pleased to moderate and
listen to.
And we have on this first panel a set of prominent speakers
who are actively involved in getting the answers to those
questions. I'll simply give you their affiliations and let them
speak for themselves. We'll begin with Steve Salop, who is at
the Georgetown University Law Center. And he will present one of
the more innovative and new approaches to dealing with this new
kind of industry.
Glenn Manishin, a partner at Blumenfeld and Cohen at the
Technology Law Group. And he is the principal author of the
Software Information Industry Association's Remedies Document.
He has also been a pro bono attorney for the Consumer Federation
of America in a very important telecommunications case.
Stan Liebowitz is a professor at the University of Texas at
Dallas, and has written a number of papers on the specifics of
the Microsoft case and the general question of the structure of
this kind of industry and how it functions.
We will then have a brief response from Mike Pettit, who is
the president of PROCOMP.
We begin with Steve Salop.
MR. SALOP: Thank you. I have a couple of introductory
remarks while Craig is getting this into focus.
First of all, what I'm going to talk about is based on joint
work that I'm doing with Craig Romaine (sp), who is over there.
Craig works at Charles River Associates, an economic consulting
firm, and I'm a special consultant there as well as teaching at
Georgetown. And Frank Fisher (sp), who is also part of Charles
River Associates, is DOJ's witness. And so, I just want to say,
we have not worked on Fisher's testimony at all, there's a
firewall. So, this is not DOJ's opinion, this is not Frank
Fisher's opinion.
In addition, I do have some clients in the software
industry, competitors of Microsoft, or concerned about Microsoft,
and I've been advising them. But, again, today, these are my
opinions, and not necessarily the opinions of my clients.
Secondly, this is part of a larger study that we have done.
And there's an article reporting on our work in the George Mason
Law Review that's coming out in the George Mason Law Review
Symposium. If anyone would like an advance copy of our paper, we
can email you an almost final edit. As far as I can tell, it's
never going to be in the final edit, but almost final edit that
we have. And if you'll just give me a business card with your
email address, I will email it to you.
My main task today is to talk about these what are now being
called vertical divestitures. And I want to talk about that, but
I just want to make a couple introductory remarks about the
general goals of remedy, the theory of remedy, and the horizontal
divestiture.
There are three general goals of remedy in antitrust. One
is to directly stop the anti-competitive conduct, and prevent its
recurrence. In this case, that means prevent the preservation of
operating system monopoly power, and also the extension of future
leverage into other markets, and the two key markets that are on
the horizon now, you know the browser wars some would say is
over, but the next locus of competition is server software, and
then after that embedded devices.
The remedy has to not just stop the anti-competitive conduct
now, but it also needs to undo the anti-competitive effects, and
what I call kick-start the market back onto a competitive
trajectory. In that regard, there's a lesson from the Alcoa
case. Alcoa is a very famous antitrust case, for those of you
who don't do antitrust, and Judge Learned Hand had a long
discourse in his opinion about how to deal with monopolization,
and it's the classic antitrust opinion on monopolization,
everyone teaches it. And Hand had the problem that Alcoa, in the
case that he had, apparently did nothing really egregious. They
didn't blow up competitors' factories. They didn't price fix.
But they had had this monopoly for 28 years, and Hand had to
figure out how to deal with it. Was that a legitimate monopoly
that they got by superior skill and foresight in industry, or was
it a monopoly that just fell into their lap, was it a monopoly
they got through anti-competitive conduct? How would you explain
it? And he really thrashed around and grappled with that
question in an heroic effort to figure out the right answer, and
he's been applauded by many and criticized by others over the
years.
The important point is, that was not the first Alcoa case.
The first Alcoa case was in 1912. Alcoa, at that time, did
engage in a series of egregious anti-competitive conduct. They
engaged in market division, covenants not to compete with
European aluminum producers. They bought up patents. And they
apparently bought what people are calling naked exclusionary
rights to deprive their competitors of access to electric power,
which is a major input into production of aluminum.
In that case, that case settled by consent decree, very
rapidly, the Department of Justice sued them. They consented
out, and the consent decree required Alcoa to cease and desist
from all those activities. Get rid of the covenants not to
compete, stop pressuring the electric utilities, give up the
patent. And that was what DOJ got. And it didn't work.
For the next 28 years, until the second case, Alcoa
maintained the monopoly doing really nothing all that egregious,
just anticipating opportunities, doing basically what it looked
like consumers wanted. And that's why Hand got put in the
position of trying to figure out how to deal with the second
monopoly.
But, in fact, had the Justice Department gotten a good
remedy the first time, there might not have been a need for the
second case. I think that's the lesson here, is that what the
government needs to do is get a powerful enough remedy to kick-
start the market, put it back on a competitive trajectory, in the
event that Judge Jackson finds for liability.
Thank you.
So, that's what I want to talk about as the alternative
remedies. Now, one more caveat, I've given talks like this
before, and most of the criticism I get has to do with, well,
suppose Microsoft didn't engage in anti-competitive conduct,
isn't this a Draconian remedy? And the answer is, yes, it's a
horrible, terrible remedy if Microsoft is not liable. But you
don't actually ever get to the discussion of remedy until
Microsoft is found liable. So, everything being done today is
all done under the assumption that the court finds that Microsoft
engaged in anti-competitive conduct, has violated the antitrust
laws, and therefore a remedy is necessary.
There will be an issue of, how bad was their conduct? Did
they inadvertently step over the Section 2 line, or did they
skate always on the left-hand side of the road? And so, that's
the question. But the assumption, this discussion is only
interesting if we assume that Microsoft engaged in anti-
competitive conduct.
Okay, having said that, the first remedy that's been
discussed a lot is splitting up Microsoft along functional lines,
the AT&T style divestiture. That's what the press likes to call
a horizontal divestiture, anti-trusters will call it vertical
divestiture, but I take it that that lay-press says it's
horizontal because that's the way the knife cuts. A knife slices
this way, apps on top, OS on the bottom.
I'm really very skeptical of that remedy because it leaves
the monopoly intact. You still end up with an OS monopoly, you
still end up with a monopoly in applications. So, it does not
satisfy -- it prevents them from leveraging to some extent, but
it doesn't kick-start the market back to a competitive
trajectory.
For that, you need to create competitors. And there are two
ways to create competitors. One is to divide up Microsoft, do a
vertical divestiture, right, the knife goes vertically to divide
up Microsoft and reconstitute it as two or three or six
companies, whatever. And the other is licensing.
So, let me first talk about the normal divestiture, which is
the standard type of remedy that gets discussed. So, say, create
three vertically integrated companies. I think six is probably
too many, though I've never been accused of being a Chicago
economist, or, I suppose, praised for being a Chicago economist,
depending on your group. In the division remedy, you divide up
Microsoft into three companies, each company would get access to
all the intellectual property.
You'd have to give them not just the intellectual property
in the code, you'd have to give them each not just a CD with
Windows on it, but also access to work that's in the pipeline,
access to work that's in the brains of the programmers, and
probably more importantly the leaders at Microsoft. And so,
during a transition period, you'd have to require some type of
exchange of information, so that the people that knew one thing
in Company A would tell the people to do something else in
Company B.
Each company would get a third of the employees. That
raises a question of how you would divide up the employees. And
one possibility would be to let Microsoft choose how to divide
them up, but in order to prevent strategic gaming of that, you
know, maybe you could do something like this divide and choose
method that we all teach our children. You know, you cut the
cake, Child 1, you cut the cake, Child 2, you get to choose which
half of the cake you want. Okay. So maybe Bill Gates would get
to divide the company up into three pieces, and then he'd get
last choice as to which piece he would get to run. So, you'd
have to open up their contracts, or divide them up, and that's
the way it would work. And then, of course, the licensing
auction I'm going to talk about next, is an alternative way to
get to that same outcome. So, with this remedy, you would create
three competitors. Instead of one, you'd reconstitute the market
to three.
The other alternative that has been proposed is, instead of
actually dividing up the employees, let's just split up the IP.
And one way to split up the IP would be to give it to two other
existing companies, but how do you choose the existing company.
Do you want the judge to do it? You could, but an alternative
way to do it, and the way the FCC has been allocating spectrum
licenses, is to auction them off. That the person that's willing
to pay the most, it's probably worth the most to them. So, you
could auction off the IP, fully paid up licenses, to, say, two
licensees. Then you'd have three companies, Microsoft and then
the two licensees.
Since you're trying to replicate this vertical divestiture,
the license would include the applications as well as the OS. It
would be the current code. But, again, like the vertical
divestiture, there would also be an entitlement to unpublished
information in the pipeline, which probably would amount to the
fact that they'd get upgrades, they'd get all the upgrades in
advance for the next couple of years, during the transition
period, not as a compulsory licensing remedy, but as a transition
just to give the licensees their entitlement to the unpublished
information. It would be a fully paid up complete license,
unlimited right to disclose, modify, resell, do anything they
want. It's not just a read only license, it's more like do
whatever you want.
Again, the contracts would have to be reopened. There's a
real issue about the employees, so maybe certain employees would
be transferred to the licensees, and you would probably want to
include conduct remedies during a transition period. And this
issue of the employees, I think, is the $64 question, and I'll
talk about that in a minute or two.
Before I get to that, though, I want to talk about this
class of remedies of creating new competitors. The benefit, and
you could think of it in the benefits relative to the conduct
remedies, the benefits relative to doing nothing, or the benefits
relative to the functional divestiture, the horizontal remedy.
This type of remedy gives potentially, at least, immediate real
competitive benefits, because you get competition. There will be
three people selling Windows, three people selling Office.
Licensing remedies that you're going to hear about later today
are criticized by economists for reducing innovation incentives.
The licensing auction or the vertical divestiture will not do
that because it's not licensing on an ongoing basis, it's one
time licensing. And, therefore, if anything, it will increase
incentives to innovate as the firms get into a second type of a
race.
Third, with these remedies you don't need to engage in line
drawing between the OS and the apps. Now, probably drawing the
line between the OS and apps would not be difficult once. I
mean, you could do it the first time, but in the functional
divestiture, there's a lot of business restrictions. So, you're
going to need to redefine that line between the OS and apps every
time there's been a change. These remedies don't require that.
What are the criticisms? Well, the first is the potential
that this unified OS standard will become fragmented, something
that Stan is going to talk about, and I'll have a couple remarks
on it.
Second is that dividing up the employees could be disruptive
and inefficient.
And, third, this is alleged to be unfair because Microsoft's
OS monopoly is legitimate.
So, let me quickly talk about those three things. First,
the fragmentation. The argument is that a fragmented OS is
harmful because it necessitates costly porting. Now, to an anti-
truster, that's kind of a peculiar argument. I mean, antitrust
people believe in competition. The whole point of this case is
to increase competition. And to then turn around in the remedy
stage and say, well, now we've decided Windows is a natural
monopoly, let's not disturb it, instead let's regulate it. That
causes a lot of intellectual tension if not practical tension.
More specifically, some answers are, it's not clear how high
those porting costs are going to be. Porting costs are much
reduced to the extent that there's cooperation between the firms,
and that developers of tools are able to build cross-platform
tools, like this tool, Bristol's tool, that's now at issue in
their case against Microsoft, Java, which you know is a cross-
platform tool that Microsoft allegedly polluted, and it's being
discussed in the regular case. The cooperation is more likely,
the tools are more likely, the cross-platform tools are more
likely to develop if no operating system has a dominant position.
One reason why we have all these interoperability problems now is
because Microsoft tries to discourage cross-platform tools rather
than encourage it. So, I think one needs to be very careful in
estimating these high costs of porting. And, of course, it's
also true that UNIX is fragmented, it's viable, it's existing,
and Windows is fragmented, and that's sort of another peculiar
thing about this argument.
Windows 95/98 is based on one code base, Windows NT is based
on another code base. And surely they're viable. And these
are -- you know, Windows is trying to create convergence between
NT and 95/98, they're trying to create a single interoperable
operating system. That's a good thing. They're spending the
money. And, you know, it's as hard as it has to be hard, but
those are starting from different code bases. If we have -- if
you break up Windows into three companies, they're all going to
be starting from the exact same code base. So, if there's going
to be fragmentation that's hard to overcome, it ought to take a
long time.
Finally, it seems to me, in the end, there's choice here.
If you want to have a unified code base, you can either leave the
world alone, unregulated Windows, Microsoft monopoly, or poorly
regulated, or you can throw it open to industry committees, which
are slow and often criticized. And, as an antitrust person, I
think competition is a better way to go. But, I agree, this is
an important issue for debate, and people can disagree about it.
The next point is the issue about, should we do the
licensing remedy or should we do the division and reconstitution
remedy. And the difference there really focuses on the issue of
allocating the employees. The benefits of licensing over
division, the first one is that it leaves Microsoft intact, it's
less disruptive. And it eliminates the need to allocate the
employees, and it avoids the disruption, I think could be real
disruption, from dividing up the Microsoft teams.
On the other hand, the benefits of division over licensing,
it's the same one, the benefit is, it does not leave Microsoft
intact. Leaving Microsoft intact is a mixed blessing, because if
you leave Microsoft intact, and then you have licensees that are
just licensees that don't have the employees, that don't have the
startup, they are less likely to be real intense competitors.
So, if you divide it creates more competition on the level
playing field, and reduces the likelihood that the market tips
back to a Microsoft monopoly, which would be a real problem for
the government to engage in all this effort and then six months
later the licensees are dead and we're back to where we are. The
division also facilitates the information transfer since there
will be ex-Microsoft employees at each of the licensee firms.
I think the real issue here is that it's not clear, and
we're going to have to hear from the software companies, from the
potential licensees, on this issue more than having an economist
stand up here and speculate about it. The question is, will the
licensees be viable, and be able to be real competitors without
getting Microsoft employees. And I've heard from some, and some
people are concerned they really are going to need ex-Microsoft
employees to make their companies viable for both the information
transfer and the expertise.
Now, the licensing remedy does not say you can't have
Microsoft employees, it says you have to hire them one-by-one,
and that sort of process would entail high transactions costs.
It can be reduced by letting the Microsoft employees cash out
their stock options, by eliminating their own non-disclosure
agreements, and non-competes, and long-term employment contracts,
but the licensees are going to need to hire Microsoft people.
Indeed, they might want to hire them to be part of their bidding
team in the auction because of their expertise.
So, there's going to be an employee allocation issue either
way. The question is whether it's going to be done just by the
market, or whether we're going to allocate some employees at the
time of the decree. And I view that as an empirical question.
It would sure be nice just to be able to give out the IP, but if
the potential bidders say, we're not viable, all we can do is
sell Windows for six months, create some short-run intense
competition, but that's all, then that's not going to be as
successful as a remedy that creates real competition.
And so, the division remedy is really a live option. It may
be worth it to pay at the initial disruption costs, and get a
remedy that's more sure to create competition than the licensing.
And I'd say, this is the issue, in terms of people that pay for
the structural remedy, this is the issue that we need to get more
information on over the next four to six months until the
sentencing hearing, if it occurs.
The last issue, I'm kind of running out of time, is whether
the remedy should be limited just to the OS -- and actually,
Craig, don't bother with that slide. I think, you know, that's a
cleaner remedy, but it doesn't go as far. But, on the other
hand, it's not clear that the playing field will be level enough
to allow real competition. And so, I'm concerned that that will
not go far enough.
And then, the other possibility that I've been thinking
about, and I think some other people have been thinking about,
too, would be to do both types of divestitures, and this may be
the easiest, although it looks complicated, and allow the
licensing remedy to be viable. I just don't know yet. But the
idea would be, you do a combination. In the first instance, you
slice them horizontally into apps and OS, and then you dice the
OS into three companies, either by licensing or by division. So,
you create four companies in the end.
And you don't need line of business restrictions, because
there's enough competition. The OS companies, there's
competition, they can go into apps. If the apps company wants to
do an OS, that would be fine. And under this situation, since
the licensees would only have Windows, then, it may be more
manageable, maybe you don't need as many employee transfers. I'm
not advocating this. In fact, I'm not at the point where I'm
advocating any particular remedy. But this one is worth thinking
about as well.
So, thank you very much.
(Applause.)
MR. COOPER: Our next speaker is Glenn Manishin from
Blumenfeld and Cohen.
MR. MANISHIN: Thank you very much, Marc.
It's a pleasure to be here. I appreciate being invited.
It's always difficult for an antitrust lawyer to follow an
economist, because much of antitrust is based in economics. And
we in the legal field have to learn how to speak in what I
sometimes refer to as econobabble, something that Steve Salop
does not engage in, to practice our profession.
A slight disclaimer. I am the principal author of the
SIIA's Remedies Document, which I actually think is now available
on the CP Tech and the Central Org website, but I'm speaking
today for myself. If you've read the document, you will find
that some of my views are quite different from the collective
views of the entire software industry represented in the SIIA
document, and there's copies of this presentation that I'm going
to give on the media panel in the back.
As an antitrust lawyer for approximately 15 years, I spent
my formative days at the Department of Justice during the initial
phase of decree enforcement in the AT&T divestiture case. In
fact, my first T-shirt given to me by my friend Mike McNealy (sp)
of the FTC was the picture of a cracked bell with the phase,
reach out and cuff someone.
The hard reality is that antitrust is arcane, but it's also
boring. And, you know, now I think that we're finding that it's
both stimulating, it's important, it affects people's lives.
Unfortunately, in some of the press, not the august press that
are here today, of course, but some of the press are treating it
like an O.J. or a Kevorkian soap opera. The reality is that
antitrust law and antitrust remedies are tremendously complex.
Cases are costly and difficult, as we now know. And there are no
easy answers. Hence, the title of my remarks, The Case for
Structural Remedies or Breaking Up is Hard To Do?
The question mark is there because many people think
breaking up is hard to do. I don't think breaking up is hard to
do. It's not hard in the short-run, and it's not hard in the
long-run in the overall scheme of the relationship between
government, Microsoft, competition and consumers. In fact, the
principal benefit, I believe, of a structural relief, whether
it's the vertical or horizontal divestitures that Steve talked
about, or perhaps even the licensing remedy he put on the table,
is that it allows the courts to get out of the long-term role of
intrusive, difficult, oversight of a rapidly changing industry,
and fix, once and for all, the underlying problems.
That, in my opinion, is the hard lesson of the AT&T case. A
very good judge, a very good Justice Department broke up the
world's largest corporation at that time, but did not go with a
pure structural solution, and coupled it with behavioral or
conduct remedies, line of business restrictions, proscriptions on
equal access. And I practiced them for eight long years. And a
mini-industry decree enforcement grew up in this town that was so
arcane that even antitrust lawyers in general didn't understand
it. The last thing, I think anyone in this room, whether you're
a Microsoft proponent, Microsoft opponent, or just a policy
thinker, is to have the courts engage in that sort of intrusive
long-term regulatory oversight of Microsoft and the software
industry.
I'm going to digress just for one second, it might take
another minute, but I want to tell you a parable, and I owe this
to a good friend of mine, Reed Hundt, who told it first, in the
immediate aftermath of the 1996 Telecommunications Act. It's the
end of the century, Congress has just passed a broad new law
mandating competition in an increasingly important area of
commerce, and yet the large entrenched firms react to that not by
competing, but by buying up competitors, by trying to control the
pipes through which the product is passed to consumers, by
refusing to make their products interoperable or interconnectable
with their competitors, and becoming so large that they claim,
essentially, that any effort to regulate them or break them up
would challenge and undermine the basic economic viability of the
United States. It's not 1999, it's 1899. And the two companies
were AT&T, Theodore Vail's (sp) creation, and Standard Oil
Company of New Jersey with the Standard Oil Trust, John
Rockefeller's creation. We broke up both of those. We entered
into an era, in each instance, of unbridled, vigorous
competition, and I think we can do it again.
Steve has stolen some of my thunder. These are some basic
sort of fundamental principles. I think they closely correspond
to an evolving national consensus here in America about the role
and the relationship between government, courts, technological
innovation and competition. And they're not legitimately
debatable. Government should intervene when there's a market
failure. The goals of antitrust relief are two-fold, perhaps
three-fold, depending on how you split it, to pry open the market
to competition, and to prevent the occurrence of the unlawful
acts. And, most importantly, regulation, whether it's
administrative regulation or judicial regulation, is really an
imperfect substitute for market competition.
I might add another, bigness is not bad. What's bad is
being bad. What's bad is acting bad. Therefore, structural
relief in this case should not be intended to change Microsoft
because Microsoft is big, but change Microsoft only if Microsoft
has gone big by being bad. And bad, by the way, is not evil.
Bad is a rational business use of economic power that you gain in
a way that maximizes your profits. The problem is, as Steve
could tell you about dead weight loss to monopoly power, that
when you exercise that power and you have a monopoly, it tends to
hurt your competitors and consumers as well.
So, if you look at both conduct relief, and I've put some of
the pros on the left-hand side, and structural relief, pros on
the right-hand side, I think that you'll find that they're
fundamentally different. A conduct remedy, one that prescribes
or proscribes certain behavior, tells the defendant do this or
don't do that; a structural remedy tries to remove the basic
cause of the anti-competitive and, therefore, eliminate the
incentive to act badly by changing the incentives, by changing
the structure, you change how the company acts.
Now, if you look, therefore, at the relationship between
conduct remedies and structural remedies, I think you'll find in
a conduct case, much like the AT&T case became, unfortunately,
the rules have to get longer and more complex, because you can't
just prohibit what happened in the past, you have to foresee what
might happen in the future. You find an example of that in 1998
with the definition of Windows under the first decree, it's not
something that's unusual because creative lawyers will find a way
around any decree. So the prohibitions get stronger, and
stronger and stronger. And as they get more complex, they don't
change the basic incentives of the defendant.
Now, structural relief is very different. What it does is,
it does two things, it eliminates the wisdom cost of regulation
by decree. It avoids the judicial definitions that Steve talked
about, what is an operating system, what is an application. It
can do it in some instances both at the beginning and in the
long-run. But it maintains incentives for innovation, and if you
look at the last line, there's a very big contrast in terms of
how you have to enforce, detect, and cure violations. In a
conduct decree, you need lots of lawyers watching all the time,
not just from the government, but also from private industry.
My next slide is an historical anecdote. I'll let you read
it at your leisure, but it comes from the Supreme Court's
decision in Standard Oil. Standard Oil was the biggest
industrial reorganization ever, 37 independently divested
companies, worth $90 billion at the time. But it also
illuminates the ease with which the Supreme Court affirmed that
case and, more importantly, that there was no adverse effect on
shareholders. Prices rose. There was no adverse effect on
competition. There was no adverse effect on international trade.
To the contrary, it ushered in an era of 65 years of increasing
efficiency in oil production, increasing competition, and allowed
the industrial revolution in America to proceed really well. And
perhaps most importantly, what the court said there is, not only
do you restrain the doing of the acts in the future, they talked
sort of strangely in 1910, but to enforce the statute requires
broader and more controlling remedies.
So, let's look at three options that I have. They're sort
of like Steve's. The first one is what I call horizontal, what
the economists call vertical, but again, it's the OS versus
applications, perhaps splitting up content into a separate
industry. The second could be considering the imposition of an
open source software obligation on Microsoft. That's an
incremental change to the licensing model that, as Steve has
advocated, have some benefits. And the third would be the
divestiture, multiple, vertically integrated entities, or so-
called Baby Bills.
Let's look at number one very quickly. I've gotten my five
minute sign. A horizontal divestiture does one thing. It
eliminates the ability of the OS to leverage or extend it's
monopoly power. It still has the incentive to do so, as any
business would, but because it's not in any other markets, it
can't do it. It also reduces the risk of long-term governmental
oversight. That is, you need to have the line drawn at the
beginning, but not overall. It does maintain the OS monopoly
power. Importantly from my perspective, it prevents the
realization --
(End of tape 1, side 1.)
MR. MANISHIN: (In progress) -- I don't know if there are
any, but I do know that that kind of division makes it impossible
for them to be realized. And, as Steve pointed out, absent
reintegration, you have some very real risks of it happening all
over again.
Windows as open source software, a very novel approach to an
antitrust remedy, but it does alter fundamentally the role of the
OS in the market, because it makes the operating system much more
like a commodity, and forces innovation into other areas,
applications, middleware, content, et cetera. It does, in
addition, solve the bundling dilemma that the judge is confronted
with now. That is, if the OS monopoly chooses to integrate
something into the operating system, then it's obligated then to
release it to the public, and anyone can use it. On the other
hand, if it thinks that it shouldn't be integrated, and it wants
to compete as a separate product, it has the choice to do it.
So, everyone gets the benefit of whatever integrations there are,
and no one has to figure out what should be in the OS and what
shouldn't be. On the other hand, there's a huge conflict, I
think, between the intellectual property rights of Microsoft and
the requirements of the court, perhaps, to set a reasonable
licensing fee, and it requires continued governmental oversight.
Finally, my preferred approach, the vertical divestiture,
three or more identically situated mini-Microsofts. This is good
because, first, no one has to divide up the company on
definitional lines. I live in fear of Judge Jackson having to
decide what's an OS, because if you look at the history of
operating systems, things that used to be shareware are now in
the OS, whether it's DOS, Windows, Windows 95, or Macintosh, who
can decide what's right? I don't think any human being can do
that.
It also avoids line drawing among markets, which is a
corollary to that. Second, it maintains all the efficiencies,
all economies of scale remain because these economies of scale in
software are realized at very low levels of production, all
economies of scope remain. It may be more complex, as Steve has
pointed out, in terms of employees, stock options, et cetera.
But if anyone in here has ever done a corporate deal, those
things can be fixed. They are not insurmountable. They may take
some time, but they can be done. And, I agree with Steve, the
risk of OS fragmentation is largely illusory, and it's probably
offset by the long-term entry of compatible, enhancing products.
So, in conclusion, I have three points. Conduct remedies
present serious risks of decreased scope and definition
enforcement, and the need to do repetitive antitrust actions.
Adding to the Alcoa parable that Steve gave, in the AT&T example
there have been three antitrust actions against the Bell System.
And under the 1996 act, there probably will be a fourth, perhaps
not against AT&T, more likely against some of its divested
entities in the future.
Structural relief offers a very clean mechanism for
eliminating regulation by decree by the court, which is
particularly problematic in a technologically changing area.
And a vertical divestiture is preferable in view of its
efficiency and government regulation impacts.
I want to end just with a quick quote, as a baby-boomer, I
remember JFK's inaugural address, and about 18 months later he
spoke in Rice University in Houston to announce the mission to
the moon by the end of the decade. And what he said there is,
let me see if I get this right: We choose to go to the moon. We
choose to go to the moon and do these other things, not because
they are easy, but because they are hard.
I think that this is hard. It is hard politically. It's
hard as a matter of short-run administration. But in the long-
run, by getting the courts out of the business of having to deal
with new antitrust lawsuits, new enforcement remedies, getting
all the lawyers for the software industry focusing on product
develop, not putting evidence together to try and constrain
Microsoft, everyone wins. The costs go down, and consumers are
the ultimate victors.
Thank you.
(Applause.)
MR. COOPER: Our third speaker is Stan Liebowitz from the
University of Texas at Dallas.
MR. LIEBOWITZ: I'd like to thank Jamie for inviting me to
be here. I actually didn't know I was going to be on the panel
until about 2:00 yesterday afternoon. So, I don't have quite as
formal a presentation as the other gentlemen on the session with
me. And I also forgot to make a copy of my notes for myself.
So, I'll be crooking my neck quite a bit here to see what's on
the slide.
What I want to talk about are the costs of breaking up
Microsoft in this vertical direction, essentially three
Baby Bills. Unlike some of the other people on the panel, I do
think that breaking up is hard to do, both at the level that the
song was talking about, and in this case on the economic level.
I think it's going to be very difficult, it's going to be very
costly. It's going to be very good for Microsoft's competitors.
It's not going to be good for Microsoft. And, well, I'll get to
the consumer in a minute. The fact of the matter is that it's
going to be great for a lot of the people in the room here.
I don't live in Washington, I live in Texas. And I haven't
smelled such action in terms of -- it's been a while since
there's been a big make-work project like this for economists and
lawyers. So, there's a lot of enthusiasm, I'm sure.
At any rate, I have a book coming out, and I wanted to plug
the book. If you ant to know what the impact of Microsoft has
been on consumers overall, empirically, not theoretically but in
fact looking at what's happened in various markets, various
prices, the book goes through it in great detail. And that's
something that I'm not supposed to talk about today, and I won't
really talk about at any length.
But let me say that what you will get out of the book is
that Microsoft has charged very low prices, that it has been very
good for consumers, that it has won markets when it has superior
markets, and it's failed to win markets when it hasn't had
superior products.
One other little point that I wanted to make before I get
into the material today, the term "network effects" gets used
fairly often. I noticed as I was looking at Steve's paper on the
plane yesterday, and network effects are important in a lot of
markets that have compatibility issues. And software is
presumably one of them. But, the impacts of network effects are
somewhat unclear. Steve was very careful when he was talking
about the Microsoft case to always use the term "alleged" in
terms of Microsoft's practices as to whether they were
monopolistic or not.
The fact of the matter is, when we talked about tipping,
when we talk about winner-take-all, when we talk about other
aspects of network effects, in particular I'm talking about lock-
in or protecting and enhancing monopoly power, those are really
alleged impacts because they're theoretical and there's almost no
empirical evidence whatsoever to investigate whether or not these
effects occurred the way the theory says it might. One of the
things that we do in the book is, in fact, to test some of those
things. And what we do discover is that there is a tendency to
winner-take-all, but there isn't a tendency towards lock-in or
protection of monopoly or inertia in the market, not in any clear
sense.
So, that said, I obviously don't believe that Microsoft
should be broken up because I think there are no benefits. The
benefits would be negative.
What I'm going to talk about today are what the costs would
be. ACT asked me some time ago to help them with an estimate of
what the costs would be. One very clear and simple cost, which
Steve alluded to as well, which is the cost of porting software
from one operating system to another. And the methodology that I
used was really quite simple. First, we determined what the
percentage, and we did this just by taking a look at a study that
was done by an association of software producers, what percentage
of their costs, or in this case actually revenues, could be
categorized into R&D, tech support, marketing and selling, and
general administrative.
After taking these numbers, we took a look at the size of
the Windows 32 market, 32-bit market, which would be Windows
95/Windows NT. And, IDC gives estimates, it's one of the
companies that gives numbers that are used in the industry, and
we took the numbers for 2000, 2001, 2002, to put them in the
future, to give some estimate of what they might be if we started
next year. And that would then, if you just multiply those two
together, give you some idea of what the R&D would be expected to
be in the industry, and what the tech support expenses.
Then, and this is the more difficult part, we tried to get
an estimate of what the costs of porting would be. And the way
we got this estimate was, two-fold. We basically interviewed
various executives, various people in software companies who had
some experience in porting applications, either in the UNIX world
or the Macintosh, and we said, look, there are going to be these
different operating systems that are going to be fairly close, so
it's more likely to be UNIX-like than the movement, say, from Mac
to the PC. What are your estimates as far as your additional
costs?
And they gave us numbers. And I'll give you what the
average was. The average increase in R&D expense, according to
the executives, was 78 percent. The average increase in
technical support was about 46 percent. And then for sales and
marketing, they said 5 percent, 10 percent, those who gave an
estimate at all.
