CRACKING DOWN ON MICROSOFT The Justice Department has a long history of mistaking innovators for monopolists BY LAWRENCE J. SISKIND THE DEPARTMENT OF JUSTICE has painted its assault on Microsoft Corp. as a campaign against tying. Microsoft, the government says, should not be allowed to force manufacturers who load Windows95 onto their computers to include the Internet Explorer Web browser. Close inspection, however, reveals that the DOJ is not guarding against tying -- it is guarding against change. And while the Justice Department has won the first round against the software giant, the question of whether that change is good or ill should be left to the market to decide, not the government. When the DOJ charged Microsoft with violating their 1995 consent decree, it cited Sec. IV(E)(I), which bars Microsoft from conditioning the licensing of any one product on the licensing of another. Microsoft's Windows95 operating system includes the Internet Explorer -- IE -- Web browser. Microsoft openly forbids PC manufacturers licensed to load Windows95 from removing the browser. To Joel Klein, head of the DOJ's Antitrust Division, this is unlawful tying, plain and simple. "We think the evidence will show unmistakably that these are two separate products," he said. "Everybody knows you have an operating system and you have a browser." Everybody also knows that whenever a lawyer begins a statement with the phrase "everybody knows," the consequent proposition will be questionable at best. Mr. Klein's statement was not flat-out wrong. But it was flat-out nearsighted. The only thing "everybody knows" about operating systems is that they are constantly changing. Mr. Klein's statement was not flat-out wrong. But it was flat-out nearsighted. The only thing 'everybody knows' about operating systems is that they are constantly changing. An operating system program controls the operation of the computer, determining which programs run and when. It also coordinates the interaction between the computer's memory and its attached devices. When the world's first PC, the Altair 8800, appeared in 1975, its operating system didn't have much to operate. The product was a do-it-yourself kit, without display screen or printer. Operating systems became more complex as personal computers became more versatile. FAR-FLUNG PERIPHERALS Contemporary operating systems are as far removed from the early operating systems as Cape Kennedy is from Kitty Hawk. They have evolved to manage a growing array of peripherals: keyboard, monitor, disk drives, printer, fax, modem and more. They have also embraced new features and capabilities: data compression, disk defragmentation, multimedia extensions and data transmission technology. All of these features, by the way, once existed as separate programs. Yet no one views their inclusion in modern operating systems as any kind of tying. Which brings us to the Windows95 operating system. When Microsoft began to develop Windows95, then code-named "Chicago," it decided to build Internet technology into it. The early elements of this technology included a Web browser and were code-named "O'Hare." The very first commercially available versions of Windows95 included Internet Explorer as a component. Since then, IE has been repeatedly upgraded, with each successive version more tightly intertwined with the rest of the operating system. The most recent version, IE 4.0, is ubiquitous, and allows the user to explore World Wide Web sites from anywhere on the computer. One can connect to the Web without even opening the browser, and one can view Web sites (called "channels") without connecting to the Internet. What is true about Windows95 also holds true for rival products. Brit Hume recently observed in the Weekly Standard: "The distinction between browsers and operating systems has blurred to the point where it's not clear where one ends and the other begins." Every major contemporary operating system now contains Internet technology. Designing an operating system to access the Internet represents a quantitative, rather than a qualitative, change. The intermeshing of operating systems with Internet capabilities is eminently logical. These systems have always been designed to access information. In the early days, that meant accessing hard drives and floppy-disk drives. With the advent of the CD-ROM, they were designed to access data from that source. As businesses brought PCs into the office, computers became linked together into networks; operating systems were designed to access information from local area networks. The Internet, for all its unimaginably vast dimensions, is just another repository of information to a computer. Designing an operating system to access the Internet represents a quantitative, rather than a qualitative, change. MICROSOFT SLACKING Ironically, this is not a change sponsored or spearheaded by