Microsoft on Trial: MS 'crossed the line' says economist

The economist who helped IBM Corp. mount its defense against antitrust charges in the 1970s now says Microsoft Corp. has crossed the line that defines illegal behaviour in the market place.

In 100 pages of written testimony released Tuesday morning, Massachusetts Institute of Technology Professor Franklin Fisher told federal Judge Thomas Penfield Jackson that Microsoft has maintained a 95-percent market share of PC operating systems sold thanks to a wide variety of anti--competitive practices. In addition, he said, the company has tried to extend that Windows monopoly to the market for Internet browser software, thereby implicating the whole of electronic commerce in its actions.

Fisher's testimony is part of the ongoing state-federal antitrust case against the world's largest PC software maker and addresses the chief accusations lodged against Microsoft. Though it breaks little, if any, new ground, Fisher's comments could prove to be especially valuable to the government's antitrust case. As a prominent economist and past president of the American Econometric Society, his testimony could lend intellectual rigor to a case that has largely relied on an extended series of anecdotes from business executives and the Justice Department's own interpretation of economic forces.

"If Microsoft's conduct is not checked, it is very likely to create a world in which entry into browsers is difficult or impossible (partially as a result of network effects)," Fisher wrote. "In that world, those that do not use a Microsoft standard will never prosper, and a critical opportunity for innovation that reduces or eliminates Microsoft's power will be lost.

"If software developers believe that Microsoft will engage in anti-competitive acts to impede any innovation that threatens its monopoly, they will have substantially reduced incentives to innovate in competition with Microsoft," he continued. "As a result, the range of software products from which consumers can choose will be limited, ultimately further reducing consumer welfare." To make his argument that Microsoft has abandoned basic principles of fairness, Fisher offered an interpretation of previous testimony that hewed closely to government arguments and drew heavily on public documents, including the full transcript of the trial through the end of last year.

As if lecturing to a group of students approaching the case for the first time, Fisher walked the court through the basic steps of antitrust analysis, making a case against Microsoft with each stop along the way. With each example, Fisher drew on testimony, depositions and exhibits already public. Microsoft must be stopped, he said, because it holds a dominant market share, which cannot be easily reduced through ordinary competition. Microsoft, he said, can and does take steps which do not "make sense from a business standpoint" unless those actions lead to higher prices available only to monopolists.

As has been widely reported, Netscape Communications Corp. made as much as $58.8m (£35.85m) a quarter in revenue from selling copies of its Navigator browser. In a competitive market, Microsoft would have developed a competing browser and sold it for a fair price, Fisher wrote. But Navigator was quickly evolving into what many observers thought would be a substitute for much if not all of Windows.

So Microsoft decided to put Netscape's Navigator out of business, Fisher found. Instead of charging for its browser, the company gave it away, despite spending what it said was more than $100m (£61m) a year developing it and "tens of millions of dollars a year" on advertising and marketing. That move forced Netscape to stop charging for its browser, thereby depriving it of desperately needed revenue early in its life.

Fisher quoted Microsoft's own testimony and internal documents to show they lost money by paying Internet service providers and others to promote their browser to the exclusion of Navigator.

In April 1996, Microsoft executive Brad Chase wrote: "This is a no revenue product, but you should worry about your browser share, as much as BillG because...if you let your customers deploy Netscape Navigator you loose (sic) the leadership on the desktop." In May 1995, Microsoft's Ben Slivka wrote: "If we don't quickly become the supplier of choice for Internet technology, the Internet will grow and change under someone else's influence, and we risk losing the standard setting role (with the attendant profit margins) we have come to enjoy with MS-DOS and Windows (and Office)."

Earlier, Sun executive and Java inventor James Gosling testified Microsoft had produced a "polluted" version of the Java programming language that will work only on Windows-based computers in order to undermine the threat "pure" Java poses to Microsoft's Windows operating system. Since the technology is supposed to let programmers run almost any program on any computer, in the long run it makes Microsoft's operating system no more valuable that any other.

Fisher agreed with Gosling's assessment. "Microsoft recognised Sun Microsystems' Java as a threat to its operating system monopoly because Java, like browsers, offered the potential for eroding the applications programming barrier to entry."

In a statement released last night, Microsoft officials ridiculed Fisher's testimony. "Professor Fisher seems unfamiliar with the concept of supply and demand," the company wrote. "Professor Fisher's written testimony is littered with errors, third-hand information supplied by the DoJ, and excerpts from out-of-context email.

Take me to the DoJ/Microsoft page.

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