We then scaled it down. I wasn't interested in getting the
maximum, or in this case even the average. I was trying to get a
number that I thought would be very defensible. And so, we went
with one-third of the estimate that the executives gave us, which
was a 25 percent increase in cost for R&D, and a 25 percentage
increase in cost in tech support.
And then we applied these to the amounts that we'd already
calculated that would be spent on R&D. And this is what the
bottom line was. The bottom line is, you come up with a fairly
enormous number fairly easily. On the top, we have the three
years, 2000, 2001, 2002. The second line, the second row has the
revenues from the operating system. Then we have our incremental
cost factor, which actually works out to be 6.4 percent of
revenues. Okay, so that's the number that we're applying. Now,
it's not 75 percent, it's not 50 percent, this is the number that
we're applying.
When you apply that to the number on the top, you get the
incremental cost per year, and that was for each new platform,
each new version of Windows. And we doubled that to get two
versions of Windows. And the number we come out with for three
years is a tad bit less than $30 billion.
Now, we could have easily made it $100 billion. If I had
gone with the number that the executives gave, it would have been
$100 billion. But that would have been high. If I gave the high
end of what the highest executive gave, we could have gotten well
over $100 billion. So, I think this is actually a fairly
conservative estimate. And the fact that it's only 6.-something
percent of revenues, I think, would fit in reasonably well as not
being terribly aggressive. If you were going to think of any
producer who produces a product for the Windows platform, that
ignores the Macintosh platform. Macintosh platform is about 10
percent the size, and so if they thought they could do as well on
the Mac as on the Windows platform, they're giving up essentially
10 percent.
You can do the same thing with UNIX. We have quotes in the
paper that talk about firms that are no longer supporting various
UNIX platforms. They're giving up percentages of revenue. And
if it's more than this 6 percent, then the number we're getting
is reasonable. So, that's the number we get. And that's $30
billion.
And the question, of course, is, and I was actually sort of
surprised to read Steve's paper, if you do a cost/benefit
analysis, this is one part of the costs. But it's not the full
thing. This is the cost of just porting programs, but it's a
real cost, and there are other costs that are going to be out
there as well. One of those costs will be the cost to an
industry that's bigger than the software creation industry,
that's the consulting industry. It turns out that the consulting
industry in software is larger. We don't really know what the
impact factor would be that we would apply, but we know that
there's this very large component out there that's going to have
to have some increase in cost. As well, there's this other cost
element, which has got to do with network effects, and that is
the fact that consumers will have fragmented products to deal
with.
Now, people are up here saying, well, we'll have three
competing versions of Windows. Okay, we'll also have, under some
scenarios, three competing versions of Word, and three competing
versions of Excel. Well, that sounds great to antitrust lawyers
who are even getting rich during all of this. I suspect that's
not really something that consumers will be terribly happy with.
I don't think they want to have three versions of Word, and three
versions of WordPerfect.
There was a lot of unhappiness, if you remember, when Office
98 came out, and the people at Office 95 couldn't read the 98
files. Well, we're going to have that going on in a much greater
degree when we have fragmented versions of Windows, because
they're going to have to go in opposite directions. If they
really compete with each other, they're going to try to get as
big a market share as possible. If the network effects are as
strong as they're supposed to be, one of them will end up
becoming dominant, or maybe some other operating system, but we
will wind up where we started, and we'll have just created
enormous costs for the economy and consumers in the meantime.
Now, I actually think I'm probably about done, and I never
don't use up my time. But, at any rate, that's about it, and my
mouth is very dry.
(Applause.)
MR. COOPER: At least one of the speakers hit the time, and
I allocated him an extra five minutes since the other guys had
gone over to balance it out.
Our final comment will be a response from Mike Pettit,
President of PROCOMP.
MR. PETTIT: Well, thanks, Marc.
I'll take Stan's extra five minutes, if that's all right?
I, too, didn't know that I would be on the panel until late
yesterday, and so my job, I think, is to respond in part to what
they've said, some of which, of course, I'd like to study a
little bit more. But I think there are some lessons in all of
this.
And I remember a year ago when Microsoft started the Chicken
Little act, a tiny little acorn had fallen on their head in the
form of a consent decree case, and in the form of a threat that
the Department of Justice and the states would not let them bolt
together their browser and their operating system in whatever way
they chose. And so, Microsoft had a rally on Wall Street, and
they said, literally, the economic sky will fall if you don't let
us do whatever we want.
Now, if you know the story of Chicken Little, maybe you need
kids or a good memory to know this, it's not just Chicken Little,
remember the acorn fell on Chicken Little's head, and Chicken
Little said, well, I've got to go tell the king that the sky is
falling. So, on the way to tell the king, Chicken Little ran
into Henny Penny, and Ducky Lucky, and Goosey Lucy, and Turkey
Lurkey, and then to Foxy Loxy. And, all repeating the same
arguments that the sky would fall, and by the time, of course,
they got to Foxy Loxy, Foxy Loxy ate all the rest of them, and it
turns out they'd wasted their time and they'd over reacted.
So, that reminds me a little bit of kind of where we are
with Microsoft, and what we've seen over the last year. And I
think it is instructive. Now, I don't want to call Stan's
argument the Turkey Lurkey argument, because that would be unfair
and I haven't analyzed it carefully. It does seem that quite a
bit of what he's complaining about, and where the costs are
derived from are from the interoperability, and I don't think
those are insurmountable obstacles.
But I would say that in terms of the argument that antitrust
defendants make when they're in similar situations, this is
nothing new. What Microsoft is arguing today is really nothing
new. In fact, it's not as severe as what AT&T argued back in the
1970s and 1980s. At that time, let me read to you a quote from a
book, The Deal of the Century, which is a marvelous book about
the AT&T episode. These were the arguments that AT&T was making
at that time about the lawsuit. It was a rip-off and outrage
that AT&T's competitors and the government had twisted the facts
around to make AT&T the villain, when all the company was trying
to do was adapt to change while continuing to serve the public
and its shareholders.
Now, that sounds an awful lot like Microsoft today. There
are also very interesting descriptions about the trial in this
book, that those of you that have sat in the courtroom every day
would be amused by, that the stories were not related to a
central theme, each was a splintered tale, and anecdote about the
telephone industry. Each was confined by its own peculiar
details, and the character of the witness, typically an
uncharismatic businessman whose words were riddled by technical
jargon. Even the newspaper and magazine reporters who covered
the trial seemed, for the most part, unable to communicate any
essential story to its readers.
So, I would say, in this case, by contrast, the case is more
interesting, lively, it's being conducted in a shorter period of
time, certainly some of the imaginations of some of the witnesses
that I've seen over the last couple months would rival anything
I've seen at the movies. And I think it's really been great
entertainment.
But one argument that AT&T made which is really the essence
of the Turkey Lurkey defense, is, if you touch us and if you
impose any kind of structural remedy on us, literally, our
national security will be threatened. We will become a third
world country in our telecommunications system, and we'll have
inefficient and overly expensive, and an unreliable network for
telecommunications.
Now, Microsoft cannot make the argument about the
reliability since they're running advertisements in all the
national magazines saying that Windows NT is three times as
reliable as their monopoly product, the Windows operating system,
so I find that curious. But what to make of all this, and what
is the end of the AT&T story. Well, I think we all know, we have
seen prices decrease, service quality improve. We've seen more
innovation in the last 14 years in that industry than we saw in
the previous hundred. Literally, the deployment of fiber optics
and cellular telephones, and the Internet itself, all of these
things we have today, and not in 10 or 15 years from now, because
of the actions that the government took.
So, I would say to you, the price was worth it. There are
some tough issues in going through these kinds of things. I
think Glenn and Steve and Stan have addressed them. I think the
interoperability is a tough issue, but I think at the end of the
day, we know that the advances of tomorrow come only if we have
competition today. And that's not just a wild-eyed economic
theory. That we know from experience.
Now, another thing that I think Microsoft has argued which
I'm interested in talking about a little bit is the idea of
polls, that somehow the industry doesn't support any of these
remedies and that kind of thing. Remember, this is the same
Microsoft whose chairman, while under investigation, sent out an
email in February of 1998, to many people in his company and
said, it would really be helpful to me if somebody could produce
a poll that showed that people wanted the operating system and
the browser bolted together. So, I think their argument about
polls probably should be viewed through that prism a little bit.
But I would also say, we know something about polls, because
we were interested a year ago in finding out exactly what were
the views, privately, of people in the industry? Did they feel
the government was going too far about these things, and it was
not an easy proposition to actually find these things out,
because we didn't want to just send a survey out to these
companies and have the assistant to somebody fill them out and
send them back in. Our requirement was that the executives
themselves submit to a 20 or 30 minute telephone interview, and
that we really get down into the detail of these things. To do
that took more than 60 days, to get on everybody's schedule and
calendar, and it was a very difficult proposition.
A lot of the people said, I think this is a trick, I think
you work for Microsoft and I'm not going to give my views about
this kind of thing. But we did learn some very interesting
things. First of all, of the people that we talked to, 71
percent of these people identified themselves as Microsoft
partners. Now, of the Microsoft partners, 67 percent of those
people said, antitrust laws should be applied equally to all
companies regardless of industry; 74 percent of those people, the
Microsoft partners, said Microsoft uses monopolistic practices.
Now, and this against my interest here, only 30 percent of those
people wanted the government to do necessarily something about
it, these are Microsoft partners, remember.
Sixty-three percent of these people wouldn't enter a market,
even if they had a superior product if Microsoft had a dominant
position. This is what's most startling to me, only 26 percent
of Microsoft's own partners believe that Microsoft would actually
comply with the court's decision. That means 74 percent of their
partners, the people that know them best, know that Microsoft is
not exactly a cooperative person in terms of their attitude
towards consent decrees and the government. Fifty-two percent of
these people said, regardless of the outcome of the lawsuit,
Microsoft will continue to squeeze competitors out of the
marketplace.
Now, I talk about these things because what must have been
in the minds of the respondents was the idea of whether conduct
remedies can work, whether Microsoft could make a promise to the
government and adhere to that promise, and whether we can trust
them to do so. I think, attitudinally, the things that we've
seen from Microsoft, first of all, going back to the earlier
consent decree case, it's come out in the trial, Bill Gates'
attitude, almost immediately, was this antitrust thing will blow
over. We have not changed our business practices at all. And,
from that, I think then you look at the whole way in which
they've responded to this. Well, we didn't do these things,
we're not a monopoly, we were set up. Let's cut the DOJ budget
after all, and those kinds of things. And I think those things
will play into the judge's mind when he has to decide the
fundamental question, do we go down the road with some of these
structural remedies, either the IP remedies, a combination slice
and dice, or can we trust them to do a bunch of conduct related
things. And I think we ought to be very skeptical that any
package of conduct things would actually work in this case.
So, I think we back into the proposition, this is going to
be hard, it's probably going to take a combination of structural
and conduct remedies to get the job done. Any remedy at the end
of the day will have to be approved by David Boies and the NFL
players association and the owners, and I think we're in for a
very interesting period. But I think if the case -- ultimately
at the end of the day, that we decide, is it worth it for
industry standards setting bodies to ensure that we get over the
problems with interoperability and all these kinds of things, or
do we just have an unregulated monopoly and let them do whatever
they want? I think the answer is pretty clear.
Now, I'll take another minute and respond to some of the
things that have been proposed here. I think the issues that
have been raised, certainly by Stan and Steve and others, are
real. I think we need to have a remedy, if we can, that requires
a minimum of judicial oversight and ongoing government
regulation. Obviously, the definitional problems with the OS
would be tough if you slice it that way. But it can be done.
And it can be done by defining other products that are out there
in the marketplace, and just preventing Microsoft from copying,
stealing, and bundling something where a market already exists.
So, that would be one way to steer around that problem.
I think, frankly, any combination of things, anything short
of the slice and dice thing that Steve talked about would require
ongoing conduct remedies, and maybe additional lines of business
restrictions, if our goal is really to restore competition, deny
them the fruits of their illegal behavior, and ensure that
something doesn't happen in the future.
So, with that, I'll bounce around and maybe address some of
the questions in the follow-up.
Thank you.
MR. COOPER: I wanted to make sure I understood that.
I suppose I should give Steve Salop a chance to respond to
the question of the cost calculation, and then if there are
other -- if Glenn wants to do a response, and then I'd just as
soon throw it open to the audience.
MR. SALOP: I've seen the study for 10 seconds. So, I mean,
it's a matter of one has to evaluate the study. There surely
will be some transition costs for a divestiture remedy. The
question is how large they are, the extent to which they can be
economized by cooperation and the development of cross-platform
tools. And the third, and this is the big question, to what
extent are any increased costs offset by the benefits of
increased competition, both lower prices -- competition lowers
prices and increases innovation. So the real issue is the
tradeoff.
Now, if I put on my antitrust professor hat, the
Supreme Court has been clear as crystal that arguments that
competition is unreasonable because it raises costs are arguments
that are out of bounds under the antitrust laws. If a firm or a
group of firms argues that they need to cooperate, they need to
fix prices because competition is unreasonable, the judge is
supposed to say, I'm sorry, that's a very nice argument, but sit
down. We don't listen to arguments like that in the courtroom.
So, I think that's an issue as well.
MR. COOPER: Why don't we throw it open to the audience for
questions, and hopefully they'll be questions to the panelists as
opposed to position statements from the floor.
QUESTION: I think that the clarity of thinking about the
Standard Oil case would help us resolve the structural entities.
And I'd like the panel to discuss similarities and differences
between Standard Oil in 1911, which as I understand it was a
holding company, where each of the 32 divisions were really
standalone companies. Isn't that quite different from what we're
faced with with Microsoft, and how does that affect our thinking
about this?
MR. COOPER: It sounds like a question for a lawyer.
MR. SCHERER: I've done a study of the Standard divestiture,
and there is very important parallel here. Yes, Standard was a
decentralized set of operations, but many of its key operations
were centralized at the Standard Oil Headquarters on Broadway and
in New York. In particular, part of the divestiture involved the
key pipeline companies. The key to getting competition was
divesting the pipeline companies. For quite a few years, the
pipeline companies maintained their headquarters offices in the
same building on Broadway in New York as the remaining Standard
Oil of New Jersey, and partially as a result of that physical
proximity, no real competition developed in pipeline, in the key
area of pipeline.
One needs to worry about that kind of thing having everyone
physically gathered around Redmond, Washington. That's going to
be a barrier to getting effective competition.
MR. MANISHIN: Let me just react to that, what the question
was. I think the difference between Standard Oil and today is
that because Standard Oil acquired its monopoly power in the most
visible way, that is forcing smaller competitors to take stock in
the central holding company and, therefore, gaining control of
them on fear of being squashed, that the remedy, that
divestiture, was much easier to implement because it was a simple
stock spin-off. Here, any kind of divestiture is going to entail
more than a stock spin-off. So that the remedy was easier to
implement, but it does demonstrate, I think, as the gentleman who
just spoke said, and as the quote I put on the screen said, that
what began as genius, what began as innovation, ended up becoming
the use of power in a way to centralize control over production
and control over distribution through conduct that was not, in
the words of today, rational, economic business behavior, but
rather the anti-competitive use of exclusionary market power.
And bottom line, it's going to be tougher today to break up
Microsoft than Standard Oil, but we've been through the AT&T
divestiture, if you look at the plan of reorganization, it was
795 single spaced pages. It took a year-and-a-half just to read
and approve, let alone implement. We did that. Even Aunt
Tillie, on her farm, if she kept her stock, benefited from it.
So, I think if we can break up AT&T, we can break up
Microsoft. The parallels are different, but they're still there.
MR. LIEBOWITZ: I don't have any doubt that you can break up
any firm that you want to break up, and just apply enough force
and it will crack. The fact of the matter, though, is I think
there are some important differences between the industry
Microsoft is in and the Standard Oil case. And that is, in
Standard Oil, the oil production was not a natural monopoly in
the sense that it didn't have almost complete fixed costs, and
very low variable costs of production. There were no network
effects, and so it didn't have this normal tendency towards
winner-take-all. The way things tend to work in software is that
someone gets a very large market share, and then they're
overthrown by someone else who comes up with a new version of the
product that's better, just as WordPerfect was replaced by Word,
and WordPerfect itself replaced WordStar, and Visicalc was
replaced by Lotus 1-2-3, which was replaced by Excel.
UNIDENTIFIED PANELIST: Which will never be replaced.
MR. LIEBOWITZ: Well, that's yet to be seen. The fact of
the matter is, Excel is still winning the reviews, and we've got
to see, we haven't had something completely counter-factual to
these things. Because one of the things I did do is go through
product reviews in great detail in the book. So, these markets
are different.
There's one other thing. People have been bringing up the
telephone case. I can understand why they would, that was the
last great feeding frenzy for lawyers and economists, at least
that I remember even though I was on the outside of that one.
The fact of the matter is that that was a regulated firm. And so
an efficiency enhancements that might have been brought about
might have had to do with the fact that it was no longer being
regulated, more from that than it was from the fact that you were
introducing new competitors. We don't know what it would have
done if it hadn't been regulated in the first place.
We do know that regulated firms do not have the same
incentive to come up with new ideas, and cost cutting innovations
than non-regulated firms, because regulators will tend to take
their profits away. We don't know that monopolies have less
incentive to come up with new innovations and ideas than
competitors. And, so, that's also a major distinction that
people are glossing over that they shouldn't. I don't think we
should use the AT&T case as any sort of standard for what's
likely to happen here.
MR. PETTIT: Well, there's another thing on innovation that
people argued then, if you spun-off Lucent, or what became
Lucent, it would be a bad thing somehow. Lucent is doing just
fine, and their pace of innovation is doing great.
The other thing is that, at the time, of course, you had a
regulated entity that was cross-subsidizing into other businesses
and using that as a tool to stifle innovation, but at least there
was protection on price for consumers. In this case, you have no
protection because there's no regulation, and you've got a
monopolist with $22 billion of cash able to do anything they
want. So, if you're arguing they're a natural monopoly, or
something akin to that in your previous answer, I would like to
know if you support the idea of regulating these guys?
MR. LIEBOWITZ: They're a temporary natural monopoly, so to
speak. There are these winner-take-all results because of I
think it's mainly the cost economies, but there are also network
effects both going in the same direction. But it's not clear
that we need to have it as a regulated monopoly, because it's not
clear that it stays. We've seen these overthrows in various
cases, and what we don't know is whether or not, when a better
product comes along, suddenly they won't be able to overthrow,
that's this idea of lock-in. But there aren't any cases that I'm
aware of where anyone has demonstrated lock-in. And in the
software markets we've looked at, the products with the better
reviews are the ones that keep the large market share.
MR. SALOP: I want to respond to that briefly, and that is,
I think it's too easy to say that because someone wins, it's the
best product, and because it gets good reviews even. Note, the
argument is that the reason why Microsoft products work better is
because they control the APIs, they control the source code, and
so they make it harder for other firms to interoperate. And, as
a result, the other products don't work so well with Windows.
MR. LIEBOWITZ: That's a possibility, and I'll admit that
that could be the case. The fact is that Microsoft also had the
dominant products in the Macintosh, and they were dominant on the
Macintosh before they were dominant on the PC market. So, the
evidence, again, is sort of counter to that.
MR. SALOP: And that's the product that they said they
wouldn't upgrade for Apple unless Apple caved in and took IE over
Netscape, is that the product you mean?
MR. MANISHIN: Let me just add, as a Macintosh user, that
the only thing that makes Macintosh viable in today's economy is
the fact that Microsoft produces files that are the same file
format in the PC world. But, I think that Stan's argument can be
reduced to the absurd conclusion that every software market is a
natural monopoly. Every software market exhibits network
externalities, every software market exhibits increasing returns
to scale. Under that scenario, there should be one producer of
every software in every product category, and that simply can't
be the case.
MR. COOPER: We'll have to have a set of ground rules.
First, when you ask your question, I need you to tell us who you
are, and when you answer the question, I need you to come to the
podium so they can get it on the tape, or speak extremely loudly
from your seat.
QUESTION: (Off mike.)
MR. MANISHIN: The question was, the definition of
competition in relation to open source. I think that the folks
at Red Hat would agree with you. And, the best part, the best
thing to be said for the open source software model, which has
different variations depending upon whose open source licenses
you look at, is that it allows a new form of competition in
service, for customer support, and product emulation. That is,
you take the same kernel, you make improvements, sometimes
there's a mandatory grant back of the license rights, so that
then everyone in the community shares that.
But that's consistent with the accepted antitrust definition
of competition, which includes not only product emulation to the
core product, but extensions to the product, the whole core of
customer support functionalities, price, and so competition is
not just coming up with a new product, it's the whole continuum
of how you serve consumers, and open source is one way to go. It
could be a very viable way. I think right now the problem with
applying that directly to the Microsoft case is that it's
difficult to come up with a single accepted widespread definition
of what an open source software model is. And since there's so
many colors or flavors out there, picking among then when it's a
nascent concept, it's only been around for a little while, is
going to be tough. Again, that's not insurmountable, but it's
why I just called it a novel remedy.
MR. SALOP: I'd just like to say one thing about that. I
just want to add, you know, if you do the vertical divestiture or
the licensing, it's possible that one of the new companies would
take some kind of open source approach. I mean, they'd have a
license, it would be their code. They could do that if they
wanted to do it.
MR. LIEBOWITZ: I just don't want to give the wrong
impression. I'm not saying there's no competition. What I'm
saying is, the competition tends to take a different form. It's
you compete to become the number one product for this generation,
which may be two years. And one product will wind up with a
large market share. Then a few years later, they can wind up
going down very low. We have examples of changes in market share
of 60 percentage points in one or two years. It's not that
uncommon. Certainly within three to four, it's quite common to
have those types of changes. The way to perhaps think of it is
something like the record industry, which I think shares some
characteristics. You have the number one product, and it's there
for a while and it may generate a big market share, and then it's
very quickly replaced by another number one product, and another
number one product. It's not that any moment in time there's no
competition, but at any moment in time there may be a dominant
market share. And that's the nature of the competition to some
extent.
MR. COOPER: I thought for sure Glenn was going to use the
word "essential facility," because that is a concept that exists
in antitrust law, and it may, in fact, be the most friendly to
your idea. That is, if there is something that is an essential
facility, and by definition cannot support multiple providers,
then you have this question of how you regulate the essential
facility to allow whatever uses it in related markets that can be
competitive. So, it's a concept that exists in antitrust.
Because Stan has gone back to this question of, a little
bit, repeatedly about the sequential replacement of a dominant
firm, if you look at the data that was put in the trial, the
answer is that there were one or two generations of replacement
of leaders. But it turns out that Microsoft now is the first
company that dominates more than one product line. It has
dominated the operating system market for longer than anyone
else, except, of course, if you don't consider DOS and Windows
and Windows 98. You see the only way they could show that there
was sequential leadership was by defining leadership, not by
firms, but by products, and Stan has said that.
In point of fact, Microsoft dominates the terrain like no
other company ever has. Is it possible that they might get
replaced? It's possible, but when you look at the track record,
certainly in the operating system, no one has come even close to
that, nor has another firm dominated across markets. Fundamental
difference in the record industry is that there is no necessary
link between one generation and the next, certainly not
technological. That is, you've got a pop singer, and another one
comes along, and the relationship between those two singers is
zero. Whereas, the relationship between the source code and an
application or the next generation of the source code may be very
powerful. But now we're arguing the question of whether the case
is proven.
The answer to your question is essential facilities are, in
fact, a well-established antitrust concept. But, Glenn is right,
what's the essential facility here? It was easy when it was a
railroad bridge across the Mississippi River, and the only one
around. It gets a lot more difficult to figure out what the
essential facility is when it's an operating system.
MR. SALOP: I think, you know, with respect to Stan's point,
I think another thing you might want to look at now is what's
going on in server software. There is competition among server
software, but Microsoft is now making a big move into enterprise
space, you know, what is really the central nervous system of the
economy. And their technique they're using repeatedly is using
control over the standards, control over the protocols, in order
to bootstrap their desktop monopoly into server space because the
products in server space need to communicate with the desktop.
And that was what Java was really all about in the trial. That's
what Dynamic HTML was about in the trial. And there's a whole
lot of other communication protocols between the desktop and the
server, you know, COM and DCOM versus Corba, ODBC, and actually
probably in a way, the most interesting example involves Samba
and SMB, which the computer people know this a lot better than I
do. I mean, Linux communicates with Microsoft using something
called Samba, and Microsoft changed --
[END OF TAPE #1]
MR. SALOP: -- IT managers, and that gives Microsoft a big
boost in the market, because they can always say, we are
compatible with Windows desktop OS.
QUESTION: I have a question for our distinguished
economist. I think some of the arguments made are surprising,
being rather unscientific. And I would like to bring --
(inaudible) -- something you can test and verify. Now, we come
to the world of applications. Try to get a company to become a
competitor for Microsoft Excel or Microsoft Word. So, the
argument that the better product wins is bogus. It is an
unscientific argument. There is such a gravity world around
Microsoft Office that there is no way that there could --
(inaudible) -- a better Word or a better Excel, that is not
supported by the facts.
MR. LIEBOWITZ: Well, first of all, what we did examine was
the historical record, okay, because that's something that
exists, and you can perform tests, and you can see what happened.
Now, you're talking about something that hasn't happened, and
it's very hard to know what hasn't happened, why it hasn't
happened. There was talk a while back, I forget who the two
fighters were, it was Lennox Lewis against somebody else, and
Lennox Lewis was complaining he couldn't get anyone to take a
fight with him. Now, the reason he couldn't get anyone to take a
fight with him was because they were pretty sure they were going
to lose. And they were pretty sure they were going to lose
because he was better. Now, what you can't do is to say whether
or not a firm that's thinking about taking on Excel is having
trouble getting funding, which I don't even know if it's
factually correct, but let's assume that it's true, because
they're very unlikely to be able to come up with a better
product, or because Microsoft enjoys some sort of monopoly.
I would say, given Microsoft's track record of producing
very good products, because that's one thing is that Excel is the
single most highly rated product that we found when we looked at
various applications, that it's like going up against Muhammad
Ali. You are going to have big problems, because they're very,
very good at that. And so, I think it's perfectly understandable
that they'll have trouble getting funding, but it has nothing to
do with monopoly.
Remember, we're not trying to punish. We keep saying, we're
not trying to punish someone for being successful. But, in fact,
that's what a lot of this amounts to, we're punishing the firm
because they're being too successful.
QUESTION: (Off mike.)
MR. MANISHIN: Products change over time. WE live in an
information economy. Information is a product. That's what
portals sell. Software is information, and so the fact that some
products exist in the ground, some products are electrons over
wires, some products are stored on magnetic media and become
electrons on a phosphorescent screen with pixels really makes no
difference.
You know, Marc said the essential facility, the only reason
I didn't use that term was that the remedy for an essential
facility case has traditionally been reasonable and non-
discriminatory access to that essential facility. The problem,
in my opinion, with all these conduct remedies, and some of them
are better than others, is that someone, again, has to decide
what's reasonable, what's non-discriminatory, and that makes
oversight really hard, really difficult.
But fundamentally, if we cannot adapt our laws and our
policies that prefer marketplace competition over anything else,
and assume that competition would produce the best products for
consumers, whether they're technically best or not, is irrelevant
is consumers buy them, then we have a problem. And we're not
saying punish Microsoft because it's successful. We are saying,
restrain Microsoft because, as a result of its success, it's used
its power to foreclose rivals from trying to compete with it. If
it has been successful and that's all it's done, it gets enjoy
the fruits of its labor. It should win the liability case. If
it wins the liability case, everything here is moot. But if it
hasn't, it's because it has used that success to maintain
dominance in an artificial way.
MR. COOPER: You make a point about the use of the word
"commodity," actually that word has a tremendous importance in
this case, because the biggest fear of Microsoft is that it's
product will become a commodity, and if you read through the
emails, that was the concern. In point of fact, from the
consumer point of view, commodities are very consumer friendly.
They're easy to use, they stimulate lots of competition. So, to
say that Microsoft's products are not commodities, in essence,
Microsoft would like to prevent them from becoming a commodity.
And, in fact, we think that would be fairly consumer friendly if
it did become a commodity, and you should go through the trial
and look at that.
So the notion that you would have multiple people who are
able to deliver that good to the marketplace fairly quickly and
are forced to deliver at a competitive price, that's what
commodities are, and those are actually pretty consumer friendly.
Now, if the assertion is that this is a fundamentally
different product than any other commodity, then I think we go
back to my original question of how are we going to prevent
abuse.
And I think I'll wrap up a little bit. I think the key
question here is, people are not complaining about the behavior
of Microsoft in the 1980s, although there may be some people who
were not particularly happy about that. It's the behavior in the
1990s, after you gain a dominant position, and begin to leverage.
So, if Microsoft had not done any of these things, if there
weren't all this evidence about not only the fact that they
produced a good product, which may or may not be the case, but
they also did a lot of other stuff. And the case is all about
the other stuff.
The other point that you do need to recognize with Stan's
argument, he never talks about the operating system. He only
talks about the applications. And the case is about the
operating system, where lots of stuff went on. So, it may well
be that at some point Microsoft produced these terrific
applications, it may be that they were using their advantage in
the operating system, but the case is about the operating system
and not simply that they produce a better product, but they did a
lot of other stuff.
I think we've come to the end. It's 10:30, and I'm going to
try and keep Jamie on his schedule. There's obviously lots of
questions. I suspect similar questions will come up around any
of the panels as well.
We have a 15 minute break, and then we'll start up with the
next panel.
[APPLAUSE AND END OF PANEL #1.]
MR. NADER: The second panel is titled Unbundling, Pricing,
Contracting Practices. This panel, as well as all other panels
will be available in a video for anybody who is interested in a
copy of the entire conference. As you are beginning to realize,
if you didn't earlier, we have some of the best minds in the
country gathered here today on the issue of remedies, and the
antitrust Microsoft case.
Our first presenter is attorney Gary Reback, who is a
partner in the law firm of Wilson, Sonsini, Goodrich, and Rosati,
where he's the head of that firm's high technology group. A very
well known litigator in this area, to the computer industry. He
received his undergraduate degree from Yale University, his law
degree from Stanford Law School, and during the past couple of
years Mr. Reback was named to the Elite 100 by Upside Magazine,
the Top 100 by Microtimes, and the 100 Most Influential Lawyers
in America by the National Law Journal.
He has been lead counsel on a number of highly publicized
software cases, winning Lotus versus Borland in the Supreme
Court, and both Ashton Tate versus Bravo Technologies, as well as
Telemarketing Resources versus Simitech in the 9th Circuit Court
of Appeals. He's authored the widely read white paper which
successfully opposed Microsoft's acquisition of Intuit, and was
counsel to the anonymous amici opposing the Justice Department's
consent decree with Microsoft in United States versus Microsoft.
He's represented a number of companies in connection with the
Department of Justice's lawsuit against Microsoft and finally,
he's negotiated the federal government's clearance of Borland's
acquisition of Ashton Tate, Novell's acquisition of WordPerfect,
and Sybase's acquisition of PowerSoft, as well as the merger of
Cadence Design Systems with Valid Logic.
