Sorrell Takes on Microsoft

Fresh from a victory over Big Tobacco, during which he persuaded the legislature to pass a dishonorable bill stripping the tobacco manufacturers of all of their courtroom defenses, Vermont's attorney general William Sorrell has set his legal sights on a new target: Microsoft.

Microsoft has earned billions by marketing the Windows operating system used on the great majority of personal computers. In 1998 the Clinton Administration's Justice Department brought an antitrust suit against Microsoft, at the urgent behest of Microsoft's competitors. (They could have sued Microsoft themselves, but why not let the government do the work?)

At the heart of the suit was the charge that Microsoft, by integrating its web browser Internet Explorer with its operating system, threatened to put browser rival Netscape out of business. The Clinton suit was joined by 18 state attorneys general, not including Vermont's.

A Federal trial judge issued a sweeping decree branding Microsoft an antitrust violator and ordering a breakup of the company. An appeals court affirmed some antitrust violations (the original browser issue has long since receded), but reversed the breakup order. It also dismissed the trial judge from the case in view of his obvious bias against Microsoft and his indiscreet public remarks about parties and issues in the case. The Bush Justice Department is now trying to negotiate an agreed remedy.

While all this was taking place, Microsoft was hard at work developing its next generation product, Windows XP. Microsoft's competitors are worried that XP will be so good a product that they will lose market share to Microsoft. So they swung into action.

Former Indiana attorney general Jeffrey Modisett, now in a law firm that represents Microsoft competitors Oracle and AOL Time Warner, prepared a letter for additional attorneys general to send to Microsoft. Sorrell became the lead signer of the letter, on behalf of himself and five other attorneys general.

The Modisett letter, which Sorrell says was "a minimum of 70%" redrafted by the co-signers, expresses support for Microsoft's opponents, expresses alarm at several hypothetical effects of XP, and declares the signers' support for including court-mandated changes in XP in the remedy phase of the current case.

Leaving aside the embarrassing fact that Sorrell was pushed into action by Microsoft's competitors, his letter is an attempt to apply 1890s antitrust theory in a wholly new and fast moving 21st century digital economy. It is transparently aimed at crippling the currently leading firm - Microsoft - to benefit its competitors. It is all about erecting legal barriers, with no concern for economic consequences.

As David Kopel of Colorado's Independence Institute points out in a brilliant new book (Antitrust After Microsoft), technology is changing much faster than old-style antitrust regulators can act. Microsoft has certainly played hardball and has sometimes used illegal business practices. But, says Kopel, "the proliferation of new products and falling prices makes it difficult to defend the assertion that consumers were harmed during the 1990s by Microsoft's alleged monopolistic conduct."

Microsoft's alleged monopoly power came from its consumer-oriented high-volume/low-price strategy. It won the "browser war" by putting out a superior product, not by designing Windows so that rival Netscape's browser wouldn't work well with it. Microsoft's software dominance is constantly under attack from new competitors with new products.

"The Sherman [Antitrust] Act today is what it has always been, " writes Kopel. "It is a tool for failed competitors to win in the political arena what they cannot achieve by satisfying customers in the free market."

America's wealth, defense, and export strength is increasingly based on high tech information, organization, computation, and telecommunications. When attorneys general use century-old legal tools to try to bring down a brilliantly successful innovator like Microsoft for the benefit of its less successful competitors, they are aiming a blow at a relatively free market that has generated wealth, employment, productivity, tax revenues, convenience, and personal enjoyment unimaginable only two decades ago.

Sorrell's letter will probably not have much impact in Microsoft's current legal battle. What it will do is show high-tech companies that Vermont has an attorney general who can be enlisted to inject the government into legal disputes among high-stakes competitors.Vermont's economic future would be brighter without that demonstration.

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October 2001