Microsoft. If anything, Bill Gates has been a laggard in this area. His rivals are far ahead and he is playing catch-up. The great proponents of Internet-driven computers have emerged from Silicon Valley, not from Redmond, Wash. Larry Ellison, CEO of Oracle Corp., has long championed the idea of the "network computer." Consider computers as underwater divers. Equipping each diver with his own tanks is wasteful and inefficient. It imposes severe limits on how long and how far the diver can explore. Instead, let every diver be connected to a surface mothership. The connection frees the diver from the limitations and burdens of carrying his own tanks. Similarly, loading millions of PCs with their own copies of software programs is a waste of resources. Instead, let every computer be networked and draw its software needs from the vast store of the Internet. The result, Ellison says, would be high-quality personal computers retailing at about $500. In line with this thinking, Sun Microsystems has developed Java, a language that allows programmers to create Internet-based applications capable of running on any computer, regardless of operating system. Sun's CEO, Scott McNealy, notes that 400,000 programmers (including 2,500 at IBM) are currently writing programs in Java language. The libertarian journalist and futurist George Gilder believes Java will revolutionize personal computing and render proprietary systems like Windows obsolete. If the future of personal computing is indeed linked to the Internet, then weaving Internet technology into Windows95 (and even more intimately and pervasively into Windows98) is not a grab for power. It is a clutch for survival. Which brings us back to the DOJ's decision to prosecute Microsoft for tying. Some have suspected a political bias, noting that in 1992 and 1996 Silicon Valley entrepreneurs were among Clinton's best friends in the business community. Microsoft, on the other hand, has always remained aloof from politics. 'INSTITUTIONAL MYOPIA' But I believe the attack on Microsoft stems from institutional myopia rather than political bias. The DOJ's Antitrust Division may understand the law and may be sincerely dedicated to enforcing it fairly. But it has no way of knowing where the economy is headed or how fast it is heading in that direction. Instead, the division views the economy as static. An operating system will always be an operating system. A browser will always be a browser. Just like timber, coal or oil: Products do not change. Because of this institutional myopia, the DOJ has a history of marching down wrong roads. In 1969, it prosecuted IBM. Fifteen years passed before the department finally understood what every high school techno-geek already knew: The computer industry was dynamic, and Big Blue was not dominant. If the Internet is the future of personal computing, then weaving Internet technology into Windows is not a grab for power. It is a clutch for survival. The hapless campaign against IBM probably did no harm. Other Antitrust Division missteps have. In the 1960s and '70s, long after most Americans had abandoned the neighborhood Mom-and-Pop store for the national chain, the DOJ was prosecuting Topco Associates, a cooperative association of small grocery chains. The DOJ wanted to protect the association's small regional members. It failed to notice the dynamic changes already apparent to the average shopper. The days of the Mom-and-Pop grocer were over. And while the DOJ was successfully squashing Topco, its much more powerful rivals -- The Great Atlantic & Pacific Tea Co. Inc. (A&P), Safeway Inc., the Kroger Co. -- were assuming dominance over the grocery business. The same myopia underlies the decision to prosecute Microsoft. Enslaved by its institutional myopia, the DOJ simply cannot understand that operating systems change. Thus, it sees tying when in fact there is transmutation. Internet-oriented operating systems may be the wave of the future. Or they may be a detour to nowhere. Not everyone likes or needs the endless waits, the superfluous graphics and the flood of irrelevant and unwanted information that always seem to accompany excursions onto the Internet. Nothing is certain in high tech; business empires rise and fall with stunning rapidity. Confronting this sometimes creative, sometimes destructive turmoil, a wise government would recognize its limitations and restrict its role. Whether Windows95 should include Internet Explorer is a question best left to the millions of jurors who make up the marketplace. AUTHOR LAWRENCE J. SISKIND is a San Francisco attorney who specializes in intellectual property law. Mr. Siskind owns stock in Microsoft Corp. He hopes that his pro-Microsoft opinions, once published, will influence the price of his stock favorably. The expectation of financial gain has colored, if not dictated, the opinions expressed in his article.