So if anybody has done it all it's Gary Reback. He brings
to you the lessons of his experience, and his perspective on this
issue of remedies and the antitrust Microsoft case.
Mr. Reback.
MR. REBACK: Thank you, Ralph. I think that introduction is
going to be a lot longer than what I have to say here today. I'd
like to pause for a second and talk about, just for 10 seconds,
reflect on how we got to the point that we've gotten to, because
those of you from the press have periodically over the past five
years called me and asked me questions, and you started off
asking me the question of whether there would even be a
government investigation of Microsoft. Would there be a
government investigation of Microsoft, and I still have on the
credenza in my office a newspaper article from one of the local
newspapers captioned, it's a very prestigious national newspaper
as well, captioned, Microsoft Complaints to Gather Dust. And
then it starts off by saying how people in Washington were sure
that the complaints by people inside the software industry and
outside the software industry would go absolutely nowhere. But,
there was an investigation.
And then people said, you know, nothing will come of this
investigation, there will never be a trial. But, there was a
trial. And many of you have come to me since that trial started
and you've asked me questions, and you've asked questions like,
can you imagine the trial having gone as well as its gone? Yes.
Yes. The short answer is yes. We all knew what was there. And
it particularly troubles me when I read particularly those of you
who write in the East Coast press how Microsoft acolytes are so
concerned that Microsoft has done such a poor job of presenting
its case. And I want to respond by saying, did it ever occur to
you that that's the truth? That what you're seeing in court is
the true Microsoft? The Microsoft that we all have come to know
in the software community? That's what you're seeing. There is
no surprise about that.
And so we're now confronted with the question, what should
we do about it? Now, I have to tell you, there were times I
thought we'd never get to this point. I thought we'd never get
to the point of asking the question, you know, if this all gets
proved up, and it gets submitted to the judge, and liability is
found, now what? And for many years I thought I'd never have to
answer that question, so I didn't spend a lot of time thinking
about it. But, more recently I have begun to think about it and
there are people on this panel and the preceding panel who've
spent more time than I have thinking about it.
But, I am reminded of the people who said there would be no
investigation and no trial, and Microsoft would win on summary
judgment. I'm reminded of those people because, you know, about
eight months ago I was on a panel on the West Coast, and I was
talking about divestiture remedies and breaking up Microsoft
spokesperson on that panel in a fit of exuberance said to people
that he would pay them each $10,000 if the government broke up
Microsoft. So I encourage people to save their ticket stubs
against that contingency as a hedging maneuver, and we'll see
what will happen in this space.
I just want to review the bidding from the previous panel,
and try to set up some of the discussion in this panel. I think
we all agree, or we would like to agree at least that the best
remedy in this space, at least from the perspective of the
software industry would be a remedy that does not require
continuous judicial monitoring. My own view, just from reading
the press is that Judge Jackson is tired of that. Quite frankly,
the government does not do a good job of monitoring consent
decrees. I think they would be the first to agree with that, not
just in Microsoft's space, but in other space as well. The
Justice Department does not view itself as a regulatory agency,
it views itself as a law enforcement group, and therefore the
continuing process of monitoring consent decrees is not something
that would be high on its agenda, if something else would work
better or just as well. And so the debate is framed around the
question of should we incur the significant costs of a
divestiture remedy or some other similar remedy at this stage,
given our desire to avoid continuous line drawing down the road.
And you heard a lot about that in the last session.
To bridge the gap here, the first type of remedy that people
have talked about, and will talk about further in this session,
particularly Joe, is the business conduct remedy. That's the
thou shalt not proscription. And if you ask me that's going to
be where the rubber meets the road. On the assumption that this
panel is based on that Microsoft is found guilty is found to be a
monopolist, I'm shocked, is found to be a monopolist, found to
violate Section 2 of the Sherman Act. I think the tension is
going to be between some more significant remedy, and a
proscription type remedy, remedies involving prohibitive
contracts, those kinds of things. Joe is going to talk about
that. And I'm going to try not to -- I'm going to try not to
spend a lot of time right here doing that, because you may have
questions about it.
I want to note one thing though. The issue of bundling, and
I'm going to come back to this on the next transparency, a
business proscription thou shalt not bundle. Thou shalt not
bundle what? Thou shalt not bundle it how? Very intriguing and
difficult questions. And I noted that in the same week that
Microsoft announced it was going to have settlement negotiations
with the government, and all the press flocked to that, and
followed the settlement negotiations, in that same week Microsoft
announced that it was bundling in its media player into the
operating system. And since then it has expanded that to include
sound playback, issues involving content, and artists, and the
recording industry, and now sort of all that is to be bundled in
the operating system, and you can't help wondering if we don't
end up with a remedy that addresses that kind of issue, what has
been the point of all of the trial and all of the investigation,
if after all of the evidence that we've all seen, Microsoft is
just proceeding with business as usual, then really how much have
we accomplished in that space?
You've heard discussion of source code licensing from Steve
Salop and from others. That's an intriguing possibility. Again,
others have thought about it better than, and more substantively
than I have. I'd like to note two things that I don't know were
clear from the prior discussion. There are two ways to think
about source code licensing. One is that somebody is going to
take the code and make a compatible product, and we'll all be
better from that. And maybe that's a possibility. In my own
experience in the computer industry, products that are merely
compatible, and have to continuously play catch up don't do very
well, because nobody is willing to build a business around them,
and no MIS director is willing to stake his or her company on
them. And I think that's going to be true here as well.
I mean, just think about it, suppose you and I get together.
I'll get us some venture capital, and we'll bid for one of these
source code licenses and we'll go into business. And we're going
to get, I think on day one, 18 million lines of code, 18 million
lines of code. I hope you can read that, you know, because it's
going to be tough for me. And you know what the first thing
that's going to happen is going to be? The first thing that's
going to happen is there's going to be a bug in Windows. I'm not
going to be able to fix it. I don't know where in the 18 million
lines of code to go to fix it. I wouldn't know if I found the
right line of code and fixed it, whether I might not crack the
firewall, kill the kernel, and bring down the entire system. So
that's something to think about when we think about licensing
remedies.
Steve has talked about how we might begin to deal with that,
by having support, or employees or whatever. I think a remedy
like this makes more sense when you think about it in terms of
somebody who is already in the game, perhaps on the server side,
getting one of these licenses, and making that company's product
more compatible with Windows or Windows NT. That's where that
kind of thing might come into play.
The last set of remedies from the last section, divestiture
remedies. You've heard about the functional divestitures. You
know, we use these terms horizontal and vertical and it's tough
to figure out which is which, quite frankly. I've heard the
terminology that I think most of us can understand better, the
functional divestiture is where we take the apps and send them
one place, and the OS and send them another place, and that kind
of thing. And you heard discussion about that. And then what
are called the Baby Bells, the multiple integrated companies, so
that we try to maintain the efficiencies, whatever efficiencies
there are of integration, at least for backward compatibility.
Stan has talked about the costs that we might incur from
competition, and I think we all ought to reflect on that for a
moment. How much is competition worth? Is it worth 6 percent to
have a choice? Just take his numbers. Is it worth 6 percent to
have competition. What are the benefits that competition brings
to us. Is it worth 6 percent, or 2 percent, or 1 percent? And
coupled with that, something the last panel didn't point out,
which are the costs attendant to the other side of the equation.
What are the costs of monopoly in this space? We have the
traditional costs of monopoly, the inefficiencies in allocation
of information, the inefficiencies in allocation of resources,
economists know that better than I do.
But, you in the software industry would know that there are
enormous costs in trying to keep up with Microsoft's competitive
products, at the same time you're trying to build on their
platform. They release a new beta and they enable 40 new APIs,
and you don't know whether the final product is going to work on
those APIs or not. Do you commit the resources to build on those
APIs, or do you want until you see the final product, and then
you play catch up, knowing that you can't ever achieve market
share? What are the costs balanced against that 6 percent? So
those are the kinds of things we need to talk about or think
about in that space. And I leave that to people who know more
about that than I do.
I would like to now turn our attention slightly, and try to
reframe a little bit what we're talking about here to the issue
of what are we trying to achieve? In other words, we're talking
about remedies, and we're going to talk about structure on these,
we're going to talk about proscriptive remedies. But, what is it
we're trying to achieve. And let's go back and think about the
government case, and what is it we think that the government has
proven or would like to prove. So I think that one major issue
in the case that they'd like to remedy, I can't speak for them.
As I always say, I can't speak for the Department of Justice, but
I wish I could.
But, one thing they'd like to do, I think, is to liberate
the OEM channel. To make sure that OEMs have complete freedom of
choice, to put on their desktops whatever they want to, to bundle
whatever functionality they would like to, because after all,
they're closer to the customer, they're are a whole large number
of such OEMs. Right now, all of them have to sit across the
table from one supplier of operating systems, and essentially one
supplier of productivity applications. So we'd like a remedy
that would give them more choice.
Obviously, if on the other side of the table there were
three or four suppliers of operating systems, OEMs would have a
choice, but they don't have that now. So that's one issue. A
second issue is the issue of bundling. And we've heard a lot
about that in the trial. We'll probably hear more about it at
the rebuttal phase. And the question is sort of, what to do
about that, something I raised a few moments ago.
There's been a lot of discussion at the trial on Netscape.
Netscape and the browser wars, are I think behind us in some
sense. But, I believe that everybody understands that the story
of Netscape is metaphorical in this sense. And the issue will
be, what can we do to make sure that what has happened doesn't
happen again. How can we be certain that streaming media, or
sound and recording playback, things that could be platform, dual
boot technology, a number of new technologies, how can we make
sure that they're not bundled out of existence. So that's, I
think, another goal.
A third goal, access to information. You heard about this
in the testimony of Avi Travanian from Apple, heard about it from
several other witnesses, heard about it at the Hatch committee
hearings, Senate Judiciary. How can we be certain that people
get access to information to build on the OS? Now, in a free
market, where there's competition, if there are multiple
operating systems, then every vendor would have the incentive to
make all of his or her information as freely available as
possible, to get more apps built on the platform. That model
simply doesn't work for a monopolist. So we have to think about
that. Do we want that monopoly model, and if we do, how are we
going to make information freely accessible, because I don't
think we can count on anyone's good faith to provide it.
And finally, perhaps a lesser goal in this space, and that
lesser goal -- I don't know if it's a lesser goal, but a lesser
consideration than the top three, there are several in this Two
Year Vendor's Convention one, and that's the issue of
acquisitions. As part of this remedy, if it's not a divestiture
remedy, should there be some proscription on acquisitions, if so,
for what period of time? There has been a lot of discussion in
the Valley for a very long time about how Microsoft might buy,
say, the number four player in a competitive market, the number
four company, bundle that technology in for free, and put out of
business the other six players in that market. Is that something
we should address at the remedies phase, and if so, how should we
address it?
I don't think that -- let me just make one point on the
access to information, that issue has been around a very long
time. And as many of you know who are following the industry,
that issue is present in the Caldera case in Salt Lake City, and
will come to trial in January. So that's very much with us. The
question of whether in that case, whether Microsoft misled the
market with statements that it made at the beta phase of its
product, whether it withheld information, whether in fact to
capture the phrase that one of the previous speakers used,
whether in fact Microsoft's conduct in the '80s was just as bad
or malicious as its conduct in the '90s. And if so, if the
monopoly was not secured in the first instance through rightful
competition, then what? How do we proceed.
So if you'll just give me the last transparency, and I view
myself here as sort of setting up the remaining speakers in this
space, in responding to your questions. When we look at sort of
the goals, the goals of the trial, what we should expect out of
the trial on one side, and the various remedies that have been
proposed on the other side, I think we have to ask ourselves the
question, how do those proposed remedies address the goals of the
trial? Would licensing the source code result in unbundling and
a level playing field? Would it result in information being
freely given to people at the next level? Divestiture, I
suppose, surely would, but there are costs attendant to that.
How are those costs to be measured.
And finally, what about business conduct? Would
proscriptions, thou shalt not, work? They've never worked
before, as one of the previous speakers pointed out. They didn't
work in the Alcoa case, they haven't worked with respect to the
consent decree in this case. I don't think any of us would
reasonably expect that even in the best of situations, with the
best of intentions, business proscriptions will work is we're
trying to do what it is we see on the left side of that page.
And let me close with just an example here. And I know that
Joe in particular will talk about this kind of thing, but think
about, for example, how a monopolist is able to discipline an
original equipment manufacturer, a manufacturer of computer
products. We've heard a lot and we've seen in the record issues
of whether Microsoft can charge more to OEMs if the OEMs disobey.
But, suppose you're an OEM, and you see a hot new disk drive, and
you want to get that into your product so that more people will
buy your product, and you can make it a better product, and you
can differentiate your product at market. Well, contrary to the
last court of appeals opinion, you can't just take a peripheral
like a mouse and plug it into the computer. You can't take a
disk drive and plug it into the computer. You need a device
driver, which is a piece of software. Now, you might be able to
write that, if you had a documented API. But, if you don't have
a documented API you can't write the device driver, if you can't
write the device driver, you can't improve your product.
And so, suppose I'm the monopolist, and you're the OEM, and
you come to me and you say, I want to put this new disk drive in,
and I need a documented API from you to do it. If I'm a
monopolist, I've got to say, what's in it for me? What's in it
for me? And when the next competitive product comes around, I
want to make sure you go with me, and not that competitive
product, otherwise no device driver, no product differentiation,
and for the rest of you who are consumers, no better desktop
computer.
Thank you.
(Applause.)
MR. NADER: Thank you very much, Mr. Reback, for those
remarks.
Our next presenter is Jean-Louis Gassee, who recently
started a new company called Be Incorporated, which is developing
new technology in the personal computer field. But, before this
new venture, Mr. Gassee spent over nine years at Apple Computer,
and started Apple's French subsidiary, and was also named
president of the Apple Education Foundation. Apple France became
and remains Apple's largest business unit outside the United
States. Before joining Apple, Mr. Gassee was the president and
general manager of the French subsidiary of Exxon Office Systems.
He's also held in the past several general management positions
with Data General, and has been area manager in the South
American and Middle East areas, as well as marketing director for
Europe.
He's also spent six years at Hewlett Packard, where he was
responsible for overseeing the launching of the company's first
desktop scientific computer, and the development of its sales
organization in France. He's served on a number, and serves on a
number of publicly traded companies, such as 3Com, Electronics
For Imaging, and Laser Master Technologies. He received his
degree in mathematics and physics in Orsay, France, and holds a
masters of science degree.
Mr. Gassee.
MR. GASSEE: Thank you.
I'll spare you transparencies. I know, having been 31 years
in corporate life, I know what they do to your eyes. I'm here
before you, I'm the French farmer abducted by aliens, and raised
in California, that's my new life as an entrepreneur. So coming
before an audience of representatives of the media and the legal
community, and various associations, I'm a little troubled by all
the issues that we have to deal with.
One is that we tend to assume that software is a thing. And
therefore, we have intuitions about things that do not apply to
software, and that makes all these discussions extremely
complicated. For instance, some of the remedies proposed have a
sort of physical metaphor to it, like cutting it vertically, or
cutting horizontally. That is extremely difficult. How do you
draw the line in the English language, or in legalese, when they
are not the same, between an application and an operating system.
And that's what creates a lot of difficulties in discussions in
this. Another issue which I want to address is the issue of
interoperability. Gary gave me a lead in this issue by talking
about dual boot, and I'll get back to that in a moment.
But, let's start with the claim that Microsoft makes that
they want freedom to innovate. The last thing on my agenda today
here is to bash Microsoft. I admire Microsoft. As you can, by
counting the years I've spent in companies, I've been in this
business 31 years. I started right after the student riots in
1968 in Paris. So I love this business. I've been following it,
and as I love and follow this business, I admire Microsoft. They
have been incredibly good at doing everything, or most of the
things they do. They are incredibly well managed. They have a
very good strategy. They fix their mistakes very well, and
unfortunately, that's a part of the problem that we cannot
ignore.
Power corrupts, monopoly power corrupts absolutely. And,
you know, the nature, you're nature, human nature, which, you
know, it's what it is, leads Microsoft to claim they want to
innovate, while actually what they want is to prevent innovation
from occurring that would threaten their monopoly position. Let
me take an example. You buy randomly 1000 computers, anywhere
you like. How many of these computers will have anything but
Windows on the hard disk? You know what the answer is, zero.
I've went to Linux World, and I heard stories about which I
liked, because to me Linux is a big hope for this industry. I
heard stories companies such as IBM, or Compaq bundling Windows.
So I went to them, I said, so how did you do this, because I have
my questions about OEMs. And they said, on no, no. We don't
install it, but we sell it, the reseller does it. That's what
IBM says, that's what Compaq says. That's interesting.
Well, here's what happens. Let's say you are the CEO of a
PC OEM coming to Wall Street to discuss your affairs. And you
say, well, ladies and gentlemen, we decided to improve the
product experience for our consumers, we now bundle Linux and --
forgive me, the OS on the hard disk. It's factory installed, no
installation problem, and there is even a utility so that the
consumer can delete what they don't like after having tried it.
So it is really a benefit for the customer. No installation
woes, the magazine reviews are ecstatic, our customers give us,
you know, very, very good comments. Oh, by the way, we lost $50
million of Microsoft Windows rebates as a result of this action.
Well, you are now an ex-CEO of a PC OEM.
What happens is that, to borrow a phrase from a gentleman
whose name I forgot, I apologize, but the PC OEMs are a vessel
state. I've seen grown men quake when considering doing things
that might displease Microsoft, or might impose a financial
penalty, because here's how this scheme works. You get the price
for Windows, and you qualify for additional rebates, if you
behave. If you don't behave, like if you store the competitor's
product, or a competitor's product on the hard disk, you lose
these rebates. That conduct might be acceptable for an aspiring
competitor with 12-1/2 percent market share. But, when you have
100 percent market share, and let's kid ourselves in the macro
sense that we have only 80 percent market share, that is
offensive. They have 100 percent market share in the PC
business. That's what it is.
So once you have your monopoly in the business, you are in a
position to fine, the rebate now is turned around into a fine,
you're in the position to impose a lethal fine on the PC OEM.
Well, I'm not a lawyer, so you know, maybe I will be told through
very complicated syllogism that this is up, but to me, you know,
the 12 year old in me, still very much alive, says it's not good.
I don't see who benefits but Microsoft and its allies,
shareholders, which are very happy, and that's a big problem when
we consider remedies, and their various allies.
That is a conduct which is harmful to the industry, it
prevents innovation from happening, because people who want to
put new competitive, innovative products on the marketplace are
forced off. This is what I talked to a consultant who did work
for another large company said, yes, we do work for Microsoft on
strategy. They have a very simple strategy, no crack in the
wall, not a single crack in the wall, because otherwise the water
gets in and soon the masonry starts to crumble. So that's one
thing I wanted to shed light on. And I'll get to remedies in a
moment.
I'd like to spend two minutes on the interoperability
argument. The argument we heard this morning perhaps it needs a
little bit more thinking, because on the one hand the study, such
as it is that was done, was asking incumbents not innovators.
Your established companies consider legitimately that doing more
work is bothersome, and they have a vested interest in working
with Microsoft and maintaining the Microsoft monopoly. SO I
think that puts in question some of the conclusions suggested by
that study. And when it comes to interoperability, Gary talked
about dual boot. Well, if you have multiple boot or dual boot,
and you can boot Linux or the BeOS and Windows on the system,
then you can bring applications. Our system takes less to boot
than it takes to launch Outlook Express. So the argument it
takes 18 seconds to book, which is again, Outlook express on my
computer takes about a half a minute to boot. So you can switch
between operating system in less time today in less time than it
takes to switch between applications. So the interoperability
argument I think should be reexamined, I'd like to suggest, in
view of this fact.
Now, when it comes to remedies, the problem is, in my
opinion, as Gary, again -- sorry to quote you so many times,
Gary. But, I think that a number of things have happened that
make the quarrels about the browser integration a little bit
passe, as you say in English. What Microsoft has done recently
is add a new wing to the roach motel. But, seriously, file
formats are the great roach motel. Once you start using them
it's very hard to get out. And look, Windows begat Explorer,
Explorer begat a dialect of HTML which is proprietary to
Microsoft. So if your server does not speak that dialect of
HTML, or if your site server, you're not going to be viewed. So
that's a problem.
Well, let's look again at what's happening with MS audio,
this is another way for Microsoft to create a format that they
own. And I have to admire what they've done. You know, the
secure digital music initiative, you know, this is consensus
building. And having been Californicated now for about 14 years,
I know the problems with consensus. It takes time, and it gets a
little soft, and sometimes very boring. In the meantime,
Microsoft having no consensus problem, the way they so admirably
decided, all right, here is MS audio. And bingo, another file
format which developmentally -- you know, a new wing to the roach
motel. And soon we'll have the pleasure of using Office 2000, a
great product. You know, a great product, I'm not arguing that.
Well, what is Office 2000 file format? It is an extension of
HTML, and there you have it, another way for Microsoft to control
the situation, because as we know if you link -- if you own the
mint that prints the tokens of commerce, you have a very
interesting advantage.
In my country of birth, you know, the French academics
complain that the Americans have a, you know, world domination
through three kinds of tokens, the language, English, or such as
it is American English, Walt Disney, you know, in the
entertainment, and the almighty dollar. Well, what we have here,
and perhaps this is the reason why the government sues Microsoft,
is that Microsoft has become in a way a state and its mint.
So, now to the remedies. First, I think we should look at
the commercial contracts and the OEM contracts, and I have to
agree that what's being said here, first we should shed light on
them, so that nobody can hide and do a little bit of backdoor
deals, and if someone pays more or less for Windows, the consumer
would know what's going on. In terms of remedies, the structural
remedies, I'm going to say something unpopular here, I apologize
in advance, but my view is if we cut Microsoft in Baby Bells, I'm
going to run for the phone and buy Microsoft stock, because I
want my part of the action, my share of the action, because the
basket of securities are going to be as a result of slicing and
dicing Microsoft, will probably rise in value. So, you know, as
a shareholder, I might like that. As a consumer, I don't know.
The Balkanization of Windows, you know, probably an unsavory
metaphor these days, but the destabilization of Windows, if I
were a cynic I'd say, let's do it, because this would weaken and
cause the same problems for Windows that we've seen for UNIX,
where you have variants of UNIX which do not interoperate so
well. And I agree with Gary that even if we're given a free
license to the Windows source code, I know what I would do, I
would run, because maintaining -- and Gary is very generous. I
think 18 million is a little too small. I want Windows to be
more robust, so the next version of 2000, with 35 million lines
is more like it, and I don't think this is a sustainable
proposition in reality. So in my unpopular opinion, we are left
with, you know, acknowledging that Microsoft is a monopoly and
regulating it. Sorry about that.
(Applause.)
MR. NADER: -- professional software developer with more
than 15 years experience, and brings an insider's perspective to
his role as President of the Association for Competitive
Technologies. Since assuming leadership of ACT, Mr. Zuck has
provided analysis and commentary, and background information on a
wide range of technology issues, and has been part of the debate,
the public debate on various television channels. He has also
written a variety of articles in PC Magazine, PC Week, and
several books containing collections. By the way, the
Association for Competitive Technologies is an industry trade
association of computer software, hardware, and consulting
businesses and professionals, dedicated to protecting the freedom
to achieve, compete and innovate.
Now, Mr. Zuck in a way can be viewed as a stand in for Bill
Gates, while his wealth is not equal to the equivalent wealth,
the bottom 115 million Americans, he does have a number of
viewpoints on the subject, that vary from some those of some of
the other panelists. And we're very glad to have him here to
present his views and analysis.
Mr. Zuck.
MR. ZUCK: Thank you for having me here. It's interesting I
didn't know I'd be represented as an avatar, that's a technical
term for, Bill Gates, I would love his wealth if I'm actually
going to be representing his views, which I don't really know all
of.
I actually asked Jamie Love if I could give the keynote at
this conference, but he said somebody named Ralph Nader had
already taken that. But, the reason I wanted to do that is I
wanted to take a couple of minutes, not too much time, to give a
little bit of a framework for evaluating a remedy, because it
seems in large measure what we need to do is try to figure out
the basis on which we would decide what would be a good remedy
and what would be a bad remedy, et cetera.
Now, unfortunately, I'm handicapped in this to some extent,
because I'm not a lawyer with experience in suing companies, and
I'm not an economist with experience in building studies, et
cetera. I've just been a software developer, so unfortunately I
need to go further back into my experience, back to high school
when I did debates. And those of you that did debate in high
school or in college will find some of this familiar. And what I
think it provides -- I want to provide a bit of a logical
framework for the analysis of remedy, or a plan that you might
propose.
In debate, in so-called "research debate" there's an
affirmative side that has the plan, and there's a negative side
that essentially defends the status quo, if you will. And that
affirmative side has four important burdens. The first burden is
that there is a harm. In other words, they must effectively
identify a specific harm, in this case it should be a harm to
consumers, and because that's a harm that therefore needs to be
solved by this plan that they're proposing. The second piece of
this burden is called inherence, which means that there aren't
forces already in place that would make this harm go away. And
this is a very important part of proposing a drastic measure.
The third burden of the affirmative team of the debate is
solvency, which means that the plan being proposed will directly
address the harms that were sort of proven in that particular
burden. And then finally, there is something about the cost-
benefit analysis of the plan. In other words, do the
disadvantages, and they're called DAs in debate, outweigh the
benefits of the plan. And so those are four burdens that must be
met by the affirmative team in a research debate.
Why do I raise this? There's another important issue
associated with debate, as well, and that's the issue of
presumption. And you've heard this in the context of criminal
cases, the presumption of innocence, the burden of proof, et
cetera, and very often what we find is a situation lately in
which it is the burden rests with the defenders of the status quo
to prove what the costs of a remedy would be, or to prove what
the disadvantages would be, et cetera. And the burden of proving
or somehow really justifying the benefits of a particular remedy
seems to fall away. And I want to remind everyone that in the
case of a tie in a research debate, you always have to vote with
the status quo, or with the negative, because there's always
unforeseen risks, there's always costs, et cetera.
So we cannot take lightly the idea of making this drastic
intervention into one of the most successful and dynamic
industries in our country. In fact, the majority of the industry
feels that way. Mike Pettit during his discussion of polls
talked about the fact that even companies that feel that there's
something wrong fear dramatic intervention into this marketplace.
Poll after poll conducted by news organizations and independent
polling firms, demonstrate the consumers are very wary and
suspicious of direct intervention into the technology industry.
Poll after poll o IT executives and software developers, again,
very wary, very suspicious of direct intervention into the high
tech industry.
So remember this issue of presumption when dealing with the
issue of remedies. The burden of proof rests with the proponent
of a particular remedy, and it is that proponent that needs to
show those four burdens.
If we look briefly at harm, I know we're supposed to just be
talking about remedies, and unfortunately the debate up here has
gotten a little bit clouded and so I'm going to just talk a
little bit about some of these things, but I really do want to
focus on some of these remedies. But, if you look at the issue
of harm and you talk about the harm to consumers, there really
hasn't been any demonstrated harm to consumers. People talk
about the harm to innovation, and yet this is still one of the
most innovative industries in the entire world economy. It
is -- last year was an all time high in venture capital
investment into the high tech industry, with over 12.5 billion in
investment in venture capital. So people aren't shying away from
this as an unhealthy industry. It has the greatest contribution
to our trade deficit. It's an enormous trade surplus associated
with the high tech industry. It's a very healthy industry.
I will ask you all to remember that our poster child for
pity in this case is Netscape Communications that recently did a
merger with AOL.
[TAPE CHANGE.]
MR. ZUCK: -- system. And integration is when this
componentized functionality becomes a part of the system services
of that operating system. In other words, if the only use of it
is end users, it's bundling, if the constituents of that
functionality are developers for that operating system, it's
integration. And these are just my definitions as sort of a
basis for this discussion. So when talking about Internet
Explorer technology, I think I would probably have to concede
that IE 1 and 2 were bundled, and that the process of integration
began with IE 3.0 technology.
But, let's talk about bundling. I want to make a very
important point that there's nothing wrong with bundling.
Companies bundle products in order to make their product more
interesting. I mean, we've already heard that Microsoft only
competes with itself, but let's not dismiss the fact that they do
compete with themselves. My father bought a computer with DOS on
it, he bought Notiveni (sp), and it was only 15 years later that
I was able to convince him to upgrade his computer, because he
got tired of the C key that wasn't working, and was having to
insert that manually. So, you know, there's nothing that says
that people necessarily are going to upgrade operating systems,
and we're already seeing that in the 32 bit operating system
market. So they need to improve the operating system, because
this is not like a leased line to a house like a phone line, this
is something that if you don't buy more, that revenue stream is
dead.
So everyone does bundling. Every major OS at least bundles
a browser, several types of applications, and usually much, much
more. Because I knew that Mr. Gassee was going to be on my
panel, I went to their website and looked at the Be operating
system. They bundle something called Be Mail, which is the
equivalent to Outlook Express in Windows, although it may be much
faster. I don't want to make any kind of technical assertions.
Something called Net Positive, which is an integrated, bundled
Internet browser functionality. Something called Poorman, which
is actually a built in web server. Something called Style Edit,
which is a built in word processor, and something called Sheep
Shaver, which is actually providing Mac emulation, which, very
similar to a browser, is an attempt to expand the target audience
of your operating system.
Bundling in a Mac emulator is a way to gain access to
another breed of applications, and to bootstrap applications onto
your operating system. Netscape did much the same thing by
integrating email functionality into their browser, at a time
when they had a very dominant market share of close to 90
percent.
My second point, bundling doesn't mean dominance. IE was
bundled before Navigator even shipped, and Navigator built its
dominant market share at a time when Internet Explorer was
bundled with the operating system. There is nothing mystical
about bundling something with the operating system to create
market share. In fact, ironically the number one use of Internet
Explorer was to go download copies of Netscape Navigator. So, in
fact, the bundling of IE 1 and 2, the primary beneficiary of that
was, in fact, Netscape.
This led to much more aggressive innovation in the browser
technology. The fact that Microsoft entered this market and so
that there was more than one company that was in the browser
market, led to a very rapid pace of innovation in the browser
technology market. IE technology only gained mind share and
market share when it began winning the majority of technical
reviews. And I have to tell you, if what we're worrying about
here is that if two products are equal, or if one has slightly
superior functionality and is free, and people are choosing that
over a product they have to pay for, that has equal of slightly
inferior functionality, then I can't really consider that a harm
to consumers. No one has the right to be in a particular market.
And MSN, a bundled thing that a lot of people are up in arms
about, again, more apocalyptic predictions, is still floundering,
despite the fact that it's embedded in the operating system.
Browsing is a bit of a special case, though, in terms of
bundling. They are a form of platform. There is a new breed of
applications, electronic commerce applications, reference
applications, financial transaction applications, and financial
management applications, et cetera, that were being deployed
specifically via browser functionality. Amazon.com didn't need
any kind of relationship with Microsoft to attain the market
share that they have today.
There was a new type of application emerging and OS vendors
need to ensure their platform is capable of running popular
applications. It's a natural evolution for an operating system
to make sure that they can run the most modern applications.
That's why Windows couldn't be successful until it could run
Lotus 123 or DOS. That's why IBM included Windows emulation in
OS/2. That's why Be includes Mac emulation in the BeOS. That's
why Windows needed a browser and if network computers take off
and become really popular, I think you can count on Microsoft
trying to make Windows the best damn network computer emulator
that it can be, so that people can at least make the choice to
host or to pull down server based network computer type
applications.
There was a standards war being waged. I'm not going to
apologize for this. Yes, there was a war being waged over
standards. In fact, in this particular case the assertion of
Microsoft's fiat power in the standards bodies has been grossly
overestimated, and it was, in fact, Netscape trying to leverage
their own market share that took proprietary steps with things
like plug-ins and et cetera, and Microsoft in what I guess was a
fairly exceptional case, working very closely with standards
bodies to try and move forward the HTML specification. And the
assertion that somehow there are some things on the server that
Internet Explorer is unable to read is an absurdity, and would
certainly be a counter productive move for Microsoft to make.
The second point, though, is that integration of new
platform technology is essential. And this is my distinction
between bundling and integration. Integration is fundamental to
the growth of an operating system. You want new connectivity
technology, new interface components, new device supports. One
of the most interesting things about graphical user interfaces
was not only did they look better for users, but what they did
was provide a set of building blocks for developers. So instead
of everybody going out to all these third party development
libraries, and coming up with their own version of a text box,
and how you would edit in a text box, or their own version of
menus -- I mean, I don't remember -- I don't know if many of you
remember the DOS world in which every application looked
different. One of the benefits of a GUI operating system was
this consistent set of building blocks that allow there to be a
consistent user experience across applications.
It almost always puts someone out of business to integrate
this type of functionality into the operating system. Some
examples include expanded memory support, multimedia support,
printer driver support, TCP/IP, and HTML rendering which didn't,
in fact, put anybody out of business, but that was certainly the
fear.
I myself worked for a company called Matasis, we produced a
product called Simple Win for Windows 2.0. And basically what it
was was an application that was a program launcher that was
graphical. I don't know if you guys remember MS DOS executive,
but Windows 2.0 didn't have any graphical user interface, really.
And a graphical file manager. Simple Win was a program launcher
and graphical file manager. And then Windows 3.0 came out with
program manager and file manager, thereby eliminating the market
for Simple Win.
But, what we did was we took the million plus dollars we
made from our bundling arrangement with IBM, et cetera, invested
it and built client-server development tools. We didn't spend it
on lawyers and lobbyists trying to get Microsoft sued for the
fact that they had built a program manager and a file manager
into the operating system. We went into that process with our
eyes open, knowing that we were building and filling a whole in
an operating system that was likely to be filled.
Providing new developer functionality is essential. You
want a consistent look and feel across applications, and it
allows the creation of more modern, more robust applications, if
you provide these building blocks. It allows developers to
concentrate on the application they're trying to build, rather
than the underlying plumbing behind the application.
Built in technology is in heavy use. If we just take
Internet Explorer technology in particular, Windows uses it to
provide a consistent user interface, in file manager, HTML help,
et cetera. Many ISVs, including Merrill Lynch, Quicken and AOL
make use of this embedded functionality. It's used in large
measure by consultants, which is how I most recently used it, and
there are already alternative browsers, such as Neo Planet the
have begun to surface that are browsers that basically avail
themselves of the HTML rendering functionality of Windows, but
build better search engines, better support for favorites and
folders, et cetera, so people are building on the technology. So
the disintegration, if you will, of IE technology would be
harmful, or the unbundling of it.
Many applications would break, Windows would become a less
interesting platform, which I know is in the interest of few, but
not in the interests of many. So the other important thing here
that Netscape is not an effective substitute for the integrated
functionality of Internet Explorer, because it is just an
application at this point, although they're working on that for
AOL.
Another remedy that was brought up is this issue of pricing,
and again, this issue of fines on OEMs. This is going to be a
perfect example of something that will really follow out of a
finding of liability in the case. It's not at all clear that the
rhetoric of the court house steps and the rhetoric that we find
in the press associated with these contracts is really going to
be borne out as truly exclusionary. This idea that you can't do
this or this will happen, there have been some incentives and
things like that, and I think we'll see. And the reality is that
if we see that there has been some kind of illegal contracts that
they will be dealt with through some kind of a judgment. And
again, they will suggest themselves from a ruling.
Finally, this idea of contracts with OEMs I think is another
thing that's blown a little bit out of proportion. One proposed
remedy is to let them to do whatever they want to Windows. The
position there being the OEMs are the customers, and so they
should be able to do whatever they want. But, the funny thing
that's ironic about this is that the only reason that we even
have this remedy to discuss is that Microsoft has a distribution
channel. The huge majority of its competitors sell direct and
make complete and solitary decisions about what goes into their
operating system. But, the fact that Microsoft has a
distribution channel, and a set of companies that make many, many
decisions about what goes on their machines, somehow means that
they should be allowed to make more decisions. So I consider
that ironic, given that the majority of Microsoft's competitors
don't even go through a distribution channel, but sell direct,
and so nobody is given the right to decide what goes on the
desktop, or what gets bundled inside the application.
But, let's talk bout this just in terms of its practical
implications. Microsoft is responsible for the Windows UI, users
are expecting a consistent user interface, Microsoft has to
support new end users, et cetera, and developers expect some
level of predictability in terms of the applications that they
try to build for the operating systems.
But, at the same time OEMs have a great deal of flexibility.
The put up their BIOS splash screen, they can install whatever
they like on that desktop. You'll notice that something like
three quarters of that desktop is free for them to put on
whatever they want. They can customize the ISP locator service,
to provide their own based ISP types of decisions, which was
another huge fear that Microsoft was going to direct everybody to
ancillary services. They change the wallpaper, they install
applications, and they can provide, if they want to, one click
installation of any other alternative desktop, like New Wave used
to be, et cetera, to uninstall pieces, they can give the user the
choice to do that, they simply can't make the choice to do it
themselves.
Now, what's wrong with that? If they get the user to do it,
the put a dialogue box, your life will be much better if you
click this button. They have the right to ask that. But, you
know as well as I do that if they were really just updating and
putting and changing what they wanted on the operating system
that wouldn't be motivated by customer requests, those would be
deals that they made with people to bundle things on the
operating system.
So Dell, who now sells printers might make the decision,
well, why should I bundle HP printer drivers with the Windows
operating system? I want to make it more likely that people will
buy, you know, my printers. So, again, I think that users and
Microsoft have the right to a consistent Windows interface.
Value added resellers have even more control, Dell and others,
DTSI, Inicom (sp) one of our members, all are able to customize,
heavily customize Windows for their end users.
So I need to wrap up. But, I want to just reemphasize the
fact that we need to look very hard at the harms and the specific
benefits that people can identify for the remedies that they
suggest. The burden rests with the proponents of those remedies,
not with the defenders of the status quo, a market which is
energetic and the most dynamic one in the economy.
Thank you.
(Applause.)
MR. NADER: Thank you, Mr. Zuck, for your comments.
If the other presenters thought he had a little more time,
he did, because he has the dissenting view, we wanted to be fair.
We do have two presenters, and I won't use any time in
introducing them, because they're well known. Ed Black is
President of the Computer Communications Industry Association,
and he was a participant at the first Microsoft Conference.
Mr. Black.
MR. BLACK: Thank you, and Jonathan, I know that you
understand the concept of market share. It goes for microphone
time, too.
The reason I wanted to focus a little bit here, and which
panel I was going to be on has changed over the planning of this.
But, I want to get some foundation considerations for determining
remedies. I think it's important that we step back and put in
context and understand that in making a decision on remedies you
have to look at legal, historical, technological, also political
and business considerations. And you've got to look at the way
they work together in the reality of this case at this point in
time.
The true test of a remedy is its effectiveness and whether
it's permanent. The government must not be forced to confront
Microsoft over and over again on similar patterns of abuse. The
pattern of conduct that we've had evidence throughout this trial
shows that Microsoft has at the very core of its business
strategy long, sustained, deliberate, ongoing plan to leverage
and misuse its power in order to preserve and expand its
monopoly.
Microsoft did not accidentally stray over the bounds of
antitrust. This sort of behavior is not occasional, nor
incidental, rather it is planned, calculated and designed to have
an illegal and improper outcome. Microsoft's management
willfully strategized how to conduct business in a way that
ignored and disregarded antitrust laws. I should say these are
not official institutional views in all cases.
The trial has exposed successfully Microsoft's seeming
disdain for the legitimacy of laws establishing the boundaries of
proper behavior. Given Microsoft's record, it would be naive to
expect the company's management to follow court orders in good
faith. Such cavalier disregard of the law leads one to conclude
that effective remedies will need rigorous oversight mechanisms
to review any areas of discretion. Preference should be given to
crafting effective remedies that are largely self-executing by
their nature, and to try to maximize the use of market forces to
ensure a future competitive environment. But, Microsoft's
flagrant illegal conduct has had a huge impact, has caused
irrevocable damage and could, if not adequately stopped, cause
greater harm.
A meaningful remedy should, therefore, include elements that
are remedial, preventative, retributive, and even punitive in
nature and effect. It is not sensible to think about remedies in
any other terms but broad sweeping reform. As we consider
possible remedies we must remember that to the extent Microsoft's
corrupt corporate culture is flawed and even corrupt, it must be
dealt with as well. The company's fundamental business culture
must change, and the company must rid itself of those forces that
have led it down the path of ignoring the law.
We have a unique situation that is part of what must be
considered in fashioning a remedy. Microsoft, it's a huge
problem that we face, and the fact that they have such enormous
influence on a critical part of our economy. It's a company that
has exhibited its arrogance in business practices, and a short
term solution is not acceptable. We need a long term one. We
have concluded that in order to effectuate the kind of open,
competitive, innovative world that is most desirable and
meaningful, and comprehensive a mosaic of remedies must be
imposed, that call for the creation of a remedy package that will
address the power and strength of the Microsoft monopoly, and its
use of that power, its disdain for its legal rules and norms of
behavior, and the many different areas into which Microsoft is
trying to extent its monopoly.
Microsoft undertook a number of potentially, even for
criminal actions as referenced by Joel Kline at the trial, it has
left a big evidence trial. The Justice Department's case has
been successful thus far, because various entities, including
some of Microsoft's competitors, had the courage and incentive to
ensure that the evidence surfaced. Furthermore, the Justice
Department was able to bring forward a powerful case, because it
had the capability, knowledge and fortitude to investigate
Microsoft and put up with the many obstacles thrown in its path.
At hand, thus, is a unique opportunity, which if not seized
upon we think many never present itself again. Microsoft has
major strengths, which have to be factored in, in considering a
remedy. The strengths come in a number of different areas.
Their market worth is part of their strength. Their case
reserves, their equity and ability to buy many companies, the
ability to use the standards to misuse and dictate the standards
process. And a tremendous power to lock people into applications
and operating system software. Microsoft's locked in base, as
has been discussed, is deep. And is a result of many years of
effort, time, resources, both legitimate and improper.
Another factor that is one of their sources of strength and
domination is their reputation as a punitive and retributive
competitor. Therefore, we think a foundation is laid for a broad
remedy. We're at a point where the communications and software
industry is becoming increasingly part of every element of our
society, and economy. With the Microsoft case we face historic
crossroads. How do we deal with this accumulation and amassing
of power? We must now make choices about remedies and, again, we
are concerned that if we don't make the right choices, we will
not be able to correct this later on.
The behavior we've seen is not by low level employees. It
has clearly been undertaken with top leadership involvement, and
this conduct has been repeated year after year, market after
market. The direct use and misuse of Microsoft's power was at
the core of their business strategy, as I said, and is not
aberrational or peripheral. Because it was so embedded,
ubiquitously, throughout the company, in its research, in its
marketing, its public relations and its business development
operations, it permeated throughout the entire corporate
structure. Therefore, we believe a remedy must address the
systemic problem and must deal with the problem in a very
comprehensive way.
Microsoft's demonstrated in unrepentant disdain for the law,
in the comments after the first trial, in comments since,
antitrust law is really something that it has not previously
taken seriously. It has shown no credible inclination to alter
its fundamental approach to business, which is to misuse its
monopoly power. An attempt to curtail specific behavior
patterns, therefore, is not likely to be any more effective than
damming one small tributary of a huge river. There is so much at
stake that we cannot take the chance of risking this unique
opportunity to pass by. We've got to get it right, this is our
only chance.
It's worth looking at the end game. What are we after here?
What do we want? We don't want to just -- it's not a matter of
hurting Microsoft, it's creating an innovative and dynamic, more
dynamic industry. We have still some dynamic elements in the
industry writ large, not necessarily in those areas where
Microsoft has a heavy footprint. And to the extent that during
the trial we have seen a continuation of investment in a number
of areas, I would suggest it's in no small part because the trial
is in existence. But, back to the angle, we want to make sure
that we have a world where you have that kind of competition, you
have as much as possible open common standards. We see a world
in which companies can have discussions on research and product
development, without having decisions distorted by a monopoly on
which they are absolutely dependent.
A few of the areas that must be addressed, where we see
Microsoft going out from its hub center, control of operating
system, is clearly and maybe the most important is network and
enterprise applications and operating system, various other
software applications, appliances, electronic commerce world,
various Internet access and browser aspects, media, content and
telecommunications. All of those are significant areas, which
again a remedy, when you measure it as to its effectiveness, you
have to take that template and say, will it address all these
elements of power, will it address all of these areas of likely
targets for abuse?
I think we've heard a lot of discussion about vertical and
horizontal. We've had some discussion of intellectual property
remedies, and here we're having some on conduct. I think there
we kind of have come to conclude, as we looked, and have had
discussions internally, at every different piece of remedy and
said okay, how about that, and we wind up coming to the
conclusion, it's not going to work. And we say, well, what if we
combine A and B? Well, that might work a little, but frankly
you've got an entity here which is dedicated to getting around a
remedy, and they can go this way.
So I think at the end what we are evolving toward, as I
said, is a mosaic, which will probably include suggestions for
horizontal and vertical, plus some intellectual property, some
conduct, and we don't want a big regulatory regime, that's not
the goal. It is the conduct and the attitude that we have seen,
of trying to evade rules and regulations and laws, that may well
force us to conclude that a degree of very specific detailed
conduct remedies have to be the mortar between the bricks. The
bricks may be some of the large elements of structural, but
frankly, you must have the mortar of some specific conduct
remedies and review thrown in. But, alone, they are not there.
You can not have an effective wall out of the mortar. You must
have some meaningful bricks. And I think the bricks in this case
really are substantial vertical and horizontal splits in
structure.
Let me leave some time here, and end it there.
(Applause.)
MR. NADER: Thank you very much, Mr. Black for your remarks.
Our final respondent is Joseph Simons, who is a partner in
the law firm of Roger and Wells, in particular, works in the law
firm's antitrust group.
Mr. Simons.
MR. SIMONS: Well, good afternoon.
I'm going to be very brief, because I know you all have so
many questions and we're kind of running out of time here. I
want to thank Gary for that really wonderful presentation, and
just say that, you know, everyone knows Gary is such an
extraordinary lawyer, but in one aspect I think he's pretty
representative, and that is when it came to thinking about these
issues, he was thinking about liability. And I think most
antitrust lawyers, at least, are thinking about liability, and
really don't focus on the remedy. And the remedy, though, is
very, very important. In fact, it's at least as important as the
liability issue, because if you don't get the remedy right, then
the whole exercise is just worthless.
In fact, a bad remedy can be worse than not bringing the
case at all, because what the would-be defendants then see is
there is no penalty for their conduct, and they become
emboldened. So the remedy is a crucial thing, and I want to
commend the folks who are putting on this conference for having
it on this topic, because it really is critical.
We've seen other folks, Steve and Gary, talk about what the
relief should be, or what it should do, the goals. You want to
terminate the unlawful practice, you want to ensure that any
monopoly power that's improperly obtained or maintained is not
used in the future, and you want to prevent the repeat of any
illicit conduct. I'm going to focus completely on the remedy
issue. I'm not going to talk at all about the liability issue.
I'm going to just assume we're going to just talk about the point
of, the trial is over, Microsoft has lost, what do we do? And
you don't lose the trial unless there is consumer harm, or some
addition to market power. So I'm not going to address any of
those issues at all.
Okay. The Justice Department is now talking with Microsoft,
at least that's what reported in the press, and various types of
remedies are being put forth, at least reportedly. Microsoft
seems to have put out the word that they are willing to agree to
a whole range of conduct restrictions, but they are not willing
to do anything that would fundamentally alter their monopoly
power, or their ability to leverage that power from the operating
system market into any other market. And clearly Microsoft has
no interest in structural remedies, such as divestiture.
There was a comment made by Mr. Zuck about maybe we should
wait to deal with these remedy issues until we see what the
court's decision is. The problem is there are settlement
discussions going on right now, and we may never see the court's
decision. We may just see a consent decree. So the time is now
to talk about these remedy issues, to make sure that what the
Justice Department agrees to is something that's efficacious.
Okay. So what is efficacious, how do we determine that?
The thing I would like to focus on is one of the things that Ed
talked about a little bit. What you need to make sure of is that
the conduct prohibitions that you're going to go with now can be
drafted so that the compliance can be monitored, enforced, and
not circumvented. And for most companies, conduct restrictions
are generally something that works. Most companies in this
country of any size in the antitrust compliance programs, they
have folks who pay attention to this stuff, and they make a real
effort to make sure that they are doing what needs to be done, to
comply with the law.
Microsoft presents a different case. And it's not just that
they have a disagreement about what the law is. That would be
one thing. But, what they seem to demonstrate is that they have
a disregard for the enforcing agencies and the courts, and that's
really a problem. For example, you know, the company boasted,
apparently, that with regard to its preexisting consent decree
with the Justice Department that they didn't change their
behavior one bit. Then in complying with an order from Judge
Jackson in the contempt proceeding, they basically made a mockery
of it by putting out versions of Windows that wouldn't work. And
then finally we've heard about, you know, this particular Janet
Reno comment. And when you tie that kind of thinking with the
general power that Microsoft has in the marketplace, and the fear
with which they are held in the OEM and developer communities,
that's a very difficult combination to think about conduct
remedies being efficacious.
We've already gone into, in some fair amount of detail with
Gary and others, what those conduct remedies might be, I'm not
going to go into that again. One thing I would say, though, and
just very quickly, and then I'll give you a chance for questions,
is if you look back at history here, what you see is -- you go
back to the 1995 consent decree, and what you see there it's very
difficult, just as a general matter, to create and think about
conduct restrictions, prohibitions that can stop what needs to be
stopped. Microsoft is very creative, this industry is changing
very rapidly. All these new things that occur make it especially
difficult to come up with a set of prohibitions that can't be
circumvented.
The other problem here also is that it's very hard to
monitor what they're doing, because the Justice Department does
not get a lot of cooperation from the folks who are the subject
to the decree violations. As other folks have said, grown men
quake in their shoes, and so there is a fair amount of reluctance
to be helpful. And I think that's one reason we may have seen
the Justice Department take so long to bring the initial action
itself.
I think that Ed has pretty much covered it. So I'll just
say thank you, and open it up for questions.
Thanks.
(Applause.)
MR. NADER: Thank you very much, Mr. Simons.
Now, we can hear from the audience, any questions either to
the presenters or the respondents? And I'll repeat the question
so that all of you can hear it.
Yes?
QUESTION: (Inaudible.)
MR. NADER: I guess all of you could hear that. I don't
have to repeat it.
Mr. Gassee, can you come up here for the audio.
MR. GASSEE: Thank you.
The question is what are the obligations, in at least my
view. What in my opinion is the obligation of an operating
system vendor towards the developer? But, in our case, that's
where you clearly see the difference between an aspiring
competitor and an established incumbent. We have bent over
forward, I must say, to accommodate software developers. As our
company was started, we were the first company, if I remember
correctly, to put all the technical information on the web. So
that the developer -- that was, you know, a while ago, so that
the developer in the middle of the night could get the
implementation of the API. So there is no -- so full light,
ubiquity and economy of distributing the information.
And when it comes to integration I heard that we're
integrating a browser. Allow me to build on that point, as I've
learned to say in my adopted California. We have a supplied
browser, which is DOJ approved, meaning you can remove it and
throw it in the trash can, without doing anything to the
operating system. So we -- that's one of many examples of where
we make sure that we supply function, which we believe is useful,
so that as a Mr. Zuck said, Internet Explorer was used to
download Netscape Navigator, and I did that, so I agree with that
statement, we want to make sure that if you can use our browser
to download competitive browsers, such as Opera and the upcoming
version of the Mozilla browser for our system, because we want to
make sure that developers look at us knowing that there are no
tricks, and knowing that we will avoid, as much as possible,
using our established edition, such as it is, to compete with in
a way that we perceive as unfair. So light and flexibility is
what we are trying to supply.
MR. ZUCK: I promise to be quick. I want to go back to my
experience as a software developer. I really have not found the
assertion that somehow the APIs are undocumented, in some
substantial way to be supported by the evidence. MSDN is the
subscription you can get that they're putting APIs on the web, et
cetera, products are available long in advance of their release.
And if you are comparing the developer relations group of
Microsoft to the tender mercies of many of its competitors who I
have dealt with, I have not had the pleasure yet to deal with Be,
but if we're talking about IBM, or Sun, or Oracle, and the degree
to which those companies work to try and help developers, and I
know some of you are here, but I mean, I'm not sure that you
would necessarily make a favorable comparison. Microsoft employs
a great many people, invests a great amount of money in making
sure the developers are capable of building quality applications
for Windows, because it is in their best interest to do so, just
as it is for Mr. Gassee.
In fact, at the Hatch committee hearings when we were
hearing about his issue, we heard from Lotus very specifically
that Microsoft works incredibly hard to make sure that Notes and
their other products work extremely well on their operating
system, because without those applications, that operating system
would be nothing. I think these assertions of undocumented APIs
have been debunked a long time ago, and really don't hold any
water.
MR. REBACK: Ralph, could I just make one comment?
I'm sorry. I just can't let that one go. I mean, I think
all of you are familiar with the book, Undocumented DOS, and
you're familiar with the book Undocumented Windows, then you're
familiar with all the undocumentation. Come on, the incentives
are just different.
MR. GASSEE: And I can add that we had a small application
in Windows. We got a beta of Windows 98, so we checked if our
application which launched the BeOS worked. Now, we met a
gentleman by the name of Andy Glass, whose job as he told us at
Microsoft, is to put out our business, and mysteriously, the next
version of Windows, our application didn't work anymore. Of
course, because we used undocumented, you know, APIs, I'm sure.
So the fact -- the legend that Microsoft works fairly with
developers and its competition is just that. It does not -- it
is not supported by the light of the facts.
MR. NADER: Could any of the respondents come up to the PA,
just because it's clearer for the audience and the video.
Other questions or comments.
Yes, sir?
QUESTION: (Inaudible.)
MR. REBACK: Okay. Where to begin. I don't appreciate
putting words in my mouth. I am trying to engage in a fair
debate, and accept your proposition, none of which has been
proven, and ask the question, if there's a cost to competition
should we bear that cost or not bear that cost. I think you
fundamentally ignore the proposition that has been made in the
first panel repeatedly that there are versions of Windows that
are not fully compatible with each other. I don't know if there
are any MIS directors in the audience here, but the cost of
maintaining cross-compatibility between 95, 98 and NT is
enormous. That's not in your model. I would respectfully
suggest you put it in your model someplace.
There is also a lot of competition on the server side
already. And new companies have to decide whether they'll
develop on NT, whether they'll develop on Sun Solaris, whether
they'll develop on Oracle UNIX. I personally don't consider that
a bad thing. I don't necessarily view those platforms as
bunchable. Maybe NT is better for some reason, for some
applications, and developers would decide then to put that up
front. Maybe they decide to develop on all three. But, the
point is, I shouldn't have the right to decide that for them.
You shouldn't have the right to decide that for them, and
Microsoft shouldn't have the right to decide that for them. They
should decide that for themselves, confronted with the choice in
a free market. And if there are costs attendant to choice in
competition, sobeit.
That's what our capitalist model is made for. It's made to
provide consumer choice. It's made to provide alternatives, it's
a cost we bear and we relish. That's what capitalism is in my
view.
(Applause.)
MR. NADER: Thank you. Do we have another question or
comment?
Yes, sir.
QUESTION: (Inaudible.)
MR. BLACK: I think I want to stress that the most important
thing we're focused on here is the future competitiveness of the
industry. I think I did make reference to the fact that it
should be considered as possible in a remedy context, dealing
with past conduct, and having punitive and remedial behavior for
past conduct, which would send a signal that in that context that
behavior of executives could be brought into play.
This judge is going to have a big record before him. I
think most of the people in the press and independent people who
watch this, I think it's going to be pretty fair to say that if
there is a powerful finding of fact and burden against Microsoft,
it will have as an underpinning the reality that much of the
testimony and evidence presented by certain people from
Microsoft's side will not have been found to be credible. The
extent to which that crosses a line requiring some further
action, I think that's something to look for.
If not central -- our central focus is looking to the future
and to make sure we have an innovative, open industry. But, I
think it's perfectly fair that in dealing with remedies that if
you wind up concluding that there was a kind of pattern and
practice and behavior that takes away what might ordinarily be a
restrained and a great caution about certain kinds of remedies,
because they would -- well, that's too harsh. I think the
behavior of the people here in involved is important, because I
think it neutralizes a great concern that, oh well, that's too
harsh, because you've got really egregious behavior.
MR. SIMONS: I just wanted to add one point to that. I
think what happens with this harsh behavior is that it's coupled
with the market power, the ability and the incentive to really
abuse the market power. So if you create a remedy that
eliminates the market power and the ability to abuse, whether he
has the desire left it's not going to matter.
MR. NADER: I think the question of the punitive action --
[TAPE CHANGE.]
MR. NADER: What you're really saying is in persona
sanctions. You were saying the security laws, a lot of the
officials who were convicted are banned for life, or for a long
time from going back into the securities industry. I think
Michael Millken was subjected to that sanction.
Do we have some other comments or questions?
Yes, Harry first.
QUESTION: (Inaudible.)
MR. GASSEE: In terms of unbundling the browser from
Windows, I think it's too late. This is a fait accompli, and we
shouldn't, you know, look at that in my opinion. In terms of
remedies, all of should be thought that trying to go back and,
you know, ask to hack Windows under judicial supervision doesn't
seem to be it.
QUESTION: (Inaudible.)
MR. ZUCK: I guess I want to make this kind of a general
comment about where some of this is going. I mean, I can
understand that a lot of people have a natural suspicion of size,
and a national suspicion of success, and want to put that under a
cleg light of scrutiny. But, you know, it wasn't that long ago,
it wasn't long enough ago that we put people with special
abilities under scrutiny in the form of witch hunts in Salem.
What we did is we said, okay, we're going to test and see if
you're a witch. And we're going to throw you in the water, and
if you float, then you're a witch and we're going to kill you,
and if you sink, well, I guess you were innocent after all.
Which is largely what happened to IBM. You pretty much, you
know, have to fail in order to prove that you aren't doing
something wrong.
We need to make sure that we don't take this opportunity, as
Ed Black puts it, to tear apart a large company that's been very
consumer-centric, at the benefit of a few of its competitors, at
the expense of thousands and thousands of companies that have no
issue with Microsoft and, in fact, enjoy a very good relationship
with Microsoft as a company, but more importantly enjoy the
benefits of the operating system. So the key here is that we
need to make sure that we don't focus on a few companies, but
instead on the majority.
ACT is working together with two other trade associations,
COMPEA and the ASCII group, representing over 9,000 companies in
this industry. We have companies that are in town today meeting
with members of Congress to talk about this issue. There's a
real face to the companies in this industry, and the remainder of
the industry, that seem under represented by companies that would
prefer to compete in the halls of Washington rather than in the
free market. And I think it's really important that we don't try
to advantage the few at the expense of the many.
MR. NADER: Mr. Reback wants to rebut?
MR. REBACK: I actually don't want to reply to that. I
wanted to address the question, which I think is an interesting
and profound question. Some of the comments earlier on dealt
with whether we should force unbundling of everything and when
bundling is appropriate and when bundling is not appropriate.
And from my perspective, the gist of the government's case, both
the federal government and the state AGs is the monopoly
maintenance case. And neither group would have brought the case,
but for the fact that the monopoly maintenance element.
And this was not a situation where pro-consumer
functionality is bundled in. Rather, the bundling prevents the
OS from being commoditized, in the words of Microsoft. Now, in
that situation would you go for unbundling, I think more in your
bailiwick than in mine, but I would hope that in the future,
similar such platforms can't be bundled in where the net effect
is to maintain a monopoly, as opposed to have some pro-consumer
benefit like TCP/IP bundling might have in theory.
MR. NADER: We have to be ready for lunch I just a few
minutes. Any last questions or comments?
Yes, sir?
QUESTION: (Inaudible.)
MR. NADER: Anybody want to comment on that? Anybody?
The question is why monopolies in this industry rise so
rapidly.
MR. REBACK: First of all, I think you make a very good
point. And it could be that we've been at it too long and
creative thinking from the outside would be very beneficial in
the remedies point here. There are a variety of perspectives in
the industry, and people have characterized the industry as being
robust and competitive. Other people have characterized the
industry as being one with a history of monopoly since it began.
In other words, originally IBM, then taken over by Microsoft, and
I guess to some extent there are people who think that Intel is
the monopoly, or Wintel is a monopoly as well. I'm sure you're
familiar with the standards discussion and the network effects
discussion. But, I don't know that that gets us home. You see,
I mean, you ask a profound question, but we are nevertheless left
with the situation that if the industry runs to standards, does
that necessarily mean it should run to a monopoly, that is to
say, should one company own the standard?
You know, you and I are in agreement. And that to me is
what we've been trying to address with the divestiture type
remedies, and the licensing type remedies. Maybe in your view
we're not doing a good job, and perhaps we're not. And there are
other things that could be suggested. But, we are in good faith
trying to address the kind of -- I am and I think many others are
on both sides of the debate, trying to address the kinds of
concerns that you raise.
MR. ZUCK: I think that is sort of the answer to this
question, is that there is a push towards standards in
facilitating platform technologies. The monopolies that arise
are the ones -- or the dominant players, if you will, not to make
concessions on this term monopoly, but the dominant players that
arise are the ones that provide platform or facilitating
technologies for other companies to compete. And yes, I get
upset sometimes with ODBC, that Microsoft has fiated the database
standard for accessing databases. But, at the same time, as a
developer, I get very tired of groups like ASCII and others
taking forever and ever to try and come up with a standard so
that I can get on with the business of creating applications.
And the fact of the matter is, the creation of ODBC led to a
huge explosion of report writers, database access tools that
could get to all the databases that were available for PCs. So
even if that standard is fiated, it actually creates competition,
and so we are going to see a natural movement toward a dominant
player in technologies to facilitate a much broader competition
across the industry.
MR. REBACK: That being the case, there's two ways to look
at it. We just accept that, that a company will have a monopoly,
or we step back and say, given the fact that the industry tends
to run to standards, we should be more vigilant to make sure that
somebody doesn't step out of line, because -- I've heard Joel
Kline liken this to a 100-yard dash. A normal industry runs a
mile race, and if somebody takes a false start, sobeit, the
competitive processes will catch up over time. But, in one of
these standards markets, if somebody takes a false start, it's
like a 100-yard dash, and the race is over before it gets
started. And that would suggest that we've got to make sure very
early on that everybody is obeying the rules. And I think the
question is, if Microsoft hasn't obeyed the rules, should we
address it in some way so that it does obey the rules, or should
we do what the case law says and pry the market open to
competition?
You're right, it's a very profound point. There's a lot
more debate that we should have on that point.
MR. NADER: Well, I'd like to thank the panel, Mr. Reback,
Mr. Jean-Louis Gassee, Mr. Zuck, Ed Black, and Joe Simmons for a
stimulating conversation, with the participation of the audience.
We'll be back at 1:30. In the meantime, there's lunch over
there.
Thank you.
[END OF PANEL #2. LUNCH BREAK.]
PANEL TWO - INTEROPERABILITY REMEDIES
MR. FIRST: Going into the afternoon. If you still need
more sugar -- if you do we still have some cream sodas that you
can have. My name is -- and I have to slightly amend the
description that's on your program. It is Harry First, not Henry
First. My parents would be upset if they found this name here.
And I am current a professor of law at New York University. And
as the program indicates, I will be taking over as head of the
antitrust bureau in the New York State attorney general's office,
but I have not done that yet. So I am still here in my capacity
as an academic, and really as a learner, along with I suspect
most everyone in this room, even those who represent others,
which probably everyone here does, except for me, because this is
the question of the remedies in the Microsoft case, is not an
easy question to answer, as our panelists from this morning, in
fact, have indicated.
Our panel topic is interoperability remedies. And I'm going
to briefly introduce our three panelists. They'll each of 12-1/2
minutes in which to present their remarks. And then I'd like to
open the discussion up to the floor, because I hope we can get
some more interoperable interaction, and some more questions for
how we might go about achieving a useful result in this case.
Our first panelist will be Mike Scherer, immediately to my
left. Take nothing of the geography of that, whether to my left
or to my right. Mike is -- I was going to say is so well known
that he needs no introduction, but then I wouldn't have a chance
to introduce him. He is currently teaching at the Kennedy school
at Harvard, but he has held a number of academic teaching
positions in economics at major universities. He is, as many of
us know, the author and co-author of what I think of as a leading
textbook in the industrial organization field, a literally
invaluable use for antitrust lawyers and teachers.
What may be perhaps most critical about Mike's appearance is
his lifelong interest in issues of innovation. I don't know how
far in life that goes back, but certainly in terms of scholarship
interest it's been a consistent theme of Mike's work, and it's
shown up most recently in the Intel case, in which he was an
expert witness, although there was no case and he didn't witness,
I guess.
Our second panelist is James Love, it says here, although
now I've come to know him as Jamie Love, as you all do
presumably, who is director of the Consumer Project on
Technology, of the Center for the Study of Responsive Law, the
original center started by Ralph Nader, of course. And I'm not
sure, perhaps the most critical thing in Jamie's background is
that he's from Seattle. I don't know. It says that -- he
printed it out on his website, and this is the way we learn about
people today. But, in any event, Jamie's background in the past,
so you can evaluate his statements on that basis, his past
background includes being an economist, and, in fact, he says
that he taught the required micro economics sequence at Rutgers.
So we have someone with good -- two people with excellent
economics training.
And our third panelist, I was about to say witness, but I
realize it's a panel, is Ted Johnson, cofounder and executive
vice president of Visio Corporation, which also is from Seattle.
So I don't know what that means either. But, Ted tells me that
this is an independent software vendor who develops exclusively
for the Windows platform. And Ted says also, he started
developing for Windows in the summer of 1985, before most of us
were born, and four months before Windows 1.0 first shipped. And
has also developed software for the Macintosh. I told him I
assumed that Windows started at Windows 2.0 so that people would
think that it was an established product, but apparently not. So
I have already learned one important fact about Windows and Bill
Gates.
Without any further ado, I'm going to turn the platform over
to Mike Scherer.
MR. SCHERER: Thank you very much, Harry.
It's a paradox that we're here at the Carnegie Institute.
The philosophy of Mr. Carnegie was described as, "hard driving".
And of course the book that brought Microsoft to the attention of
the American public was Wallace and Ericsson, Hard Drive. There
must be some coincidence here.
It's unfortunate, perhaps, that we are here. One of the
things I learned when I was chief economist at the Federal Trade
Commission is that one should never bring a major antitrust case
without having thought through very carefully the end game. That
is to say, what remedies one plans to implement. Now, only now
is the Department of Justice and are the state attorneys general
thinking about that end game. I would argue that that's too
late.
I was involved in U.S. versus IBM, and one of the major
reasons why that case went on for 13 years is that the government
couldn't figure out what it wanted to do. I was involved, as
Harry said, in the Intel case. The reason that case settled
quickly is that the government knew precisely what it wanted to
achieve, and when the boundaries of its perception were revealed
to Intel, Intel realized that this was something they could live
with, and a settlement was forthcoming. So, again, it's
unfortunate, I think that we're here. But, I commend Ralph Nader
for organizing this necessary colloquium.
Now, my assignment I think is to talk about two possible
remedy options. One is the publication of source code, without
more. And the second and alternative remedy is the licensing,
the compulsory licensing of source code. First, on publication.
Now, it is quite true that applications interface specifications
are made available to software writers now, by Microsoft, and
Microsoft -- there was a public television program on the matter
half a dozen or so months ago. Microsoft maintains a clean room,
into which applications writers can come and try out their new
application on the latest version of Windows and see how well it
works.
On this public television show, it was MacNeil Lehrer, if
I'm not mistaken, or the successor to MacNeil Lehrer, they showed
a young man coming in and trying out his new application program
in this clean room. The reporter for MacNeil Lehrer talked to me
afterwards and said that this guy was absolutely scared silly,
despite all the assurances of Microsoft that the machines were
disconnected from everything, and nobody could read what he had
put on the machine. Nevertheless, he was scared silly that
Microsoft was going to read what he had done, and come up with
its competing product.
Now, it's been 35 years since I wrote my first successful
Fortran program, and I've been writing software ever since. So I
guess I know -- I feel a know a little bit about writing
software, and I really believe, and this is the only basis of my
belief, I think we need to hear from the applications writers,
but I believe that when you actually know what's inside the black
box, when you know the detailed source code, you can write a
better program, applications program that sits upon that
operating system, than when you only know the interface
specifications.
So I think that publication of source code, the Windows
source code would be a good thing. There is a problem. Windows
is notoriously buggy. It changes constantly. And so you can't
just assume that the version you've seen is the version against
which you must interface, that's changing constantly. That,
however, I see as a minor problem, with modern technology you
could have a monthly update on the source code. You could bold
face the changes relative to the last version, and people could
see how things are changing, and how, therefore, they have to
adapt their complementary designs. Again, I think that would be
an improvement. It would help software applications program
writers operate on a more level playing field.
The assumption of that proposal is that the source code
would be published, but copyright would remain in the hands of
Microsoft. A more drastic remedy would be mandatory licensing of
the Windows operating system. We've heard some discussion of
that already this morning. The proposal that was principally
discussed is one that there be an auction, and that licenses to
three complete versions of the Windows operating system be
awarded to the three highest bidders, and that is that. I don't
think that's the best possible solution.
I think rather a much better solution would be a flexible
system of licensing, in which one could license the whole Windows
operating system, or parts of the Windows operating system. What
would happen if you had this sort of a proposal? First of all,
somebody is likely to come along, license the whole system, and
then come up with a much simpler, quicker booting, less crash
prone version of Windows. Now, it's not just my view, as a
consumer, that this is a problem. There's an article in Business
Week just last week, Microsoft's mission, simplify -- simplify --
the program is too bloody complex. If you had licensing, someone
would come along, recognize this, and develop a Windows system
that is much simpler than the present version.
In addition, a flexible system, a system that allows the
licensing of parts of the operating system, would allow someone
to come along, take the best features in Windows, combine them
with their own operating system, or combine them, say, with the
Linux, and build those features on top of the still imperfectly
developed Linux system, and come up with a hybrid system that
would have a number of advantages. In other words, the idea here
is an idea that we've implemented in plant technology for nearly
a century, through cross breeding, I think, we would get better
operating systems, than under the present system, and one would
only need to license parts of the Windows system to achieve that
end.
Now, there are, to be sure, some problems here. One problem
is the compatibility problem. I agree with some of the speakers
this morning that for someone who comes up with a new version of
Windows in whole or in part, there are advantages in maintaining
at least backward compatibility. And that's about all one can
expect. I would have a standards committee, that has essentially
two functions. One -- in connection with this proposal I would
have a standards committee, it would have two functions.
Number one is to meet -- and there are going to be
inevitable delays, but to agree on what the new -- what changed
applications interface standards should be implemented. This
would not be mandatory, if the developers of alternative
operating systems want to deviate, okay, they can do so, but then
they don't get the Good Housekeeping seal of approval from the
standards committee.
Secondly, the standards committee would, in fact, review new
versions of the Windows operating system, and essentially give a
Good Housekeeping seal of approval in the sense, we have tested
this new operating system against the 20 leading applications
software packages, and we find that all 20 or some subset of
those 20 run in a fully compatible manner with the system.
So that's -- I think the problem of compatibility can be
solve. One, through the incentive to maintain backward
compatibility, two through the use of a standards committee, and
three through the use of a validation system that at least
achieves or ensures that backward compatibility would be assured.
Now, one of the tough problems that has to be solved is how
do you compensate Microsoft for this? Exactly what the level of
royalties would be is a tough question that would have to be
determined on the basis of the degree of liability that the court
has found Microsoft has incurred. Then you would have, for
example, for pieces of the software system, not the entire
operating system, for pieces you would have royalties that are
only proportional to the fraction of the Windows system used.
That's the basic idea. It's novel in a sense. It's hardly
unprecedented, however. The Department of Justice has in the
past had well over 100 decrees, antitrust case settlement
decrees, in which compulsory licensing of patents has been
required.
To be sure, the novelty here is, that you're not having
compulsory licensing so much of patents, although they would have
to be included also, but you're also compulsory licensing
software. That is not intrinsically novel. There is a
distinction. Software is probably more -- the development of
software is probably more like, say, the development of
pharmaceuticals, where you have huge front end costs, and then
relatively low replication costs, than say the development of an
airliner or an electrostatic copying machine. And that would
have to be taken into account in the determination of royalties.
Is this warranted? That's not on my agenda. That's
probably above my pay grade. I don't think, to argue with
Jonathan's statement this morning, I don't think this is just a
witch hunt, in which we're attacking the people who are
successful. When I heard Jonathan say that this morning, I
thought -- I remembered the song that was talked about a few
weeks ago, Joe DiMaggio, where have you gone, because we have
heroes that we don't attack. And they played the game fairly,
they played it well, they played it fairly, and they succeeded.
We have heroes that used their elbows more than Joe ever did.
And I think that is what the court must take into account in
deciding what remedies to impose.
Thank you.
(Applause.)
MR. LOVE: My name is Jamie Love, I work in this building.
I spoke a little bit this morning when people first came in. I
run a consumer group called the Consumer Project on Technology.
I'm going to be speaking today about three issues about
interoperability remedies. One has to do with data formats, one
has to do with the 1984 undertaking between IBM and the European
Commission. And a third are issues relating to interoperability
remedies which have been advocated by Richard Stallman, who is
one of the early founders of the free software movement.
First, just in terms of what we mean by interoperability,
and why I think it's so important. The software market, more so
than say the market for apples or a lot of other things, is
really based on the idea that people want to have programs work
together, or they want to exchange data. It's the
interrelatedness of products, it's the interrelatedness and
interdependencies of data and the ability to share it and use it
which makes it useful, which creates all these problems that an
result in anti-competitive problems.
I have a friend who works at the United States Trade
Representative. He's worked there for 23 years on standards. He
says, in every single case in the United States he's worked on
standards, companies had used standards as a weapon in an anti-
competitive way. So I think we just have to assume this is not
unique to the software sector, this is kind of a generic problem.
And you have to be, you know, sort of recognize this is going to
kind of happen. And in software it's really standards squared
kind of problems, because things just really are useless if they
don't work together.
There's a lot of different ideas about how you get
interoperability. Some people say, if everyone just buys
Microsoft products, that's one way to do it. Other people want
to sort of see standards or access to technical information like
has been talked about here. Even if you buy just Microsoft's
products and that's all you use, you will still have noticed
that, say, for example, if you have Microsoft Word '95, and
somebody sends you a file that's called Microsoft Word '97
format, you can't read it, because they're not really compatible
file formats. And it's because in a way Microsoft actually uses
tough business tactics on its installed base of users, because
they're actually its biggest competitor, people that haven't
bought more frequently or recently. So it's not even a problem
that's solved if you have a monopoly.
Now, I'm going to try and move right along. There's a book
that people have that has this cream color, called Which
Remedies, Appraising Microsoft. I make reference I here to some
papers, because the papers I thought were pretty good, and I
don't really want to replicate everything. The first paper I
make reference to is called Let My Data Go, by Simpson Garfinkel
in January of 1998 in Hot Wired. And in this article he
advocates that better documentation of data formats is, he
thinks, a real big issue in terms of competition. The idea
being, if somebody wants to enter the market for word processors,
they want to exchange mail, if they want to get into the
multimedia game, or develop players or things like that, the
actual ability to understand the format the data is stored in is
really quite important.
Now, he actually goes through and he makes a case in this
particular article. When he wrote this he was talking mostly
about programs like Microsoft Word, Microsoft Excel, or Intuit's
Quicken, which has its own sort of compatibility issues about its
data formats. But, I think that more recently there's a lot of
interest in multimedia data formats, and things like that. And
so this is his proposal, and he elaborates in his paper. I won't
really make the case for it, but I want to draw your attention to
it.
Number two, I'd like to talk about the 1984 undertaking in
Europe with IBM, and the European Commission. Now, I guess
undertaking sounds like you bury somebody or something in this
country. But, I think it's what we think of as a consent
agreement, or something that IBM agreed to do in order to avoid
being found guilty by some antitrust proceeding in Europe. I
really found out about this when I was in Brussels a year and a
half ago, and I was meeting with BG-4, which is what they called
the antitrust guys there. And Fin Lumhold (sp), who was the head
of the unit that worked on the IBM -- that was responsible for a
lot of the computer things, gave me a copy of the agreement and
asked me if I would read it. And I was, at that point,
unfamiliar with it. And I was surprised at how relevant and
contemporary it seemed to me to be to the current Microsoft case.
Now, there is a paper in your packet called the 1984 IBM
Undertaking by Fin Lumhold. And he wrote in October of 1998
these are quotes from his paper, and he starts off -- these
are -- these paragraphs, by the way, were actually not in the
same place in the paper, but I wanted to fit them on one page
here. He said first of all let me sort of explain the basics of
what the IBM undertaking did. It required IBM to document the
types of the program that you needed to be able to make hardware
or software inter-react with the IBM mainframe family of
computers, the VM-370 computers. And the complaints in Europe
were based primarily with American companies that went to Europe
and complained about the fact that IBM was engaged in a lot of
the same unfair business tactics that Microsoft is accused of
more recently.
And well, as the Reagan administration basically ended the
case, in Europe they did not end the case, and they moved
forward. And the focus of the agreement was to get IBM to
provide timely notification to their competitors of changes in
the way that their software and hardware specification worked, so
their competitors could sell disk drives, or software, or backup
devices, or things like that, that were value added parts of the
IBM network.
And what IBM did is they set up a series of mechanisms to
force IBM to provide the information, but also to do things, as
we'll see, to provide affirmative technical assistance if a
compatibility problem existed. It provided some technical
definitions, which were kind of interesting, because it's a tried
and true agreement, and it provided a supervisory role for the
European Commission, which would meet I think about once a year
with IBM to review the progress and to see what complaints --
requests companies had made for technical information and how
they're resolved. And the understanding was that if IBM did not
live up to the spirit of the agreement, and this was a word that
was brought up immediately to me in Brussels, the spirit of the
agreement, that the consequences to IBM would be that they would
go beyond the initial consent order into a different level of
detail, a different level of obligations.
And so IBM had an incentive to make the commission happy.
And, in fact, IBM did make the commission happy, and I think a
lot of people in the industry understood that what happened in
Europe actually benefited the United States because the same
disclosures were made in Europe were actually disclosures that
benefited their competitors worldwide.
And he said in this paper, I guess you maybe had time to
read these things in your paper, this is some detail about it.
I'd like to just go into some of the particular provisions about
the agreement which is, by the way, the next document in your
packet is, in fact, a copy of the 1994 undertaking by IBM. And
these documents, by the way, the IBM document itself is on the
web. We put it there.
Now, I wanted to draw attention, first of all, to paragraph
four in the undertaking. In paragraph four it says that if IBM
announces a new product outside the European Commission, for
which it will be seeking orders within, that they will consider
that basically the same date. So, in other words, IBM could not
have gotten out of its obligations under this consent order by
basically delaying the announcements within the European
commission, and starting to market off the United States. So it
was an attempt to kind of make it a global mechanism, to kind of
make the announcements kind of have a global effect. In effect,
if they announced any product anywhere in the world that would
ever be sold in Europe, they had to consider that effective date
of when they'd have to make disclosures. I guess that's actually
paragraph number one here.
Paragraph number four made a distinction between the amount
of time that they had to give advance information to their
competitors, whether it was a software product or a hardware
product. And within the hardware product they used this 120 day
standard. But, within the software standard they referred more
to when the interface became reasonably stable, in any event, no
later than general availability. But, there sort of was this
issue about when IBM had to actually make the information
available to its competitors, which they had to deal with. Not
necessarily what everybody wanted, this is, in fact, what was
negotiated.
On paragraph six, if they made a change to an existing
interface in such a way that it made the product no longer
operable, IBM had to disclose the change in a way that would
permit people to make the changes with enough time so they could
fix things. And they had to provide assistance, sufficient
assistance to make sure that the people's products could be
fixed, and they would work.
Another thing I found interesting, and I'm just sort of
picking out a couple of parts, because it's a long agreement.
And I don't have five hours to read the whole thing. So I
thought I'd do this. On appendix A, section 14(b), this was an
obligation where IBM was required to actively support open system
interconnection protocols for the network, as a standard way of
connecting with their networks, in addition to whatever
proprietary things they had. So that they had to support an open
protocol. So like IBM could be required to support particular
several subset of category, they could be required to support
certain open protocols.
IBM reserved the right to make reasonable non-discriminatory
charges about --you know, if they had the license information and
it gets into this in the way of patents and intellectual property
and things like that, IBM could charge for certain parts of this
intellectual property, but there had to be a non-discriminatory
deal to it. It was a fair dealing kind of a situation. They
couldn't punish somebody because somebody wasn't playing ball, or
was a particularly effective competitor they wanted to punish.
So they had a non-discriminatory aspect to things. They defined
what they considered to be general availability, go to appendix
B, the next thing, no waiver of patent rights. They had a way of
saying, for example, that IBM could not require people to give up
patent rights in order to get access to information, and this
should have come up, I believe, in the Intel case, in the
Intergraph case.
And in the area of source code it was interesting to me that
it was said that if IBM had to provide its source code, it said
that IBM could also inspect the source code of the person who
received the code so they could see, if in fact, the person who
had received their source code had stolen it. So there was kind
of a, you show me, you show yours kind of a dynamic in this other
agreement.
I'm going to move on now to Richard Stallman who actually
wanted to be here. He's in Australia right now. And I talked to
him about remedies. He's very interested in -- he's one of the
few people I've talked to that actually writes up remedies, most
people they're just for remedies, period, or you're against them,
like Stan.
I'm just kidding, Stan.
Not that many people do the heavy lifting, you know, like
Steve did this morning, to actually come out and sort of explain
them. So these are his, and since he's not here I wanted to read
them. Now, by the way, this is from Richard Stallman's paper
which is also included in the conference book. So you can read
the more complete version.
Number one, he wanted to require Microsoft to publish
documentation of all interfaces between software components,
communications and protocols and file formats, saying this would
block one of their he called favorite tactics, secret and
incompatible interfaces. And then he said they should not be
allowed to use non-disclosure agreements with other organizations
to excuse implementing the secret interface. The rule must be,
if they cannot publish the interface, they cannot release an
implementation of it. This is his remedy.
Number two, he said he would require Microsoft to use its
patents for defense only, which in fact in some areas that's
exactly how Microsoft has actually used its patents in some
areas, in the field of software. This would block -- in the
past, by the way, Microsoft at one point in their history was
quite hostile to some of the software patenting issues. I think
maybe they've kind of changed their -- as they've acquired, like
IBM did, their portfolio, you know, the interests change. But,
Microsoft has already announced in this document, which either
they leaked or it was published from kingdom come, the Halloween
documents about Linux.
And in there they describe the fact that they can use patent
claims to stop these free programmers from doing stuff by just
making it illegal, even if they're not getting paid a wage, even
if they're doing it in their free time, they can actually stop
people from developing products which compete against Microsoft
by saying that they have a patent on it. And I think anyone who
has looked at software patent and actually read a lot of software
patents, and is not appalled it would amaze me, because it's like
the biggest scandal I can think of what's happening in software
patents right now. They seem to give them out for just about
anything.
But, in any event, he says one remedy would be making it
defensive only, and then -- or mutual defense, kind of a pooling
where the other party would have to then agree to the same terms
as Microsoft. In other words, to use it as a jujitsu to sort of
fore the other firms to kind of give up, essentially, their
predatory nature to software patents.
And then the last one here, he also wanted Microsoft not to
certify any hardware as being compatible unless the complete
specifications have been published, so any programmer can
implement the specification. And he points out that this one
typo in this, the last word here says regulation, that's not
actually the word on the slide, and it's not the word in the
article. It should be negotiation, which is what Richard
Stallman said, but the typist made a mistake here. So I want to
just correct that.
Now, Richard represents a community of people that are
developing these software that don't get paid for it, and their
concerned that certain fees that are placed in terms of
licensing, certain kinds of proprietary interface type things
present a real problem for them down the road, because just the
way that particular group -- now I'm kind of short on time.
This is all I have right now for my presentation. I wanted
to be focused on very concrete and specific proposals that people
have made in different environments. I haven't really told you
our own sort of take on everything I've presented. But, this is
kind of the beginning of a process for us to be more systematic
about remedies.
Thank you very much.
MR. JOHNSON: Harry, thank you for your introduction
earlier. And I'd like to say, your understanding of Windows
history is actually better than most. And I think most people
thought that Windows started with Windows 3.0, which most of us
remember as the first version of Windows actually worth running.
That was in the spring of 1990. In fact, Visio Corporation was
founded on the belief that Windows 3.0, and its successors would
become the dominant operating system in business, in fact, create
a market for the kind of software we sell, and that's drawing and
diagramming software. And certainly it did become that dominant
business standard, that's why we're here today.
Those of you who know my position on the Microsoft issue
know it's difficult for me to speak on remedies in this case.
Like most in the computer and software industry, I feel it's
inappropriate to be discussing remedies before there's been a
finding of fact. But, the organizers of this event obviously
feel different, so in the interest of balanced debate, I'm here
today to offer my own modest proposal in the case of the United
States versus Microsoft.
Unlike others, I'm not shying away from the findings of
fact. The United States District Court for the District of
Columbia, United States of America, et al, plaintiff, versus
Microsoft Corporation, defendant, the following constitutes the
opinion and order of the court on plaintiff's request for
injunctive relief, findings of fact. Microsoft actively and
successfully recruits independent software vendors to develop
software for its Windows operating systems. And these efforts
have resulted in over 8,500 separate companies delivering nearly
100,000 unique applications for Microsoft's Windows platforms.
Finding two, Microsoft actively and successfully recruits
and trains independent solution providers to develop and deploy
custom Windows based solutions, and these efforts have resulted
in over 8,000 solution providers, employing over 250,000
certified professionals who deliver services to Windows
customers.
Finding three, Microsoft actively and successfully embraces
new technologies and standards, including those related to the
Internet, and those promulgated by competing companies. And
these efforts have made Windows Internet technologies the most
widely used in the marketplace.
Conclusions of law. Number one, plaintiff's request for
injunctive relief to solve the problem of Windows success in the
personal computer market requires drastic remedies. Two, the
most complete and effective form of remedy in this instance is to
isolate the operation of Microsoft products from the software
products of all other companies. Now, therefore, it is hereby
ordered, adjudged and decreed that effective January 1 of the
year 2001 Microsoft products and services shall be prohibited
from operating with, communicating with, or exchanging data with
non-Microsoft products or services. Specifically, Microsoft's
application products will only be allowed to run on operating
systems developed by Microsoft. Number two, Microsoft's
operating system will only be allowed to run applications
developed by Microsoft.
Number three, Microsoft browser technologies will only be
allowed to access websites served by Microsoft's Internet server
technologies. And number four, Microsoft's Internet server
technologies will only be allowed to serve data to Microsoft's
Internet browser technologies.
The court believes these remedies, while potentially
disruptive in the short-term, will forever solve the problems of
Windows success in the person computer market. So ordered the
Honorable Thomas Penfield Jackson, United States District Judge,
April 30th, 1999.
That's certainly pretty radical. Isolate the operation of
all Microsoft products from the software products of all other
companies. Well, let's examine the implications of these
remedies. Remedy number one, Microsoft's application products
will only be allowed to run on operating systems developed by
Microsoft. Well, the major impact of this of course is on the
Macintosh market. Microsoft must discontinue the sale of
Microsoft Office for Macintosh. This opens up a multimillion
user opportunity for the taking. Every Mac user needs an office
suite. And we can surely expect someone to come in and fill the
need. Even if it's not the vendor Mac users have already
overwhelmingly chosen. But, it's not just office for Macintosh
that Microsoft has to give up. The deal Steve Jobs struck with
Bill Gates to equip every Macintosh with Microsoft Internet
Explorer goes away. Another multimillion user opportunity is
created.
And the implications of the first remedy are not just
limited to the Macintosh, or existing software categories. This
remedy keeps Microsoft from muscling in on Macintosh niche
strongholds, such as desktop publishing, or digital imaging. It
also prohibits Microsoft from marketing a Linux version of
Office. While that may be too bad for Linux users, it's great
for the competition.
Now, let's look at the second remedy. Microsoft operating
systems will only be allowed to run applications developed by
Microsoft. You know, what this basically -- what this remedy
basically says is, if you want to run Windows you can only run
Microsoft's application software. Well, that may work in the
office suite category, what about everything else? Computer
aided design, for example, if you're an Auto CAD user, you'd
better find a new operating system, because Auto CAD won't be
able to -- won't be allowed to run on Windows. That's a couple
of million users. Add to this the millions of users of technical
diagramming and 3D design products, and you have upwards of 5
million users looking for a new platform. Historically, CAD had
been a strong UNIX market, but thanks to this ruling, high priced
UNIX platforms may be able to reclaim this market from low priced
PCs.
The implications of the second remedy are even more
interesting, when one considers the large number of client
connections to enterprise, resource, planning and other server
based applications. All customers of SAP, Baan, PeopleSoft and
Oracle's ERP systems need to find a new client operating system.
All companies with custom client applications connected to back
end database systems, at banks, airlines, hotels, insurance
companies need to find a new client operating system. Add to
this the corporate users whose PCs are connected to a mainframe
and you have tens of millions of users who need to find a new
client operating system.
And I can assure you, after these customers have spent years
of time and millions of dollars implementing their mission
critical business systems, changing their client OS is a piece of
cake compared to changing their back end systems. Larry
Ellison's network computer is a great solution for these thin
client applications. So let's dust off those old NC designs, and
get moving. We've got millions of users to convert, and only 20
months to do it.
Remedy number three, Microsoft's Internet browser
technologies will only be allowed to access websites served by
Microsoft's Internet server technologies. Well, this remedy
pretty much renders Microsoft Internet Explorer useless. What
Internet user wants to access only certain sites? And what sites
are those, anyway? Can I access Yahoo, or Amazon.com? Can I
access America Online? No. Just consider AOL's 17 million
subscribers, the 11 million or so who access America Online using
Microsoft's Internet Explorer won't be able to.
Now, that's a bummer. But, wait, Netscape's Navigator and
Communicator are non-Microsoft applications, so therefore
prohibited from running on Windows. So these users won't be able
to access AOL either. In fact, all America Online subscribers
who use Windows won't be able to access AOL. So what will they
do? Switch to MSN? I doubt it, ever try to change your Internet
email address? It's easier to change your operating system.
Now, wait a minute. Netscape has always kind of secretly wanted
to be in the OS business, anyway, haven't they? Well, here's
their chance, upgrade 15 million or so AOL users to a Netscape
browser with built in operating system. They've got 20 months,
and that's just about forever in Internet time.
That brings us to remedy number four. Microsoft Internet
server technologies will only be allowed to serve data to
Microsoft's Internet browser technologies. Well, since almost
everyone who is interested in using the Internet will have
switched to a non-Microsoft browser, and therefore a non-
Microsoft operating system, I can't imagine any website, except
maybe Microsoft.com, that would want to run on Windows NT. But,
you know, that's okay, we've got Linux, it's free, it works, and
it's really trendy. So I have to agree with the court, while
potentially disruptive in the short term, these remedies will
forever solve the problem of Windows success in the personal
computer operating system market.
Why is that? How can remedies so seemingly anti-competitive
result in increased competition? It's because Microsoft is
successful not because it has held secret important information,
or because they've discouraged competition, or because they want
to own every application niche, no, just the opposite. Microsoft
Windows is successful because Microsoft understands what Jean-
Louis Gassee understood this morning, and what the maker of every
successful operating system understands, that the success of an
operating system can be directly measured by the number and --
[TAPE CHANGE.]
MR. JOHNSON: The annual aggregate budget of these groups
exceeds $250 million. They host over 20 design reviews, and four
major conferences every year, and they publish literally tens of
thousands of pages of developer information.
Visio corporation is an independent software vendor in the
drawing and diagramming market. In just over 6 years Visio has
licensed over 3 million copies of our products. And is expected
to generate over 200 million dollars in revenue this fiscal year.
We believe true innovation is best delivered by spending our R&D
dollars, not on porting to different operating systems, but by
focusing on providing our customers with the best possible
solution on the operating system they have overwhelmingly chosen,
Microsoft Windows.
The reason Windows is a success is because Microsoft
encourages this kind of third party innovation, not because they
stifle it. But, if the goal is to punish consumers for having
made Windows the number one operating system, then the remedies
will have to be just as goofy as the one I've proposed here.
Thank you for your time.
(Applause.)
MR. FIRST: Well, we promised you ideas that you might not
have heard before in terms of remedies. And, damn, we didn't
deliver on this, did we. Quite interesting, I thought. So I
will open the floor to questions for our panelists.
Well, the fallback of any moderator is to open the floor the
panelists, for castigating each other. So I don't know if you
have any -- if any of you have any comments on those. So while
they're doing it, though, you have to be thinking of you
questions.
MR. LOVE: It would seem to me that from Ted Johnson's
presentation that Microsoft has a great opportunity to embrace a
remedy which they actually are already doing, which is if, in
fact, Microsoft is not withholding information from its
competitors, if it's not putting secret things in its code which
disable its competitor's products, if it has -- if it's totally
dedicated to the ability of providing the best support for its
competitor's products then it would seem that it should have no
trouble coming to terms with a remedy that would formalize that
commitment in a way that would make everybody feel better.
MR. JOHNSON: I think -- I mean, there are a lot of
allegations about these secret, hidden APIs that somehow
Microsoft Word became a successful product because this magic API
that makes Word a better word processor. I don't think that's
true at all. Word was a great word processor on the Macintosh in
1984, when they started developing there, and Word was a
tolerable word processor on Windows 1.0, and 2.0, and Windows
became a very good word processor on 3.0, and in subsequent
versions. Microsoft has been in the graphical word processor
market for a long time, and they bit their teeth in that market
on the Macintosh, not on Windows. And it's that long history, I
think, of developing a GUI word processor, and spreadsheet for
that matter, that makes them the number one product.
As a developer of software for Windows since 1985, we
developed PageMaker at Aldus Corporation, the desktop publishing
product, and Visio at Visio Corporation, and never in my history
have I found that there was some API I didn't have access to.
Sometimes I couldn't find the documentation, sometimes I had to
consult the MSDN subscription that we have. Sometimes I had to
send email to Microsoft to have them aim me in the right place,
but never had I seen evidence that there is an API that is useful
to an ISV that is undocumented, and kept that way going forward.
So I think that the issue is Microsoft doesn't view that as a
remedy, because they view that as the status quo.
MR. SCHERER: Well, it's hard to respond to humor, I assume
that this remedy was humor.
MR. JOHNSON: Mike, I thought you were humorous, too.
MR. SCHERER: I would just say two things. There are
probably two kinds of people out there in the software
applications writing world. There are those who write software
that adds to the capabilities of Windows in a wonderful way, and
Microsoft has every incentive in the world to work very closely
with them. There are those who, however, conflict with
Microsoft's strategic objectives, and I'm not sure -- I think we
need to hear from them, not me. I'm not sure that they get quite
the hospitable reception that Ted has received. I would just add
one other point, he said that he has not known of any API that
was kept undisclosed for a long time. Well, in this business
time is everything. If you're necessarily running behind in time
the guy who controls the platform on which you must operate,
you've lost that first mover advantage, and this is a business in
which first mover advantages are very considerable.
MR. NADER: Questions?
QUESTION: (Inaudible.)
MR. JOHNSON: Our Macintosh experience was in the very early
days, '84, '85, '86. And as Jean-Louis Gassee said earlier,
Apple I think also bent forward in trying to help developers.
They coined the term evangelist. Now, I think every vendor of
software, every vendor of operating system have people on their
payroll they call evangelists. Their job is to go out there and
to promulgate the benefits of their operating system, and how
great it is to develop software for it. And while at the Aldus
corporation, we supported actually all three, Macintosh, Windows
and OS/2.
QUESTION: (Inaudible.)
MR. LOVE: Richard Stallman doesn't care that much about
Microsoft, per se, in his particular proposals. I think that
Microsoft is interesting in the current context, because it is
the current monopoly, you know. As IBM may be in the mainframe
space, and I think now people are looking at the PC space with
Microsoft. I think he says in particular there is a set of
remedies which benefit consumers, irrespective of which company
is currently on top. And the idea is you try and avoid
situations where companies can do opportunistic things in the
standards area, which do not have merit from a consumer welfare
kind of a way of giving things people want. And if you can
design those kind of remedies that would sort of go across a lot
of different companies that that may be the right way to think
about it.
And I think some of these other people, like for example,
the proposal that was made in terms of file formats by Simpson
Garfinkel wasn't really -- he talked about Microsoft Word,
because that's a big problem for people, getting access to those
file formats, but he also talked about other companies, as well.
Now, whether -- at what point do you actually trigger an
intervention by a government to force a company to do something
that they do not want to do, and at what parts of the market is
it important enough for the government to intervene, I think
that's also an interesting border question from a policy point of
view. I think that because people have been afraid to talk about
the government's role in the software field, in terms of
protecting competition, this is a very immature debate. It just
doesn't really happen. We're just kind of talking about, does
the government do anything or not do anything? And since we
never really get to the next step, we're nowhere near to really
having a consensus on where we would go.
So I think Richard Stallman has done a good job in
articulating this, as has Simpson Garfinkel, in articulating what
they think to be sort of generic types of regulatory approaches,
or antitrust remedies that would sort of push the industry to
where the competition is based more on things that the customer
wants, which is better performance, better features and things
like that, and away from things the consumer doesn't want which
are lock in, and lack of interoperability.
QUESTION: (Inaudible.)
MR. SCHERER: Well, I think there are two issues there that
need addressing. First of all, the role that the antitrust
agencies might play in setting new standards. I just don't think
they have the technical capability to do so. They don't have the
ability to anticipate where the next standards battle is going to
be. And so as a general principle I think the role of those
agencies has to be what it has been, which is reactive, rather
than anticipatory.
But, second in the kind of proposal I laid out, I think they
can -- they can play a role. They can play a role in seeing that
the standards committee is broadly representative, that is to
say, they can set out criteria such that there be a certain
number of software applications vendors -- independent software
applications vendor representatives, that there be appropriate
consumer representatives, that there be appropriate
representatives from various government agencies that are heavily
into the computer business, and there probably be a
representative from the antitrust agencies, who is not going to
provide technical inputs, but is going to feedback and make sure
that the process remains fair.
Requiring pre-notification and then a formal procedure, I
think, would slow down the standard setting process, and
obviously you need to know when a standard is going to take
place, but beyond that, I would not want to see a whole rigmarole
before the standards committee can meet. I think one needs to
note, too, that there are lots of problems with standards
committees.
I think back for example when the Department of Defense
tried to set a standard for data format, this was late 1950s,
early 1960s, something on that order, and they got together a
committee that essentially developed ASCII. IBM said, no way, we
will not go along. We're going to have Epsidic (sp), to be sure
conversion programs appeared, but 30-40 years later we're still
paying the price. I've got some Epsidic tapes that I am trying
to read now, and I've taken them to the best experts at Harvard
and they could not read them. I've taken them now to experts in
the government, and I hope they are going to read them -- I hope
they will be able to read them. But, this is what happens when
the standard setting process fails.
MR. JOHNSON: If I could just add a little bit there, a
couple of things. One, we're -- the question is implying that
Microsoft is setting a lot of standards today. In reality
they're not. The hot standards, the whole hot standards debate
is around the Internet, and they're not being set by Microsoft.
Java is not set by Microsoft. XML is not set by Microsoft. VML
is not set by Microsoft. HTTP, of course, wasn't and TCI/IP
before it, I mean, the whole action -- the action right now in
the industry, and it is about standards, they're not being set by
Microsoft, they're being embraced by Microsoft, Microsoft
participated in the process, but the W3C meets and looks at these
things, and Visio sits on the one we're talking about a vector
graphics standard for the web. And they take a long time, as
Mike's saying, we are moving at a fairly good pace.
It might only take a year or two to actually get a vector
graphics standard out of the W3C. If you look at something like
television, we've got MPSC, we're arguing a lot about HDTV, we're
right on the edge, this month we're starting to broadcast now. I
mean, we've been living with the standard for a really long time.
ASCII, we can't even agree on the -- I mean, ASCII is only that
bottom 128 code, we can't agree on the top. You get email
messages with funny quotes, where there should be an m-dash with
some other goofy character. That's because we can't even agree
on the top 128 characters of ASCII. I mean, there's room for
standards, but God, they move so slow and it's just pitiful sad.
File formats, Word, there is no word processor vendor that
can't get the Microsoft Word format, WordPerfect has it, Lotus
has it, Page Maker, which isn't a word processor, but we imported
those files, we can get it. You just have to call and ask, they
send you the file format for Word, or Excel, you can get those
file formats for the asking.
Jamie mentioned in Windows '97 -- he saves a document in
Word 97 and Word 95 can't read it. Well, yes they added some
features in Word 95 they didn't know those features. If they had
they would have added them, and they would have added different
features in Word 97, and you can't do that. The good news is,
Word 97 can open Word 95 documents great. So if you know you're
exchanging with someone who may have a downward version, you can
always ask, you can send them an RTF file, you can send them a
Word 95 file, because it works okay for you as a Word 97 user.
I mean, all of us in the business have our file formats.
The file format and features in product are the same thing.
There is -- I can't add color to Visio without encoding color in
my file format. And if I encode color in my file format, and my
old file format was black and white, well, then the version of
Visio that doesn't know color can't make any sense of the color
encoding. That's just -- that's just reality. No more than our
current television sets are going to be able to get that HDTV
signal without the addition of a set top box.
QUESTION: (Inaudible.)
MR. JOHNSON: That's right. There a some $300 billion
market surrounding a $5 billion operating system product.
QUESTION: (Inaudible.)
MR. JOHNSON: It's interesting, it's hard -- the
intellectual property, I mean, our whole industry, the software
industry is -- you know, we're trying to get value from our work,
from intellectual property, not unlike an author -- excuse me?
QUESTION: (Inaudible.)
MR. JOHNSON: Yes, it would probably be good to make sure I
understand it. I believe the question is basically why should
the author of software have any intellectual property rights in
it.
QUESTION: (Inaudible.)
MR. JOHNSON: An operating system is also a product. I
mean, an Intel microprocessor, the Pentium processor without the
computer around it isn't very valuable. So you need that, but
somehow I don't think that that negates the intellectual value,
or even the manufacturing value of the Pentium processor.
QUESTION: (Inaudible.)
MR. JOHNSON: We, a long time ago, and we have a lot of
lawyers in the room, decided that copyright in software is held
by the author and it's licensed to the user. And I make that
mistake all the time. I'm an engineer, I always say we sell
Visio, and lawyers say, no we don't, we give our users a license
to use our product.
QUESTION: (Inaudible.)
MR. JOHNSON: It's just what ownership has meant. We're
fighting this all right now with MP3 in music, because if I sell
you a copy of that music then are you free to copy it everywhere
and post it everywhere.
QUESTION: (Inaudible.)
MR. JOHNSON: It's the same thing. Source -- they're all
bits. They're all bits on a disk. The bits that represent an
operating system are the bits that represent four minutes of
music, same thing.
QUESTION: (Inaudible.)
MR. JOHNSON: I don't -- well, could it solve the monopoly
problem. Could you force a company to give up its intellectual
property rights? I don't think that's a good thing to do.
QUESTION: (Inaudible.)
MR. JOHNSON: I think Harry could answer this better than I.
MR. FIRST: No, Mike says he could.
MR. SCHERER: No, I don't want to answer that question. I
just want to provide a historical footnote on this question of
who owns the copyright. The first copyright law was the Law of
Anne, about 1713 or so. And at that time all the publishing in
England was done by guilds and they essentially had monopoly
positions, and the Law of Anne was a compromise to eliminate the
monopoly of the publishing guilds, but to give them title to the
stuff they published. So originally copyright, if you go back to
the original source, copyright was assumed to be for the
publisher who was different from the person who wrote the subject
matter published.
There was a lawsuit brought around about 1765 or so by the
son of Johann Sebastian Bach, the so-called "London Bach", Johan
Christian Back, he brought a lawsuit and won, getting copyright
to benefit the composers who actually created the original
material, rather than the guys who published it. So that's how
we started getting from there to here.
MR. LOVE: It was one question back, it was a question about
the role of the antitrust in some of the standard making. There
is one case that I think is interesting. It was with Dell
Computer, they had a patent on the VL BUS, which was a
specification for motherboards, the way that they would talk to
the central processor and other parts of the computer. And I
believe that there was a dispute over whether or not the terms
under which that technology would be licensed were changed or the
common understanding was changed after companies had already
invested in that technology, and kind of locked themselves into
that. And there was a case brought by the Federal Trade
Commission, and Dell Computer was required to provide zero
royalty, nondiscriminatory licensing of that patent for the VL
BUS. And so in that particular case the outcome was a zero-
royalty, nondiscriminatory license, because of this sort of
switching things opportunistic behavior.
Some people look at Microsoft and they say, it's really a
case of bait and switch. What was initially presented as kind of
an open developer's paradise platform has kind of turned into
kind of a nightmare. And as some people said, maybe it should be
a tort of torturous interference with some of the people that try
and develop on the platform and things like that. So different
people have kind of different ways of framing sort of the legal
end of things. I must say that when this case was first filed by
the Justice Department and state attorney generals what we
thought that the lawyers were focusing a lot were the contracting
issues, the licensing issues.
But, what the programmers write us emails about and what I
hear about from people are the interoperability issues. I hear
people saying to us, gee, we develop a multimedia program, and I
see that there's a new release of Internet Explorer, which has
changed the specification. I see it in the shrink wrapped
packaged for the first time, I don't have a license to get the
information. It will take me a while to modify my own product.
They say, I'm always 9 months to 18 months behind Microsoft in
this particular thing, because they can at will sort of change
the platform that my programs have to run upon, and they say, we
will -- our programs will always look like crap in certain
dimensions of the product space, because of this unfairness.
And so a lot of the interoperability remedies are designed
to get away from this sort of strategic gamesmanship, to sort of
make your programmer's products perform worse in strategic areas,
not all areas. I'm sure that not everything that Visio does is
considered strategic for Microsoft. And that's kind of really
the approach, the types of remedies that were done in the IBM
case, for example.
MR. FIRST: This gentleman in the back?
QUESTION: (Inaudible.)
MR. FIRST: If I understand your question, you're looking
beyond this case, beyond Microsoft and beyond Windows, and asking
whether the government or whether it would be appropriate under
the antitrust laws to apply this elsewhere and in what
situations, do I understand that?
QUESTION: (Inaudible.)
MR. JOHNSON: I'm not sure I have all that on the extension.
Just on the publishing of source code, I made some notes when
Mike was speaking. I mean, I'm still a little confused by that,
frankly. Somehow publishing the source code is going to help me
as a software developer? The source of Windows 2000 is estimated
to be at 30 million lines of code. If I print that out that's
375,000 pages of documentation. Stack it up, it's 125 feet of
paper. It's 10 stacks 12-1/2 feet high.
The last thing I want as an application developer is to wade
through that documentation. The last thing I want my programming
staff to do is spend three or four months wading through, you
know, what is probably a bunch of really weird looking code
inside of Windows. And I certainly don't want Microsoft to use
the publishing of the source code as an excuse to not document
the API.
They could just say, here's the source code, here's the
truck full of source code, go at it. And if that's an excuse to
not document it, to not hold conferences, to not have tech ed
events, and V-bits events and everything else, then we've all
gone a big step backwards, because wading through 30 million
lines of source code is not an answer for a software developer.
MR. LOVE: I would certainly agree with Ted that disclosure
by itself in the absence of other types of mechanisms which
support interoperability resolutions such as the documentation or
the affirmative assistance, which the European Commission
provided in the IBM thing, where a company could actually raise
an issue and in a timely basis get the problem solved by the
company, these others kinds of mechanisms are kind of, I think,
part of the deal. What you might also think about, in terms of
the framework are the kind of things you'll see in compulsory
licensing that would Professor Scherer referred to earlier. The
biotech area is sort of faced with a somewhat different set of
issues, but they have sort of a lot of the interoperability
issues in the sense that everybody is always afraid that somebody
will get some basic patent that will screw up a whole line of
research.
There was an interesting thing that was in the Wall Street
Journal not too long ago. A lot of the major drug companies now
are funding a research adventure that puts everything in the
public domain, because they thought that there are certain parts
of the biotech research agenda which are a bad idea to assign
property rights to, because whoever gets the property rights is
going to try and screw everyone else, basically. So they kind of
agreed to basically have nobody own it.
In a sense that's what the Internet was. The Internet was
an agreement that ran counter to the philosophy of CompuServe and
the proprietary networks. There were certain things about the
Internet that no one should own. Linux is a response like that
in the server space, when people sort of take a look at what's
happening with Microsoft. It's kind of a sense that there exist
some kind of things which are just too sensitive from an anti-
competitive point of view. Not that you should not have private
ownership, or people shouldn't own their own houses, or you know,
not some radical Marxist or utopian thing, but just that there
exists, because of Pfizer and Bristol Meyers Squibb and the big
drug companies can invent solutions like this, and other people
too, you can sort of see that there are these problems and the
identification of the mechanisms to put them in will be very
interesting.
I think there's David Buyer who did a paper for Harvard, who
is going to be on the next panel, he's going to talk. And I
think we have some other speakers that will talk about this, too.
MR. SCHERER: Three points. Number one, I am not proposing
that the maker of an operating system be absolved from the
responsibility of publishing APIs. Obviously you want them to do
that. Number two, usually the market takes care of itself.
Usually the firms that are working like these pharmaceutical
firms in the new field of technology recognize where it is
advantageous to have a core part of the technology more or less
in the public domain, either license that royalty, or cross
license, or maybe even completely free. And they will work out a
system for doing that. That's the standard case.
So should every piece of software be put under a standards
committee? No. No. The issue here is that Microsoft is the
gateway, the Microsoft operating system, Windows, is the gateway
to doing all the wonderful things that personal computers can do.
It's a monopoly gateway. And therefore, using some technical
words of the law, it's essentially -- it's an essential facility,
and essential facilities have obligations that most kinds of
operations don't. That's the logic for my documentation
approach. That's the logic for my licensing approach. That's
the logic for having a standards committee.
MR. FIRST: Yes.
QUESTION: (Inaudible.)
MR. JOHNSON: No, that's fine. We made a bet. We're
entrepreneurs. Three of us got together and placed a bet that
Windows would succeed, and that it would create a market large
enough to sustain our company. So the three founders of Visio
came out of all this, and all three of us did cross platform
development. And we knew that there were costs associated with
that. I think that based on our experience at Aldus, the paper
presented this morning by Dr. Leibowitz understates those costs.
The costs of supporting multiple, very different operating
systems, Macintosh, OS/2, and Windows, is much higher than the
numbers projected here.
And we also felt, because cost matters. You're right. It
doesn't -- it shouldn't matter to you if it costs me $5 more in
R&D. The difference is we wanted to sell our products very
cheaply. Visio built our 3 million user base on very inexpensive
software. The wholesale price on a box of Visio standard is
$115. My R&D budget is $20. I'm very careful how I spent my
$20. Okay. I don't really want to give this much to porting to
Windows Blue, and this much to Windows Red, and this much to
Windows Green, because then I've only got that much left for my
customers. And it's my customers that matter, they only pay me
for the value I can deliver them, not for porting to different
operating systems. Then you're right, as a result I don't sell
on Macintosh, and I missed the opportunity to sell a graphics
product to a very graphics intensive market. That's a marketing
decision, a business decision that we've made. In fact, we have
separately had two efforts to develop software for the Macintosh.
We got actually to a working prototype on one of those products,
but it was the sales and marketing costs that caused us to not
release that product to market.
QUESTION: (Inaudible.)
MR. JOHNSON: I suspect you're not a Visio customer. You
want choice in operating system. I assume you're probably not a
Visio customer.
QUESTION: (Inaudible.)
MR. JOHNSON: They do that. Absolutely. We have
initiatives, and you have initiatives going inside, it wasn't too
many years ago when OS/2 was gaining some momentum, especially in
Germany, and Germany is a large market for us. And we looked at
that seriously. And if Linux starts to gain momentum as a
desktop operating system, and we hear that from our customers, we
will absolutely look at that. And you weigh the cost and
benefit. We've done that with products in the past and it hasn't
come up. It hasn't resulted in our decision to develop for those
platforms, because the costs are real.
QUESTION: (Inaudible.)
MR. JOHNSON: I'm saying there are economies of scale. If
we enjoy $700 PCs, or $800 PCs, that in part because the OEM
operating system cost is only $40.
QUESTION: (Inaudible.)
MR. JOHNSON: No, my actual claim is that if you required
Microsoft -- if you required Microsoft to be what they're being
alleged to be, and that's a complete closed monopoly, in fact, it
would take very little time for Windows to fail as an operating
system.
MR. FIRST: Actually, I'd like to put this question maybe
somewhat differently, rather than as a question before we decide
relief, but after, because one of the things that makes all this
so difficult is trying to strategize what the world would look
like in six months or a year, and how these things would work
out. And as you were talking I was wondering whether you had any
thoughts about what your strategy would be if there were a Baby
Bills solution chosen. In other words, suppose that the court
did decide to have three, you know, sort of fully integrated
firms selling each of the products, where would you go with that,
do you have any sense of what you would do?
MR. JOHNSON: Well, separately we'd -- I mean, I think
that's not a very good proposal, by the way. I think you need an
organizing principle for that. And we'd look at the organizing
principle. I still come up short. I don't know how you
segregate the customers across the Baby Bills. Now, you could do
it by market segment, you could say one is for large
corporations, and one is for mid-size, and home business, and one
is for home users and consumer users, in which case Visio,
because our products are primarily business, we would focus on
the upper two categories and ignore the other. If they're
completely -- I'm sorry.
Maybe you have to help me. I think there has to be an
organizing principle. We have to get beyond the sound bites.
Baby Bills sounds good, because Baby Bells sounded good, but it
makes no sense. The Bell system was geographically dispersed,
had separate operating companies around the nation. Microsoft
has 20,000 employees in Redmond, Washington, and they sell all
across the world from one location. What's the organizing
principle?
MR. FIRST: I want to put aside those minor difficulties.
And just focus conceptually on suppose --
MR. FIRST: If they were all identical and they had a cross
section of existing customers.
MR. FIRST: Three firms start out today selling Windows,
Word, Excel, Internet Explorer, NT, each company sells the same
thing today, although who knows how we'd look tomorrow or six
months. How would you -- is there a way that you would think of,
you know, in terms of your business strategy, of who you would
try to write to? How do you see that playing out? I know it
sounds --
MR. JOHNSON: No, you're right. Under that scenario, and
they start off presumably identical and presumably attacking the
same customers, there is probably no day one cost for us. But,
as those operating systems are distinguished, as they add
features, as they improve, we minimally need to test Visio on the
different versions. We don't release a copy of Visio that we
don't test on Windows 95, Windows 98, Windows NT, and that's NT
3.51, NT 4.0, and now we're actually beta testing on NT 5, or
Windows 2000. So you have to do that. And you have to test on
Windows Red, Windows Blue, and Windows Green. And you have to be
prepared to take tech support calls on Windows Red, Windows Blue,
and Windows Green.
And the further they diverge, the higher the costs get. You
may have to have specialized technical support people to take
calls from the Windows Red people, because their questions will
be different than the person calling about Windows Green. And if
it starts to bubble beyond QA, up into development, we have to
exploit different features of Windows Red, from Windows Blue,
from Windows Green, then it starts to add more burden on the
development organization. So it raises our R&D costs, it raises
our tech support costs. It raises the QA costs. And eventually,
it raises the cost to our consumers.
MR. FIRST: Is there anything good you can see coming out of
that?
MR. JOHNSON: See, I in no way see that enlarging the
market. It would be better for me -- I would much prefer that
Jean-Louis Gassee's company get some market share and some market
momentum, and we decide to develop Visio for that platform,
because then it's new customers, it's potentially new customers.
If we develop Visio for Linux, it's new customers, it's the UNIX
community who embraced Linux, and we now can find new customers.
But, if you've got 100 million Windows users today, and tomorrow
you've got 33 million of red, blue and green, nothing is
enlarged. Market potential is not enlarged, and nothing has
improved for us, other than costs have gone up.
MR. SCHERER: Well, to that I would simply say that if Ted
is right, then what he's saying is that the network externalities
here are absolutely compelling. And that providing the operating
system is a natural monopoly, if a natural monopoly has this much
power over a major field of commerce, then really the only
alternative is to regulate it.
MR. FIRST: I was about to say on that note, but someone who
practices antitrust law wants to speak against regulation, is
that the --
QUESTION: (Inaudible.)
MR. NADER: Well, we're one minute over, so you have one
minute.
QUESTION: Ted, your premise was that the remedies were --
MR. JOHNSON: I suspect there are a number of things that
are common business practices which could be clarified in a
consent decree. And I would hope that that's what the two
parties are talking about, wherever they're meeting these days.
MR. FIRST: We have a 15-minute break, so I want you to
continue your discussion, because we've ended, I think, on a
very -- perhaps even a forward note, in terms of thinking about
what is practical to disclose, if there is a fair degree of API
disclosure, and more transparency might very well help people
write complementary products.
So we reconvene in 13 minutes.
[TAPE CHANGE.]
PANEL FOUR - OTHER REMEDIES
MR. NADER: If we could all come back to our seats, please.
The fourth panel is tantalizingly titled Other Remedies, which of
course invite the utmost of creativity and imagination, and I
hope a little bit of attention to some of the crevices that
weren't covered in the prior panels. In particular, perhaps
something on the contracts, contracting issue.
Our first presenter is Steve Hill, who is one of the lead
counsels representing Caldera Corporation in its private
antitrust litigation against Microsoft, which is nearing a trial
date come January, which has already had a long deposition of
Bill Gates, and is at the mature pretrial stages. He's a partner
in the firm of Christianson and Martineau (sp), and we welcome
him.
MR. HILL: I'm a last minute sub for the president of
Caldera, Bryan Sparks. So, I'm sure I'll bring a slightly
different perspective than Bryan would.
I don't come here as a great mind, but rather as one of the
foot soldiers who has been in the trenches with Microsoft for the
last two or three years. And I think one perspective I can offer
is, one of the problems with the different types of remedies that
have been discussed today.
Let me preface it by just a few comments. First, one
difficulty with any remedy that might be considered with respect
to Microsoft is what I might term a sort of cultural incivility.
And I'll give some examples of that. But it requires a certain
amount of good faith on both sides for a remedy to work. And
Microsoft has taken a very tough approach towards any remedy that
has been previously suggested or implemented.
A second thing to consider in terms of remedies, I think, in
terms of the stringency of the remedy is how it's determined that
Microsoft's monopoly was obtained. Obviously, if by superior
skill, foresight, or historical accident, then the antitrust laws
don't allow for any remedy. But if Microsoft obtained or
maintained its monopoly illegitimately, and if Microsoft has
disregarded prior remedies, or tried to circumvent prior
remedies, then I think that calls for more stringent action.
And, bearing, of course, on this is what has been the
experience since the '94 consent decree. Well, I've listed on
this slide five issues to talk about, and I'll add a couple more
to that. One is to revisit the '94 consent decree. Another is
open sourcing or open API, which has been discussed. Third is
licensing remedies, vertical divestiture, it's been addressed
this morning. I won't talk about that. And, possibly horizontal
divestiture.
For those of you that are interested, Caldera finally, after
much wrangling, was able to file its consolidated facts statement
in response to nine partial summary judgment motions made by
Microsoft just this past week. And that facts statement has been
reported on in several of the media, and it can be located at
Caldera's website, which is www.caldera.com.
Interestingly, in connection with that, as I expected, as
soon as it came out, Microsoft's PR person announced or has told
the various media that it's the worst collection of taking
snippets of information out of context in history, and it's a
work of fiction. And, I had just filed another brief that day in
an effort to get more material open in which I had quoted prior
statements to the press by Microsoft complaining about people
taking things out of context. Well, in connection with our
efforts to get things open, Microsoft has objected to our filing
entire depositions of Microsoft witnesses with the court. So, I
now have a different view of Microsoft than I had before. I
think of them a little bit like Goldilocks, you know, not too
much, not too little, it has to be just the right amount of
information that comes out.
Let me talk about, with regard to this issue of looking at
the '94 consent decree, in response to our facts statement,
Microsoft released a rather lengthy press release, and one of the
points they discussed in that press release is claims that we've
made about Windows 95, and I'll try to quote a little bit of
that. It says: Caldera's claim goes nowhere near based on the
legal test for technological tying and, in fact, flies in the
face of recent rulings by the U.S. Court of Appeals. Moreover,
Caldera's entire argument fails since Windows 95 is not built on
top of MS-DOS, but simply includes small amounts of code from MS-
DOS, Windows 3.1 and Windows for Workgroups in a new operating
system for purposes of maintaining backward compatibility with
existing applications.
Last fall, in the briefing that was provided to the D.C.
Circuit that led to the opinion in which the D.C. Circuit struck
down the District Court's injunction with respect to the bundling
of Explorer in Windows 95, the Justice Department, in its brief,
made the statement that's on the slide, mainly that Windows was a
next generating operating system that began with part of existing
MS-DOS and Windows 3.1 products, et cetera. And Microsoft refers
to that statement in its press release.
We did a little digging to find out what the source of that
statement was that the Justice Department included in its brief,
and it turned out that the source was an affidavit of a Justice
Department paralegal. And this is what the paralegal said in his
affidavit: I have reviewed a Microsoft manual. The manual
provides an overview of the features, functionality and
components of the not yet released Windows 95. It states, when
you first boot Windows 95, it is immediately apparent that the
old world of Windows running on top of DOS is no more.
Well, that was the premise for the consent decree, and the
premise for the portion of the consent decree in particular that
allowed for integrated products. The Justice Department wanted
to allow for integrated products on the understanding that,
indeed, Windows 95 would be an integrated product.
This slide quotes from a Microsoft document, a '92 document,
entitled Chicago Strategy Document. And this talks about what
Microsoft's plans and intentions were at the time they designed
Windows 95. As you can see, a major concern was Novell, since
Novell was after the desktop. This was right after Novell had
merged with DRI, and was now offering DR-DOS. This is perhaps
our biggest threat. We must respond in a way by making Chicago a
complete Windows operating system from boot-up to shutdown.
There will be no place or need on a Chicago machine for DR-DOS or
any DOS. Then, when Chicago is being developed as a single
integrated Windows operating system, it is being designed and
built so that three specific retail products can be packaged up
and sold separately. Which products actually ship other than
full Chicago is a marketing issue, notably, not technical issue.
And it lists the three, Windows for Workgroups, Windows and MS-
DOS.
This is a quote from Brad Silverberg's deposition when he
was asked about the document I just had on the screen. And his
deposition, I think, was done in 1998. Anyway, Silverberg, at
that time, testified there was a code name floating around called
Chicago. In fact, what was being worked on at that point bore
almost no relationship to what actually shipped as Chicago. In
other words, what I think Mr. Silverberg intended to say in his
deposition was that the real Windows 95 was not three products
bundled into one package.
This slide comes from an article Brad Silverberg wrote in
1994 referring back to the original Chicago strategy document.
It says, recently I discovered a document on my hard disk called
strategy.doc. It was written in June of '92 to communicate to
the team and to the executives what are the key elements of
Windows 95. He says, I thought this should be funny reading,
what we thought two years ago that this product was going to be.
As I read it, it struck me, well, we really nailed it. We built
that product.
What this document says, or what Silverberg wrote in '94
certainly seems to be at odds with what he said in his
deposition. And as we go on, I'll demonstrate that in a little
more detail.
This is a statement from the deposition of Phil Barrett
(sp), he was on the Windows 95 product team. And the question
was asked of him, and this followed up an interview prior to his
deposition: I think when you and I talked about it before, you
described DOS and Windows stuck together with baling wire and
bubble gum as being Windows 95?
Barrett answered: That's a fair, if colloquial,
representation of it, yes.
In other words, Windows 95, according to Microsoft's own
engineer is basically DOS and Windows combined with bubble gum
and baling wire.
A last short quote from our expert, Lee Hollar (sp), who is
an electronical engineer: The D.C. Circuit statements about
Windows 95 and the description of Windows 95 set forth in the
opinion is factually incorrect. As I have stated, there are two
separate products in Windows 95. They are just as separate as
MS-DOS 6x and Win 3x were.
In other words, what we're prepared to show is an engineer
can take apart Windows 95 and demonstrate it for himself, Windows
95 is two loosely combined products, MS-DOS 7 and Windows 4.
Now, what bearing does that have on anything? Well, that's quite
different than what the Justice Department thought those two
products were when they agreed to the consent decree. And, it
goes directly to the issue of whether Windows 95 is a legal
combination under the antitrust laws. And it's our contention
that it is not.
So, with that in mind, I think it would not be inappropriate
for the Justice Department to ask Judge Jackson to revisit the
old consent decree in that it appears to us it was either entered
into on the basis of what may have been a mutual mistake of fact,
since the information relied upon went back to the period before
Windows 95 was actually released or, worse, Microsoft simply
misled the Justice Department.
Let me talk for a minute about licensing remedies. I think
that there are a variety of things that might be suggested, the
'94 consent decree was about licensing remedies, largely. The
elimination of the per processor license was at the heart of it.
And I think I'm about out of time, so I'll just talk about this
and sit down.
It is my opinion, based on what we've seen with Microsoft,
that a thou shalt not remedy with respect to licensing is not
likely to be particularly effective, and I say that for several
reasons. One is, Microsoft people are very bright, very
creative, and very aggressive. And lawyerly in the sense of the
term that they're very effective at getting around written
language.
What I've highlighted on the slide is the experience of one
OEM, and it's one that I'm familiar with since I've talked to
pretty much all the people that were involved in that, and that's
the German OEM Phoebus (sp). Phoebus at the time we're concerned
with in our case, was the largest OEM in Europe. A Microsoft
witness described Phoebus as the Compaq of Europe.
In 1991, early '91, Phoebus didn't offer any Microsoft
operating system. It offered only DR-DOS. This was a big deal
to Microsoft, because Phoebus was a market leader, and they were
very concerned that what Phoebus did successfully, others would
follow. So, a top priority for Microsoft was to get the Phoebus
account.
So, in 1991, in the spring of the year, a month after
Phoebus had signed a license with DRI for, as I recall, 100,000
copies of DR-DOS on a per copy basis. Microsoft went to Phoebus
and tried to get -- well, actually succeeded in getting Phoebus
to sign a preprocessor license. And the way it came about was
this, Phoebus wanted to ship 50 percent MS-DOS, 50 percent DR-
DOS. Microsoft and Phoebus was willing to pay $18 a copy on a
per copy basis to Microsoft. Microsoft said, here's the deal,
you can have DOS plus Windows for $26, or Windows alone for $35.
The DOS component of the $26 was, as I recall, $9. So, the way
that it came out from Phoebus' perspective was pay $9 for 200,000
copies on a per processor basis, or $18 for 100,000, which
Microsoft wouldn't give them anyway. So, they went along with
the preprocessor deal.
Well, once they had signed that deal, it didn't make any
economic sense to ever sign another DOS license, but the catch to
all this was that because Phoebus had prepaid for DR-DOS, they
continued to ship DR-DOS, even though they'd signed a
preprocessor license. And this basically drove Microsoft crazy.
So, they did a number of things to finally persuade Phoebus to
give up shipping any DR-DOS, starting with a white box bundle,
where they gave Phoebus a better deal, better pricing than
anybody in the world, at least in Europe, on Excel and Word.
They gave them money for Christmas promotions, and then in
September of '91, after all this, and even after Phoebus' CEO had
met with Bill Gates, Phoebus was still shipping some DR-DOS, so
Kempen said, what else do we have to do? And Phoebus' CEO said,
well, I've got all these licenses I've already paid for, for DR-
DOS. Kempen said, how much? The Phoebus guy said, $50,000, and
Kempen said, sold. So they gave them $50,000 bucks in the form
of a credit, and that was the end of DR-DOS.
Well, after that was done, the Phoebus sales people came
home, and the person who was responsible for the account
testified that under the instructions of the Microsoft country
manager, documents relating to this whole transaction were
destroyed.
Well, two years later, when the contract came up for
renewal, there wasn't any DR-DOS around, so the price at that
point doubled to $18, and Phoebus, there wasn't a thing they
could do about it.
So, I give that as an example of how relentless Microsoft
is, and I think that any kind of remedy that requires policing is
not likely to be effective. I think the market remedy is the
only thing that would work. There's been talk of horizontal
divestiture. I think there are some advantages to that, but I'll
yield my time to others.
(Applause.)
MR. NADER: Thank you very much, Mr. Hill, for those
comments.
Our next speaker is Roberto Di Cosmo, who is at the
Information Laboratory at the Ecole Normale Superieure, which I
hear is the equivalent of MIT in France. And he's also at the
Department of Mathematics and Information there. He's written
books, and many magazines. The latest one is called Hijacking
the World: The Dark Side of Microsoft. And it's published by
the first on-line publishing house in Europe. You can see how
much more they need to learn about graphics.
Mr. Di Cosmo.
MR. DI COSMO: Thank you for the introduction. I hope you
will forgive the poor English of an Italian forced to teach in
France and married to an Argentinian, who is now invited here to
talk in English to you. On top of that, with six hours of jet
lag, and a canceled flight from there and back.
But maybe you are quite curious to know why an associate
professor in computer science, like I am, ended up writing a book
like this. This is not the kind of book a professor in computer
science would write. Indeed, I wrote another one that you will
never buy, and why it is on some advanced topics in theoretical
computer science.
If I took the time and the stress involved in starting
working on this subject, it is that I really believe that we are
facing challenges in the information age which is very, very
important and never seen before. So, I tried to organize my talk
in a reasonable way. I would like for you to remember the issues
at stake, why I'm here basically. You might ask my view of
deconstructions of the monopolistic tactics, extensions and
mechanics used by Microsoft as far as a weakness in Europe over
the last 15 years. And then finally talk about remedies, but I
only have 15 minutes, and I have poor English. So I have to skip
and fly over my slides.
The only fact, that will survive about getting and
maintaining monopolies is this one. While I will not talk about
Caldera again, the previous speaker already did it, look only at
the two red lines on this slide. These are several things that
Microsoft did, and we have witnessed this kind of operation in
Europe pretty well through original equipment manufacturers, who
sold equipment to us, is that different pricing, like in the case
for Caldera, basically voided the possibility of original
equipment manufacturers to make a choice. You are not able to
make a choice when they tell you, if you buy by copy it costs 2X
and if you buy it by the system it costs X.
But there is another point that nobody ever pointed out
here, that it is also impossible to get a refund on the copy of
Windows that you don't want. I am the happy owner of four copies
of Windows 95 that arrived with different portable laptops and
PCs over the last four years in my office. And I never, ever
managed to get one dime back on these copies that I don't want, I
never wanted, and I tried to get refunded for over maybe one-
year-and-a-half. This means that even the consumer has no
choice.
Your choice is basically to vote with your feet. This is an
expression I understand which you have here. And, well, in fact,
I have no feet. I cannot walk out in this situation. We are all
forced today to pay for Microsoft Windows, but anyway this
situation is kind of minor with respect to the real dangers.
What is going to happen, what we are witnessing over the
past years is something much more relevant than just losing $6 or
$7 or $10 or $20 every time you buy a PC. Basically, you see
intellectual property abuse, in a sense. I don't know how many
people here in this audience know that Microsoft managed in
January, last January, to patent what is an official standard of
the web, the cascading style sheet has a patent. Now Microsoft
has a patent. You will see it in the next slide.
This is incredible, and this is a real dangerous thing for
people like me who work in open source software because, you
know, when you work in open source software, up until now, we
don't work on a paycheck basis. I can keep on working on my
personal software project even if I am not able to sell it,
because Microsoft spends thousands or millions of dollars around
to prevent people from buying it. But, with tying the use of
intellectual property, abuse like these kinds of patents on trial
things, like cascading style sheets, you can prevent me from
writing the software, and this is very dangerous, this is really
new.
On the other side, you've had the situation, maybe you
remember, I remember seeing a kind of a joke or an expression by
Bill Gates on a television show on CNN where he said that forcing
Microsoft to bundle Netscape is like forcing Coca-Cola to put a
Pepsi can in every six pack of Coke or something like that. That
is a smart comparison to put people on your side, but it is not a
very faithful comparison.
The right comparison is to remember that an operating system
today is like a soda vending machine. It is not a can of Coke,
it is a vending machine. And Netscape or Internet Explorer, or
something else are just a can of Coke or Pepsi. And today we are
facing the strange situation where the same company owns all the
vending machines in the world, and some of the products that can
be sold with these vending machines. So, when you go to your
vending machine, push on the Pepsi button, nothing happens, or
you push on the Pepsi button and you get a Coke. This is
typically what happens today if you try to remove Internet
Explorer from Windows 98 and you start Netscape, but then you
push on something that should launch Netscape, and you keep
getting the Internet Explorer screen. This is like a vending
machine situation, you see.
And, this is very important because the monopoly owns the
vending machines, and it allows you to establish new standards.
Not everybody can establish new standards. I can't establish a
new standard. I say, instead of HTML, I will use RDC or Roberto
Di Cosmo HTML, okay, but who uses it? Nobody. But if I am
Microsoft, and I decide to use MS-HTML and put it inside my
vending machine, the operating system, next year, or in two
years, everybody in the world will be using this vending machine
with this new standard in progress. I can make the new standard
the real standard, and kill the traditional open standard used up
until now. And only a monopolist on the operating system can do
that, not everybody. This is a very special situation.
Then, this control on the information chain, the extent of
the monopoly on the operating system, the standard manipulation
is an example of this. You can finally end up controlling all
the whole information chain from producer to the server market,
to the Internet market, to the consumer market at the end. And
this is something I have never, ever seen before in this
industry. And this is something I would like not to see.
The problem here is that for most people who are not
technical, the Internet just means you type some mumbo-jumbo
which has become kind of familiar today, this uniform resource
locator, somewhere, and you get a nice page with graphics and
booknotes, and animation and videos and sound, and you can buy
something that's sitting on the other side of what you call a
browser window. But people have heard that for these mechanics
to work, you have to have to have a whole interconnection of
technologies that cooperate vocally. And today this technology
not only was not invented by Microsoft, but it was not invented
by any software publisher, private software publisher, all the
Internet up to today is based on open standard that were
basically conducted on public funds. The web, if you know the
story of the web, the web was developed in Switzerland by people
working at SAM, which is a research center on nuclear energy, not
here, not by Microsoft.
And the reason why the information technology market today
is so heavy is not Microsoft monopoly, it is the easy
availability of open standards, like HTML, of open protocols like
http, of open communication protocols like SMTP, et cetera, which
are commodities in the sense that nobody owns them. And anybody
can write to these protocols, and everything is working pretty
fine today.
And not only this, it is only because of the viability of
the source code of the web. If you go to this page, this page
has a nice story because it's the page on an initiative that we
set up this year to try to get some money back from our Windows,
the Center for Windows Refund. If you like the layout of the
page, and you want to make another page for you, it's pretty
simple. Click on the view source button, and you've got what you
see on the right side. That's the source. Take it, copy it,
adapt it to your situation, and you are done. This is the power
of the web today. This is the power of open source software.
But, if we accept something like this, this is Microsoft's
patent on cascading style sheets, something pretty trivial, okay,
this is filed and obtained in 1999, January 1999. If we accept
this, what we are ending up will be a different Internet from the
one I've already showed you and you will see on the next slide.
We risk to end up with this, and this is not something I
would like to see. The end user will not see a difference at the
beginning, only later on. You will not be able to know how to
communicate with an Internet who is owned by somebody who sets
standards in a strange way, and can change it daily. You cannot
own the standard.
So, this is the reason why I'm here, but I should go on to
remedies. What should we do? What should we do today? I think
there are at least three things one would like to see. We should
be able to remove artificial technical barriers to competition.
And this means, as already pointed out before, trying to have
wider viable, ease viability, fair viability of application
programmers interfaces, of API, and again avoid and prohibit any
non-disclosure agreements that prevent this easy availability of
APIs.
I remind you that part of the people here want to try Linux,
for example, buys a PC and doesn't know that this PC contains a
Win printer or a Win modem, or something like that, which is only
using proprietary protocols, which means you will never, ever
will be able to run that without having Windows, because to talk
to the modem, you need a protocol. Well, if you have an external
modem, you don't have any problem because that protocol is the
open up to now.
How could you go about this? There are different possible
solutions, some have already been proposed here. Just look at
the red lines. The IBM-like holdings has already been exposed.
I should pose it to be a new topic for you since it is a European
ruling, not a U.S. one. But James Love already presented it.
And there is another idea that is developed in Europe right
now that's a notion of compensory deposit of source code, what
does it mean? I'm not obliging you to give me your source code.
I'm just telling you, if you have the source code, you are
selling some product somewhere. No problem, go to this agency,
which is an independent certified, I don't know, people swear
that they will never sell your source code, et cetera. You give
a copy of the source code, which is copied there, and it is kept
there just in case, for example, you happen to lose your source
code. You know, it can happen even to Microsoft. Apparently,
they lost some part of their source code that was a necessity for
the Caldera trial. So, if they had deposited the source code,
they could have shown that they are not linking, for example, in
this situation.
And this is an idea which has started in Europe right now
and, again, what is very relevant for me is to avoid the abuse of
intellectual property rights. But about this let me say to you
something that probably you don't know. In Europe, you cannot
have any intellectual property rights on algorithms. You can
have copyright of code, you can copyright the program. You can
not patent any algorithms. You cannot patent a file format. You
cannot patent the protocols, for example. It is illegal to do
so. It is illegal since 1978, and the Glasgow Commission in
1991, by a EUC directive, and this is a smart idea. Why?
Because if you look at what is patented, it's incredible in this
intellectual property network.
The cascading style sheets are a triviality, but there is
something even worse than that. Do you know that drag and drop
is patented? Cut and paste is patented, do you know that? I
mean, next time I will come here, and I will patent the way to
add one plus one. So, next time you have add one plus one you
have to give me a royalty fee. This is not reasonable. The
whole point is that in the software industry, which is a new
industry, it's very difficult to tell apart something which is
difficult to do from something which is difficult to do from
something which is simply trivial. The next programmer that has
a problem will solve it in the same way.
So the European position is that, since this issue is
difficult, nobody has a right to have a patent on an algorithm,
or a protocol. If nobody has a right to have a patent on an
algorithm or a protocol, an open source community can always
develop a program interoperable with yours as soon as APIs are
viable, there is no point in having APIs if they are patented.
This is the European point of view.
So, here there are all kinds of other things one should do.
We should try to remove artificial barriers to competition. And
this means several remedies, you have already seen some, but I
would like to say, if you really want to have again a competitive
market, instead of this slice and dice and whatever, I would like
you to propose something more to a computer scientist. If you
have many components in the system, make each component a
different product.
If the application programmer interfaces are so wonderful,
it's not difficult at all. It's formalize the actual situation
inside Microsoft. At Microsoft you have one thing working on
spell checking, one other team working on file system, another
team working on something else. And they all communicate in a
green room with an application programmer interface. Make them
different products.
This will improve the quality of products. You know the
story of computer programmers shows us that if you want to do
huge projects, you have to split them down in manageable parts,
in manageable modules. This is also one reason why I would say I
don't subscribe to the point of view of paying Microsoft to give
back the Windows source code, because I know Windows source code
is not written the proper way. So, please, let Microsoft take
back their mess. Don't give them fresh money in exchange for an
inextricable mess of mangled lines of source code. So, forget
about this idea.
And, finally, this is a new point. This is very important
for me. You should remember, everybody says, we are not here to
punish anybody. I am the punished people. I paid for four
copies of Windows 95, and a theft has been committed. So there
should be justice sometimes. So, you should provide compensation
to damaged parties. This means, to end consumers, provide them
mandatory compensation.
How can you do that? Well, I tried to do this for 10
months. I went to Microsoft. Microsoft told me, you have to go
to the original equipment manufacturer to get the refund. I went
to the original equipment manufacturer, and he said to me, I
don't know how much it costs. How can you not know? I'm seeing
there is a total price, this is a component, maybe the price
exists somewhere but I don't know it in Europe. Maybe somebody
here in the States knows it. I'll be surprised if he speaks it
here for all the world.
Then they say, maybe it's $10, maybe it is $30. Anyway, I
am not going to give you back the money because Microsoft is not
going to give me back the money. Unfortunately, behind every CD-
ROM of Windows 95 or 98, you will find great and small, it's
written, that if you don't agree with the license terms, you have
to give it back to get your money back. Well, I tried, four
times. And many other thousands of people have tried to do this
all around the world, just to spend an enormous amount of money
to get back what, maybe $30. The first French to succeed in this
managed to get back $120, and not $40, like you said here, $120
form the original equipment manufacturer. But the original
equipment manufacturer declared to the price clearly that he's
paying for that. Microsoft is not going to reimburse them. And
this is unfair, because, again, Microsoft doesn't feel that I'm
trying to vote with my feet. So, make Microsoft reimburse the
copies of software imposed on consumers at face value. I don't
know, $200 dollars, that way.
And another point that is important for me, if you look at
the 95 consent decree, there is in there an important phrase
where they say everything written in this consent decree is not
an admission on the part of Microsoft guilty of culpability
whatsoever. Please this time don't make this mistake. Please
open up the possibility to people to sue if they have been harmed
before.
Anyway, I will remind you that my best solution is open
source software. Just let the Titanic sink. For people who are
not familiar, the penguins up there are just the symbols of
Linux, and this is a Linux penguin. And why this situation is
really open source for software are able to drive software, if we
are not prevented from writing software by abuse of intellectual
property laws, and in the end maybe Microsoft will prolapse, not
because of the market, because if you should consider how much it
would have cost the company to pay for the development of Linux,
over ten years, without being able to sell even one copy, nobody
could have survived that. But Linux is an example of what is
going on here today.
The issues are so important that people, like me, like many
other people working in open source software, have taken their
time, without being paid, just to help people control information
technology, because information technology is a key to the
information society we are building, and we have not the right to
let this information society be transformed into a nightmare of
the Middle Ages just because somebody wants to make some bucks,
or some billion bucks, more this week than the past week.
And here I had some example of other handwritten things,
because somebody asked me to present the situation in France
today, but I'm already over time. I'm very sorry. I hope you
will be forgiving, and I will tell you what is going on in
France, and in the European community right now. We are
seriously considering right not to impose to the government. The
government has big power as a consumer, you know, when you as a
government buy one million copies of a software, you're a big
consumer. And trying to convince the government, when you buy
software to impose the use of open standards, or if the standard
is not yet open, I will buy the software only if you make the
standard on which the software is based public. Publish a
supplemental Word for Windows, publish a format of your file
system, publish a format of the things I need to communicate.
The other idea is to mandatory deposit the source code for
programs by the government. This is important, not because I
want to steal your program, because I want to guarantee my
security, because I want to guarantee that my investment will be
preserved. Imagine you disappear, imagine that in the testament
of Bill Gates it is written that the day of his death all the
source code of Windows or Microsoft software has to be destroyed,
you know, immediately, it can happen. What do you do? So, you
want to prevent your investment to disappear just because the
code goes away or the company goes away, so deposit the code in a
way that I will be able to maintain the software if I need it.
You have already seen projects canceled because they had only one
million customers, only one million customers. Today, one
million customers not enough. Maybe this is a reason why the guy
at Visio has still not been incorporated in Microsoft today, in
Windows today.
There are many other things that we have done like this
consumer campaign to get back money from Microsoft. It did not
really work because only one person managed to get money back,
but at least this raised the consumer awareness about the
problem. And the last thing, I would really like to see people
being more educated, more informed, more aware of the problems of
computer science today, because computer science is pervasive.
If you have electronic razors today, there is software in there.
That's important. And you don't want to have to remove your
electronic shaver.
I will finish by telling you the last thing that we have
been doing. This is a CD-ROM of open source software developed
by a French institution. They decided to put everything on a CD-
ROM and to give it away to people to let them try what else is
available. And you can't buy this, I will not sell it to you. I
will give it to you for free as soon as it is finished. This is
a demo CD-ROM for Linux for people who don't know what it is, who
fear the large installation hassle, et cetera. You put this in a
PC, it starts up without touching your hard disk. Okay, it will
be slow. You will be running off the CD-ROM, and using only your
memory. After all, PCs today have 364 megabytes, so you can try
it in the office, that's no problem. And you can at least see
what's an alternative to this Microsoft monopoly.
Don't forget that today to be able to have competition, you
have to enable people and consumers to choose. And to get them
to choose, you have to be able to compare. And comparing
operating systems, comparing software, is not something you do
lightly. It takes time. Remember, when you go to the
supermarket to buy your toothpaste for example, do you really
compare all possible makes of toothpaste? Do you do it? It
should be easy, 50 cents each toothpaste, buy them all, try them
out, and then you choose the best and the cheapest. Do think
people are doing this with computer software? Do you think that
really Microsoft's monopoly today is because hundreds of millions
of people have tested all possible operating systems and have
chosen the best for them? This is not the case. I would like
this to become the case tomorrow, and this is the reason why I
spend my time to build this stuff. And this is the reason --
[TAPE CHANGE.]
MR. NADER: -- an Internet activist, actually he has two
roles. He's an Internet activist, and a publisher and editor of
Boycott Microsoft website, and he's also a technology columnist
with Scripps Howard specializing in this area under the byline,
The Accidental Expert. His background is in city planning,
architectural history, but his involvement with computing
technology goes back to the early 1970s. He will admit to being
almost exactly two months younger than Bill Gates, and
considerably less affluent I would assume.
MR. STONE: About $97 or $98 billion dollars at present, I
think. Unfortunately, my handouts got lost in cyberspace
somewhere between here and there, and so I don't have those to
hand out. But if you would like them afterwards, please give me
your email address, and I will email them to you directly.
Many years ago, the great Fred Allen said, a conference is a
gathering of important people who singly can do nothing, but
together it can decide that nothing can be done. One of the
benefits of speaking here at the end of a program like this is
having the opportunity to offer an opinion as to whether or not
we've proved Fred Allen wrong, if only just this once.
Certainly, I've gotten the impression this is a thorny
issue. Maybe it's so thorny that it's hard to find the roses
anywhere. And the more I study this issue myself, the more I
realize how little that I know. And I think maybe a little
humility goes a long way.
I've been asked to speak on the topic of a consumer boycott
of Microsoft, an issue I've been working on for nearly three
years on the Internet in the capacity of ad hoc consumer
activist. I should own up to one thing straight out. I began
this effort in August of 1996, mainly as a matter of personal
therapy, without any specific goals, but with some generalized
desire to be something better than an indifferent bystander to
the events which were unfolding around me.
I began with no prior experience in consumer activism, or
any tutoring in how it ought to be done. As a result, I
approached the entire affair with almost total naivete and with
little concept of what could actually be accomplished. But, as
Guy Kawasaki, the former Apple software evangelist said to me in
an interview once, ignorance is not only bliss, it's empowering,
which I think is a way of saying that experience can be a pretty
good teacher, or maybe that lessons learned by dodging the bricks
that are flying over the transom are lessons you're unlikely to
forget.
Well, there were a few, and I hope to impart some of that
experience to you today, because what I found surprised me, and
that advocating a boycott of Microsoft involves some interesting
wrinkles, and some unexpected obstacles.
So, let me begin by posing the question I hear so
frequently, why boycott Microsoft? In the minds of us who have
long thought hard about this issue, I think the answer is pretty
clear, and it can be summarized as it has by so many today, as a
wise person withholds their financial support from a corporation
whose behavior they believe is harmful.
Well, this sounds straightforward enough, but to be
completely honest, we have to ask ourselves another question.
Does this message sell with the real constituency for a boycott,
the technology consumers of the world, the vast majority of whom
have not thought long and hard about this issue? In a word, no.
I have found that it does not sell. And the reason that it does
not sell is a direct product of the way we have been instructed
to think about technology by the technology experts in the media.
We've been instructed to think of technology as an inevitable
forced march towards monolithic standards, be they software,
operating systems, or even hardware.
For a case in point, I'll quote Stewart Alsop, he said: We
want a single platform because the benefits are so tremendous.
Personally, I think he should speak for himself. But where did
he utter those particular words as important, it was right here
in Washington a year ago in a hearing before the Senate Judiciary
Committee. In this hearing, he also remarked to the Senators, if
Microsoft is a monopoly and we decide that we do not want an
unregulated monopoly controlling these important interfaces, what
can we do about it within the constraints of our system and our
culture of mostly unrestrained competition and entrepreneurship?
Answering his own question he said: "I do not believe that the
solution to this problem lies in the area of antitrust
legislation and law. I suspect that the federal government must
ultimately play a role," not consumers, the federal government.
His message seemed obviously to be this, competition is a
dead letter, one company won so let's just regulate this business
and get it over with. I pick on Alsop for two reasons. First,
if anyone is an expert's expert in this field, it is he. And,
second, because he made these remarks in what has to be one of
the most important venues in the country. Without a doubt, he is
an opinion maker.
But a great many others in the press carry the anti-choice
flag forward in their daily columns and daily news stories. So,
it's no real challenge to come up with more illustrations.
Earlier this week, veteran technology columnist James Coats wrote
in his Chicago Tribune column that any time spent building
software applications for Linux is a waste of energy and talent.
Maybe some of you have seen this column and it raised your blood
pressure. This is only the latest in a long history of anti-
choice creeds from Mr. Coats. He's a regular. So, quite simply,
what the public is being told is this, choice really doesn't
count for much. And that maybe, probably even, we'd be better
off without it. We have been standardized, and we should learn
to like it.
So, I ask, is this all the experts can say on our behalf,
that we should accept standardization in whatever forms those
standards take? That we should continue to use Microsoft's
products irrespective of how we feel about them, or their
suitability to our personal needs and preferences. Well, even
Stuart Alsop said, right after his appearance at the Senate
hearing, that the Windows interface makes his skin crawl. And
that's a direct quote. But with these sorts of messages
emanating from the experts and the media, it's no wonder that
consumers are so confused, so cowed, and so unable to distinguish
what is in their best interests. And, coincidentally, so
restricted in their choices.
So, it's unexpected maybe, but our first challenge, the
number one priority of a boycott, must be to neutralize this
fundamentally unhealthy, media-generated anti-choice mind-set.
The notion that we should continue to accept and adopt
proprietary standards as fast as Microsoft can hand them down
from Mount Redmond. And to cultivate, instead, a positive
inclination in the minds of consumers for expressing their needs
and preferences in the marketplace. You cannot for a moment
assume that this already exists.
Secondly, these choices absolutely cannot be couched in the
ideological terms they are often now, which is to say, my choices
are better than your choices. We're all familiar with that. The
notion of choice in computing should be analogized to choice in
other consumer product areas an already widely accepted concept.
We must build on what people already instinctively understand
about the nature of choice.
Let me back up for a minute and talk about standards, what
are standards and why are we so convinced that they matter?
Well, this has been addressed a great deal today, but I think
I'll have a slightly different take on it. Standards exist
throughout the industrialized world, this much we know. Cars,
for example, are built to run on the same fuel, a fuel which
works equally well on virtually all automobiles. In this sense,
the base design of gasoline is a standards. Car tires can vary
in any one of a number of ways, but the size specifications
themselves, and the principles of their design are standardized.
But even if Ford, for example, happened to be selling more
cars than any other company at any given moment, no rational
person would presume to say that Ford now made the standard car,
as though their method of designing and building a car had made
all the others obsolete and irrelevant. Now, we understand
automatically as consumers that Ford's method of manufacturing
cars may be preferred by a plurality of consumers, but that this
preference isn't universal and, in fact, it's probably only
transitory as other car manufacturers scramble to catch up, which
we hope they will.
Lo and behold, we call this process competition. And when
it works its best magic, competition produces an abundance in the
marketplace, not a monoculture. Now, this may seem like an
awfully simplistic point, but if that's so, then why do otherwise
intelligent and informed people insist that the technology
industry operates under a completely different set of economic
rules? It would be alarming to find the automotive press, or
anyone, really, advocating for a standard car. I mean, you could
make an argument for the benefits, couldn't you, every mechanic
could work on every car. Every auto parts store would have every
part that you would ever need. But nobody ever makes this
argument, never. And yet we hear standards talk every day, not
just from technology journalists, but from any of a thousand
retail computer store clerks, even though it is clearly and
fundamentally damaging to the advancement of our interest as
consumers. This has become the most dangerous kind of wisdom,
the conventional kind.
This implies to me, at least, that the central prong of any
boycott strategy should be attacking the idea that universal
standardization is the inevitable outcome of the computing
industry. That it's only a matter of who wins, not whether any
winner is an ideal outcome. If pressed, defenders of the
standards logic will unfailingly trot out that old war-horse, the
VCR analogy. The VHS format, they'll say, beat Beta not
necessarily because it was technically superior, but because it
was more successfully marketed, and that's that.
Of course, the direct implication is that buying a computer
driven by anything other than a Microsoft operating system is
like buying a Beta VCR. Well, I have to tell you, I'm at open
war with the video cassette analogy, and have been for a long
time. And I don't have time to explain why in detail, but I can
say this, the VCR analogy may be superficially attractive, but on
inspection, it proves to be a very poor fit for personal
computing.
For one, it begs the question of who set the videotape
standards in the first place, and how they've been managed in the
marketplace. Suffice to say the video cassette market today is,
in reality, far from standardized to only one format. We have at
least four in common usage, and they all seem to somehow coexist
side by side, each addressing their own segment of a diverse
video market. In fact, had the video market followed the same
rules so often suggested for computing, I suspect we'd still be
hauling around camcorders the size of Frigidaires. So, if
anything, the weary old videotape analogy fortifies the idea that
free markets tend towards variety, not the conventional wisdom
that it proves that one standard must prevail.
So, I believe the question of the imposition of universal
proprietary standards needs to be addressed head-on, and
practically speaking it doesn't matter if these standards are a
closed word processing format or an operating system that
integrates the kitchen sink. People need to have a basis to
determine whether this is a good or a bad thing for them. And
the opportunity and the courage to vote their dollars
accordingly.
MR. STONE: So, what of the future? In the final analysis,
I believe we have only two choices. The first is a regulated,
worldwide monopoly constructed along the lines of the phone
company prior to the breakup of AT&T. This is the Ma Bell model.
If Microsoft succeeds in gaining title to the information
infrastructure, they will become the information public utility.
And I predict that in the long-haul, the public will not stand
still for an unregulated monopoly of that scope. Even Stuart
Alsop was saying as much. And, by the way, I don't think
Microsoft's leadership fully comprehends the potential for a
public backlash they will face if they succeed in creating the
information public utility of their fondest dreams.
The second model, of course, is a free and open competitive
marketplace, without question we're at a critical decision point
in the history of computing technology. The events of the next
few years will determine whether we need, desire, or will have
imposed upon us an information public utility called Microsoft,
or whether a free market model will again become ascendant. I
believe the choices really are that stark.
But as consumers of high technology today, we'll soon be
offered a different set of choices. We can accept the set of
preordained standards for the entire industry, or tolerate the
chaos and confusion that reign when standards compete for
supremacy. The options as they are currently posed are between
standards and anarchy. The focus of a boycott should be
rejection of this unnecessary and false dichotomy. We should
play to our instinct suspicion of one-size-fits-all reasoning
because we know that in products ranging from automobiles to soft
drinks, we in the Western capitalist world have consistently
asserted our freedom to choose, and tolerated a certain degree of
confusion in the marketplace in order to retain the ability to
select products as our personal preferences dictate. We also
know automatically that industries that are not subject to
competition have no incentive to meet our needs.
You may have noticed that I have, in a sense, skirted the
whole topic of a boycott. Why is that? Well, for one thing,
boycotts can often be readily dismissed as exercises in futility.
Grandstand plays lacking substance are ideological exercises,
which in fact they often are. In the case of computing, combined
lack of urgency and a sense of the utter futility of attempting
to alter the existing order of things is already firmly in place.
This state of mind must be addressed directly, or the effort will
be quickly characterized as being little more than one, two, or
all three of the foregoing.
So, to my mind, a boycott is really a wrapper, a cover
story, a headline grabber for the hidden in plain sight agenda,
and that agenda is the reestablishment of good old fashioned
informed self-interest in the minds of consumers. If we hope to
have an impact, we need to walk choice, we need to talk choice.
We need to say over and over again that freedom of choice, like
democracy, is a use it or lose it proposition. We need to
paraphrase Garrison Keillor to give people the strength to get up
and do what needs to be done.
The central message of a boycott should be that we must
exercise our franchise as consumers, which means simply to be
informed of our choices, and to choose the products which best
suit our needs. And, yes, to turn a deaf ear to those who would
urge us to accept products whose main virtue is that they are
called standard.
Because, make no mistake, as much as it is anything else,
this is a battle for hearts and minds. We are in the process of
being persuaded to think that this is an industry where only one
company and only one standard can prevail, and to leave our
powers of consumer choice on the doorstep.
So, let me close with this thought. There's an old line in
salesmanship that goes sort of like this, sell the sizzle, son,
not the steak. If we ever find ourselves faced with this sales
pitch, and we buy the sizzle instead of the steak, we should not
be at all surprised if we're never offered steak again.
Thank you.
(Applause.)
MR. NADER: Thank you very much, Mr. Stone. We appreciate
those remarks. And it segues pretty well into our last
presenter.
One of my friends, Giovanni Ricardo always asks the question
qua agis (sp)? Where do we go? We've had a lot of technical
observations about software, and Microsoft, and the future, and
the software industry, and the information society.
And David Bollier, our next speaker, has given some thought
to the question, what's it all for in terms of democracy, a
better society? Mr. Bollier is an independent journalist, and
consultant based in Amherst, Massachusetts, who writes frequently
about the social and democratic implications of the electronic
media. In fact, one of his first reports was one that he did for
us called, How to Improve Your Daily Newspaper: A Guide for
Readers. And it was promptly translated into Japanese. But no
other language.
It was, I think, an attempt to look at readers of newspapers
as consumers. And newspapers tend to have a one-size-fits-all
format, and people have a hard time comparing what newspapers
could be like, especially their daily paper about which they
usual restrict their reading to. And now, in the information
industry, the question is, do we see something beyond the
standardization, beyond the inevitability, and do we see a
horizon, do we see activity around the edges of this monolith
software vendor Microsoft?
He is a student of citizen advocacy and progressive
politics, cultural change. He's worked for 50 years with
writer/producer Norman Lear on assorted non-television projects.
And he's given thought to the issues of empowerment, public
policy initiatives, with several foundations, written a number of
reports in the area of electronic technology, some of them
connected with the Aspen Institute conference, and he's thought
about models of business management in his book Aiming Higher,
which has synthesized the economic, social and political reasons,
and he's also synthesized the economic, political and social
reasons for curbing suburban sprawl, and has written a recent
report on that, and how to rejuvenate urban regions. He can be
reached, by the way, at bollier@essential.org.
And so, for the last presenter on some of the bigger
questions, and whither all this goes, and in what direction, for
what purpose, David Bollier.
MR. BOLLIER: Thank you, Ralph.
I'm actually quite optimistic, despite a lot of the many
complexities and problems involved with this. I was commissioned
to do a paper for the Harvard Law School's Berkman Center on
Internet and Society to suggest some ways that the open source
code, or what we're calling open code movement might have to
contribute to this debate. They call it open code because
there's two paths, as some of you may know, between the free
software movement, and the open source code. And I think that
there are lots of commonalities as well as differences, and we
like to stress the commonalities.
I would add that I don't speak for either the Harvard
Business School or Harvard Law School or Berkman Center in their
new project that they're hoping to launch in this regard called
H2O. I'm speaking only for myself. And, incidentally, anybody
who might care to find more information about that, they can find
it through the URL opencode.org/h2o.
But one lesson that's becoming clear from all of this is
that the design of hardware and software and the governance of
the Internet matters a great deal and that it's a legitimate
topic of public and legal concern, because these issues can
profoundly affect competition and innovation markets, the ability
of universities, non-profits, libraries and others to pursue
their missions, and indeed how much we can control our individual
lives.
Well, within in the past year, year-and-a-half, a number of
forces have converged to suggest the socially constructive
potential of an alternative form of software design, and that, of
course, is the open code movement. It's a grassroots movement on
a global scale that's challenging proprietary models of software
development by generating superior, more reliable software that
is usually far cheaper, and even free.
The implications of this are not just technical, or within
the computer industry, but really far-reaching in their economic,
political and cultural scope. I like to put it on the same
pedestal as the scientific method and Jeffersonian democracy.
All three of those have a strength and resiliency because their
procedures and outcomes are subject to the scrutiny of all.
Openness allows error to be more rapidly identified and
corrected. Innovation and improvement can be more rapidly
embraced. And it builds accountability into the process of
change. And these are features that we don't have in abundance
in the Microsoft world.
This movement, I might add, represents one of the most novel
and potentially powerful expressions of the consumer movement in
a generation because it represents a sovereign political force in
its own right that has the potential to check the abuses by
Microsoft as well as many other proprietary vendors and to be a
constituency base for rallying and defending open standards
throughout the Internet world and computer world.
It would have particular benefits for the voluntary sectors,
the academic world, non-profit world, and professional
communities in allowing them to have their own knowledge and
community based infrastructure through software which they would
control in a means analogous to consumer co-ops. And all of this
could also help check the excesses of concentrations of corporate
power in the software world.
But, in some ways, we're at a threshold because some forces
need to coalesce if the open code movement is going to find the
leadership to move forward and take advantage of opportunities
that are now here. The user community in particular, and the
non-technical communities need to begin to identify their own
mutual interests and develop strategic plans to develop open code
software. Such a mobilization is quite necessary because we have
a window in which many of the proprietary software and computer
worlds have not really unified or consolidated themselves to
develop a response and, therefore, there's an opportunity.
I put up on the screen here how open code software has this
potential. The question is, will it be thwarted in developing
it, and will it have the support and legal structures to develop
it? I'll take this in two stages, one, the disadvantage of
proprietary software, and, second, the key benefits of open code
software.
One of the disadvantages of proprietary software is it locks
the consumer in to a disadvantaged position. As an on-line
commentator Tom Holm (sp) explained, in the world we live in
production that is highly organized and efficient commands
enormous financial resources and seductive powers of persuasion,
while demand is fragmented, uninformed, and powerless. While
consumers can still kill a product they have no desire for, they
are nearly powerless to direct or even influence the detail
designs of those products. For software products, consumers can
only choose among a given set of alternatives which are extremely
complex, dauntingly impenetrable, and generally designed more for
a company's anti-competitive purposes than for the user's task.
I think we've seen this in abundance at the antitrust trial
of Microsoft, where they've documented the full range of tactics
that proprietary companies can often use to the detriment of
consumers. We list some of them here, technology lock-in, and
using the dominance of proprietary protocols. The embrace,
extend, and extinguish strategy that Microsoft has refined, and
which was detailed at the trial. The restrictive licensing
agreements which you've seen with many OEMs, another source of
restricting choice and innovation and competitive improvement.
The manipulations and limits on innovation that proprietary
vendors can choose or not choose to do in improving bugs or
developing new functionalities. And, finally, the overall
limitations on choice that consumers face in developing software
that's truly responsive to their needs.
Now, by contrast, of course, the open software movement,
open code software movement, opens a radically new basis of
competition, innovation, and consumer choice in the market. It
really rivals proprietary software in quality, reliability,
flexibility and price, and even better it effectively belongs to
those user communities themselves. And, therefore, it's sort of
a scaffolding for their self-development on a community-wide
basis.
I find it analogous to the co-op movement which, in its
heyday, allowed workers and consumers to assert greater control
over their economic and personal lives and open up really new
frontiers of self-determination. In this context, it allows
users to pole vault over the cost inefficiencies, the barriers to
innovation, the consumer manipulations, the design rigidities
that characterize so many proprietary software markets.
It's appeal is not just that it's cheap, and more versatile,
and customizable, it really represents a structural shift of
power from sellers to users. And, in that sense, it's one of the
most liberating means of media empowerment that's come around for
quite some time. It repositions the terms of competition to a
matrix of quality and utility, and diminishes the advantage that
the proprietary world can use for manipulations of the
distribution apparatus, marketing schemes, restrictive licensing
terms, and bundling deals.
It's also inherently more suited for the educational
environment because its inner works, the source code, can be
directly manipulated, and learned, and examined, and improved
upon by students. This, of course, is not possible with
traditional software.
And we see this, I think, coming to the fore at this time
with the surge in popularity of Linux, many aspects of Internet
software, Apache, Perl, and many others, have been embraced by
proprietary vendors as the cornerstone of future software
development. And I think despite its relatively peripheral size
in the marketplace, as the poet Mary Oliver once said, it's not
the size, it's the surge. And I think the surge is really
something that we're going to see more of in the coming years.
But the movement stands really at a threshold because
there's a number of challenges or threats that the open code
movement is going to have to overcome. It has a sovereign
vision. It has a superior product very often. It has a
burgeoning cadre of supporters, growing investment, fresh
attention by the technology world, a hearty development process
of proven effectiveness. This all may not be enough. One
question is, can the integrity of the open code vision be
maintained? As a community-driven development process, can it
withstand the proprietary world coming and calling and trying to
harness it for the benefit of its shareholders? I consider this
really an open question.
But I do think it's telling that Microsoft in its Halloween
memo concedes that open code software "poses a direct short-term
revenue and platform threat to Microsoft, particularly in server
space. Additionally, the intrinsic parallelism and free idea
exchange in the open source software has benefits that are not
replicable within our current licensing model, and therefore
present a long-term developer mind-share threat."
Their Halloween memo also pointed out what they called a
sublime problem is that the open code movement has problems in
plotting its future features, a strategic commitment to future
things, which means that it might get blown off course, or not
developed in a way that might be as advantageous as it might
pursue.
Second, Microsoft was keen to realize that the open code
movement is quite vulnerable to intellectual property snares, as
has been pointed out by others, there are all sorts of patent
mischief that can be done to open code projects. It remains to
be seen if these will occur and prove fatal or serious, but
Microsoft has in the Halloween memos talking about "folding
extended functionality into commodity protocol services, and
create new protocols." Once again, the embrace, extend,
extinguish strategy rearing its head.
There's also questions whether these, I guess I mentioned,
but whether the corporate sponsored open source experiments will,
indeed, over the long-term be sustainable. I think they're
certainly worth trying. They may yield fruit. They're providing
a new locus of innovation which well worth pursuing.
Another serious threat is whether open standards and
interoperability can be assured. These have been talked about
quite a bit today. I would just mention that the open code world
represents a natural constituency that has the same power as
opposed to simple legislation or court orders to help assure that
open standards and interoperability be maintained within the
Internet world, and not be subject to proprietary norms.
Another threat is whether open code can develop a brand
identity over time. This may sound, for a kind of software that
his this Bierkenstock (sp) image, may seem gratuitous or
unnecessary, but to the extent that brand names are a form of
cultural credibility, and it's the rice of entry into the
mainstream world, open code may need to develop that. There are
obviously some efforts along that line by a number of vendors
which many of us are anxiously watching.
Another question, can open code software be made user
friendly? The modular architecture which makes it so robust and
versatile is also one reason why it's not as user friendly. And
while great strides are being made in this direction, the
question remains whether it can go mainstream and be user
friendly enough to have a widespread mainstream adoption.
Related to that is whether non-technical constituencies
beyond the IT world can start to embrace this and move from the
server to the desktop and other domains, other arenas.
Strategies for supporting open source code software, open
code software. The Berkman Center at Harvard is, on May 20,
having a conference to help organize its new project, the H2O
Project. The H2O is used as a metaphor, just as water is
essential to life, software is increasingly becoming essential to
life, because it's penetrating so many nooks and crannies of
civic life, economic life, governance, and so forth. And we're
of the belief that the software, those open principles, need to
be in evidence in all of these arenas, and open code software
probably provides the best opportunity for assuring that. So the
H2O Project proposes to be a focal point for research,
discussion, policy analysis, and strategic planning.
Now, many people have said, particularly within the computer
community, why not let the bazaar do it, this being a reference,
of course, to Eric Raymond's (sp) essay about the cathedral and
the bazaar. The cathedral representing the proprietary single
vendor development model of software, the bazaar representing the
distributed networking of the Internet. Why not let the bazaar
do this? Well, I think the answer is that many of these energies
are not going to be consolidated and given direction unless there
is some focal point, which is not to say that we want to create
another cathedral, but just give some strategic direction.
And, there are also opportunities to accelerate the
development of open code software in this manner, providing focal
points and discussion which will lead to strategic planning, and
proliferation of such software.
And, finally, I think that a lot of people in the computer
community delude themselves into thinking that policy advocacy is
not necessary in protecting their interests. So, H2O hopes to
provide this kind of function as well.
Let me just quickly tick through, I think, some of the key
functions that I think need to be performed if open code software
is going to get a better grip in the marketplace and expand.
One, as I mentioned, is the development of a richer
theoretical and strategic analysis to explain why open code
software works so well and has long-term advantages. I find it
paradoxical and disturbing that Microsoft itself was the source
of probably the most thorough, hard-nosed and timely analysis of
this phenomena. It's not as if there aren't other commentators
outside of the world, but its Halloween documents certainly were
a kick in the pants to the open code world.
I think it's important that we begin to explain the pro-
consumer and civic implications of open code software because
there's relatively little understanding of how it is profoundly
empowering. And I think the public sector in particular,
government and education, needs to understand this, how its
purchasing power could be harness to serve its own interests
while developing this alternative sector of software development.
We also need a new taxonomy of intellectual property to
start to understand why this alternative means of protecting and
developing software is valuable and needs legal protection. So,
we need to fortify the concepts of what Richard Stallman (sp) has
called copy left, the licensing scheme for Linux and other
systems.
We've discussed before, but we need to examine the threats
to open standards and interoperability in the Internet and other
systems. The open code community is a natural constituency for
honing in on that. Along the lines that have also been
mentioned, we need to identify these barriers to market entry for
free software systems. There's been restrictive licensing deals
that have prevented a lot of these systems from being preloaded
on computers, even if they were free. We've seen that with Jean-
Louis Gassee's BeOS system in particular.
I think there would be value in software users coming
together in an alliance. There are many benefits that could come
from such an alliance. One, we could start to get programmers
developing to serve niche constituencies in education and other
arenas that could be an alternative market unto itself and grow.
The H2O Project hopes to do this with the university systems to
develop new platforms of jointly owned software, and jointly
developed software in that fashion. I mentioned government and
education purchasing to help develop this arena, that's very
important to do.
Another reason for a software users' alliance is because
consumer rights in the software and Internet marketplace are
rarely expressed in a collective way. Users have few forums or
resources through which they can effectively advocate their
collected interests in respect to consumer rights intellectual
property, on-line privacy, access to government information,
interoperability, among other issues. This, too, is a keenly
needed issue for which the open code community could provide a
very valuable function.
And finally, the open code, the H2O Project, and the open
code community ought to consider developing a repository and
users' forum to sustain and improve abandoned software programs.
There's many valuable software programs out there that, for
extraneous reasons that don't necessarily have to do with their
value, are abandoned. Yet, they have a large user base that
would just as soon continue to use them. That's a function that
I believe needs to continue or be developed.
So, in conclusion, I think we're at a very special moment in
which there's opportunities that need to be seized. As a student
of telecommunications history, I recall the period between 1928
and '35, when the non-profit world tried to get a legitimate
sustaining role in the broadcasting. But, of course, commercial
broadcasters were effectively able to take over control of the
public airwaves, and citizens, educators, labor, religious
groups, and untold other segments of American society were
effectively banished from this very powerful medium. And the
medium came to be identified with a narrow range of commercial
formats, and untold other possibilities were never developed.
Who knows what American culture might have been if they had been
successful.
I think we're at a similar stage today in software
development, and my hope is that the open code community will be
able to seize this moment, develop a foothold and expand. Thank
you.
(Applause.)
MR. NADER: Very good. Thank you, Mr. Bollier.
Do you have some comments or questions? That last point he
made was really quite a comparatively important one. But there
was this tremendous struggle between 1925 and 1935, or a little
earlier than 1928, a little later, it's '35 on radio, how to use
the new radio technology. And Herbert Hoover, the Secretary of
Commerce, wanted it to be non-profit, no advertising, and viewed
as a public trust, so valuable was it for the public
enlightenment. And in a seven-year, very intense struggle, after
there were a lot of non-profit radios, the commercial lobby for
radio took over and prevailed, and now we have radio which is
over 95 percent entertainment and advertising. So, you can see
what it's led to, it's measurable.
Do we have any questions, comments?
QUESTION: (Inaudible.)
MR. STONE: I've always been a skeptic of the antitrust
case, if only because it creeps on with such slowness, and it
seems like any remedy that we'll see will be so far after the
fact as to possibly not do us a lot of good. That's my fear, and
that's what I think.
But I don't know if you remember years ago, George Carlin
had a routine that became a center piece of a court case before
the Supreme Court. It was the seven dirty words, you might
remember. I'm not going to try them on you. But, after that he
said, the Supreme Court does all my publicity for me now. And I
think really what the antitrust case has done has sort of opened
the book. People like myself have been trying to tell this story
for a few years about what we were finding out about what
Microsoft was doing. And a lot of people were pretty unpersuaded
based on my email anyway. And I think having a lot of this
material come out into the open has really helped a great deal
because it's hard to refute a lot of what's been turned out in
evidence.
To the second point of your question, yes, think this is
something that, as individuals, we do need to decide that we are
going to take our own personal action against. If you feel that
this company is not acting in your best interests, then don't buy
anything from them. It's really as simple as that. And I know
it's hard to do in practice. And there's a lot of resistance to
doing that, but that's the basic lesson. That's the basic
message.
QUESTION: (Inaudible.)
MR. STONE: In what sense, as opposed to what?
QUESTION: (Inaudible.)
MR. STONE: As I say, I'm a skeptic. I don't have a real
well-developed opinion, I don't think, about whether antitrust
law is a good or a bad thing, whether it can be enforced
appropriately in this case. A lot of people have made a case
that it's arbitrarily enforced. That very well may be true. I'm
not sure. My sense is that it's not terrifically useful in this
case, in this instance, except to the extent that it's turned up
a lot of very interesting evidence that people can read and find
out about.
[TAPE CHANGE.]
MR. HILL: More importantly to Microsoft competitors, it's
been ironic that Microsoft has been in the position of having to
talk about how good Linux is, and how good BeOS is. In fact, I
went and demoed BeOS a month or so ago, and I was amazed. And,
you know, on a Pentium II processor, the BeOS programmer was able
to show me five Windows of real-time animation going on, on the
screen, and he said one Windows would have shutdown Windows NT.
So, in that sense, I think the trial has been extremely
beneficial. And I'm not convince d that there aren't remedies
that will come out of it that will be beneficial as well.
QUESTION: (Inaudible)
MR. HILL: What I was trying to explain was that the last
consent decree provided a loophole to the prohibition against
tying or bundling, which was the integrated product exception.
And, as I was trying to explain, I think the government got duped
in terms of what Windows 95 would turn out to be. At least
that's certainly what we're going to try to prove in our case.
And that's why I'm skeptical of those types of remedies. I
think the two remedies that are likely to be perhaps useful would
be some sort of open source requirement. I think that that would
enable the standard to become more open. It would permit people
like Mr. Sparks, if he were here today, would tell you that if
the source code to Windows 2000 were open, that Linux developers
could emulate calls that would enable Linux to support Windows
applications. And a huge problem for any competing operating
system developer is that Microsoft controls 90-some percent of
the business applications market, and Microsoft won't support
anything but Microsoft operating systems. So, you're left
fighting over the remaining 10 percent. Well, if source code is
open, then maybe others besides Microsoft can support Microsoft
apps and be somewhat commercially viable.
The other thing, you know, it's a tough remedy, but if
Microsoft were divided up horizontally, there would be a
disincentive for Microsoft to try to stamp out innovation, which
is what I think has happened, and I could give you a lot of
examples of that. And instead a real incentive to try to move to
the next watershed innovation. And when I'm talking about market
remedies, I'm talking about those kinds of things, which won't
require a lot of policing from the government, because I do
believe that if that's what happens, Microsoft is just too
clever. It won't do any good.
QUESTION: (Inaudible.)
MR. HILL: Well, I think that our case is relevant in the
sense that, if we win the Windows 95 part of our case, I think
some form of injunctive relief might be appropriate, and it also
would suggest perhaps something that the government ought to do.
I think what's going to help consumers is openness that allows
other competitors to offer products that compete with Microsoft.
If that happens, we'll get better prices, and we'll get more
innovative products. And as innovative as Microsoft claims to
be, I don't dispute that they spend a lot of time writing code,
but their incentive is to preserve the model of computing that's
existed for 20 years. And Windows 95 still relies very heavily
on DOS code that's been with us for a long time.
QUESTION: (Inaudible.)
MR. HILL: That's certainly something we could ask for.
QUESTION: (Inaudible.)
MR. HILL: It is open, it's on the Internet. Caldera put it
on the Internet just almost immediately after it was acquired.
And, of course, their version of Linux is also open.
QUESTION: (Inaudible.)
MR. HILL: It would be after the findings of fact and
conclusions of law are entered, which Microsoft could then
appeal. And I might say, if, in our case, it's determined that
Microsoft illegally obtained or maintained its monopoly, that
finding nobody else has to go through the trouble of proving
again. So, somebody else could rely on --
QUESTION: (Inaudible.)
MR. HILL: Yes, ours is a federal case. Others would be
able to rely on that finding. I don't know that the two are
related in this sense, that ours deals with a different time
period and different conduct. But, as I say, in either case a
finding that Microsoft engaged in monopolistic practices would
bind Microsoft in future cases.
MR. NADER: Another comment, question?
Do the panelists have any comments to make?
MR. DI COSMO: I would like just to say a couple of words
about the open source software movement. I even see open source
software as a remedy for the Microsoft monopoly because open
source software is a completely different model of doing business
in the software industry. It's completely different from the
kinds of things you already know. It is possible to live with
open source software. It seems strange to you probably, but I
can give you the name of the two companies like Gannett or ACT,
Hadacore (sp) Technologies, maybe you know it. It's a company
started in 1991 that sells nothing because their source software
is completely free, available, open source, where you can take
it, make a better job if you want, they live off consulting, and
they are today the best hardware development environment
available in the world.
There is another company, maybe you know it, it's TCX, and
these people are not going bankrupt. If you want to look at
basically all the Linux servers in the network use these kind of
databases. So, it is possible to make money out of an open
source software model, basically you sell service instead of the
software. This means you will not end up with increasing
returns, which is a basic of this Microsoft monopoly today.
But this is not a remedy. This is not something that can be
imposed by a judge, or something like that. This is an
alternative solution, a non-judicial solution, that is going
ahead today pretty well, and is basically based on the
engagement, the free engagement of dozens of thousands of
researchers, of students, a lot of people working on this are
just students in computer science around the world who decided to
donate part of their time without working on a business model.
Somebody is working on a business model today.
But, in the end, I would like just to give you a simple
comparison when you think about software as proprietary and non-
proprietary, should it be open source software or not, what is
best for consumers, what is best for people. Maybe it will sound
strange, but there are computer scientists that basically tell
you that software is pretty much like mathematics, pretty much
like mathematics. Behind every program you write, even in a
language like C++, which is horrible to write programs, is even
the proof of the logical statement. Maybe it is a bit difficult
to find it out.
Now, forget about C++ and look back to mathematics, to the
history of mathematics, have you ever seen the development of
mathematics done in a proprietary way? I discover a theorem to
multiply, and then instead of giving people the power to
multiply, I just tell them, come to my house with two numbers,
pay a fine, pay a fee, and I'll give you the multiplication of
the two. Have you ever seen (inaudible), for example, attended
in such a way that each time you compute the size of the
hypotenuse, you have to pay for a fee? And have you ever seen
the mathematics development completely controlled by a single
person or a single company that says which theories should be
proved and which theories should not be proved? No, this is not
the case, we have been always sort of a joyous mess all around
the world in the scientific research, mathematics, you do some
kind of work and publish it, give it to other people.
This doesn't mean that you cannot earn money because you can
earn money by doing complex calculations for some value. Okay,
you apply the technology, you adapt it to your consumer needs,
but you don't hold patents on multiplication or something like
that. So, basically, this is a reason, again, why in Europe you
don't believe in patents in algorithms. Here in the States you
believe in patents in algorithms, the public key cryptography
system, RAS, is patented and this is a big problem for people to
use it in Europe, or inside the states you have to FTP it from
different sites, because otherwise there are legal issues.
In the end I believe in the open source software as a
solution to all this. But, again, open source software is
something which must be protected against abuse, like
intellectual property abuse, which is a most significant danger
today. This doesn't mean you don't have to give me back the
money for my four copies of Windows. I want my money back.
(Applause.)
MR. NADER: Thank you. Spoken like a true consumer. We now
come to the end of our daylong session. And I've just a few
observations and some thank yous to make.
Back in the 19th Century the most powerful industry in our
country, for a longer period of time in the 19th Century, was the
railroad industry. It was not the oil industry, it was not the
steel industry, which began ascending in the late 19th Century.
The railroad industry was very aggressive, and it wanted to
control more of the sources of the cargo. For example, they
wanted to own coal mines, because it was a natural fit. If they
owned the coal mines, then they could ship the coal on their
railroads, undercut their competitor coal companies and drive
them out of business.
There is federal law that prevents that from happening. And
I think the analogy to the railroads is useful, if not complete.
The railroad tracks are like the operating system, the freight
cars are like the applications. And the cargo is like the
content. And Microsoft wants to control the operating system, it
now is in control of presentation graphics, and word processing
and spreadsheets. And there's very little innovation since they
achieved dominant control over those applications. And of course
we know it's moving toward content, MSNBC, their encyclopedia and
many other forays into content by Microsoft.
I think a lot of the opposition to Microsoft is waiting for
the antitrust actions to be completed. I think if they are not
completed to the satisfaction of the opponents of Microsoft,
there will be a major political drive to change the domination of
Microsoft by Congressional legislation. In fact, that is what
happened vis-a-vis the railroads. And I think that is on hold,
and there are people in Congress who have it on hold, because
they're waiting to see how the antitrust laws at the state and
federal level play out.
I think secondly, there is an opposition drive to
Microsoft's domination that isn't waiting. And that is what you
heard about today, the open source code movement, Linux, and that
of course has potential, vis-a-vis Microsoft, but it also has
certain limitations because of the controls and concentration of
Microsoft in these fields. However, what the open source code
movement does, it develops a public philosophy about these
matters, maybe even a civic philosophy. It unleashes the
creativity of people all over the world. It provides a
commonwealth of knowledge, vis-a-vis the proprietary,
monopolistic form of knowledge that is seeping out of Microsoft
ever so slowly. And indeed, it illustrates just why a monopoly
is bad.
Everywhere that Microsoft dominates, innovation comes to a
screeching pace, a slow pace, and indeed, Microsoft's principle
innovation is imitation. It has been the great imitator. It has
gone into new innovative areas by buying companies, and they've
bought many, many companies with their inflated stock value. And
more recently there was a conference in Seattle at which a
speaker made some points about all of this, and then asked the
audience, which contained some Microsoft -- several Microsoft
people, he said, name me one innovation that Microsoft has
developed. And there was no answer from the audience.
So already we're seeing the kind of stagnation and the
incipiency of what is otherwise a very innovative technological
matrix. And when people who support Microsoft say, where is the
harm to the consumer? The answers are multiple. The harm is, of
course, technological stagnation. The harm is higher than market
pricing, even though the industry is in a price decline in a
number of areas. But, the pricing of Microsoft is becoming very
prickly, very complex, and Microsoft products in a competitive
market might be priced quite differently. And the various
upgrades and complications might not be so frequent.
And lastly, it's what might be called the horizon that no
one can see. When the auto companies, especially General Motors
in the 1950s said, what are we doing wrong? People are buying
our products, we're making a profit, and we don't see people
marching in the streets against our technology. And the answer
to that was, because they dominated the spectrum of the possible.
There was no alternative until some European and Japanese
companies came in in some areas, like fuel efficiency, and the
quality control, there were no alternatives that people could
compare, this triumvirate of GM, Ford, Chrysler, and judge
accordingly in terms of their consumer choice. And so in areas
that Microsoft now dominates, what are people going to compare
other alternatives? Where are they going to find out about their
alternatives, as Microsoft moves to a 90-95 percent domination?
And then there is perhaps the worst aspect of it all, is
that in any democratic society no entity, no entity that does not
have the consent of the governed, and is not subject to removal,
and is not subject to independent review, and is not subject to
constitutional rights of rebuke, no entity can be allowed to have
that much power in an area of the world where more and more human
exchanges, commercial and otherwise, are being converted into
software, and where more and more of the biological resources of
the planet are being converted into intellectual property, and
into software. It simply is not possible in a democracy to
tolerate something like that.
And so I say to Bill Gates and Steve Ballmer, and all the
rosy cheeked crowd at Redmond, Washington, if there's an
inevitability about your industry, it's the inevitability of the
triumph of democracy.
Let me thank the panelists here before -- earlier today, and
the panel today, for their remarks. Let me thank the audience.
I'd like to also thank the good staff that did all the logistics
and made all this possible. Of course, Jamie Love, John Richard,
Donna Colvin, Marlene Thorp, Lois Riley, and many others. Those
of you, either here or watching the video, who want copies of the
tape, or maybe some copies of the papers that were presented as
papers, if you contact Jamie Love or Donna Colvin, they'll tell
you how to obtain them.
I want to thank you all for coming and we look forward to
Microsoft Conference 3 in the foreseeable future. Thank you.
[APPLAUSE AND END OF EVENT.]