At 05:19 PM 8/6/2001 -0400, Matthew Gaylor wrote:

To: "Matthew Gaylor" <freematt@coil.com> From: "Wayne Crews" <wcrews@cato.org> Subject: Cato TechKnowledge: The Feds Want To Write Your Software Date: Mon, 6 Aug 2001 15:21:11 -0400

The Feds Want To Write Your Software

Issue #15 August 6, 2001

by D. T. Armentano

In Ayn Rand's famous 1957 novel, Atlas Shrugged, unconstrained politicians end up destroying the U.S. economy by regulating (among other things) invention and product innovation. In that vision, new products that would revolutionize an industry-and put less efficient competitors out of business-have to be controlled and even suppressed by government so that no company has an "unfair" advantage and everyone has an equal chance to compete. Critics savaged Rand's thesis arguing that she had portrayed regulators as political lunatics. The critics opined smugly that this sort of innovation regulation could never happen here.

Well, tell that to Microsoft. For almost a decade, Microsoft has battled federal and state antitrust authorities over its right to freely innovate in the marketplace by integrating its Web browser, Internet Explorer, with its proprietary Windows operating system. Microsoft claimed that consumers wanted integrated functionality because it was easier and cheaper to use, while the feds maintained that competitors (such as Netscape) were put at a competitive disadvantage by integration and could be injured by it. After a contentious trial and a recent appellate court decision, the basic antitrust issues are still unresolved.

The current innovation controversy is over Microsoft's soon-to-be introduced operating system, Windows XP, which has features that will steer consumers to Microsoft's own proprietary products and allegedly injure rivals such as America Online and Eastman Kodak, among others. The Senate Judiciary Committee has already scheduled hearings in September to consider, as committee member Charles Schumer (D-N.Y.) recently put it, whether the design of Windows XP could cause "great harm to consumers, as well as competing companies."

Never mind that no one (including the government's expert witnesses at the antitrust trial) produced a shred of evidence that any of Microsoft's previous innovations injured consumers. And never mind that the antitrust laws are not intended to protect competitors from consumer-friendly innovation, and that to do so would betray any alleged consumer-protection mission. Never even mind that no law in the U.S. mandates that a firm must structure its innovation to make competitive life easier for its rivals. Put aside all of that and consider the following: Do you really want the likes of Sen. Schumer and Senate Judiciary Committee chairman Herb Kohl (D-Wis.) writing your future computer software?

There are several reasons why the answer to that question must be an emphatic "no." The first is that the new Microsoft XP operating system is Microsoft's property; Microsoft invented it, owns it, and has a moral as well as legal right to it. That right allows Microsoft to determine what the software will do and who will use (license) it and on what terms. Any government regulation of a company's right to use its own property in a peaceful manner-and trade with consumers is entirely peaceful-is an illegitimate taking and a violation of the company's property rights.

Second, political control over product innovation is monstrously inefficient, as Ayn Rand illustrated in her novel. Sen. Schumer is concerned about AOL and Kodak only because those firms (and jobs and votes) are in his political district demanding "protection" from Microsoft's newest innovation. The implication is that any time competitors feel threatened by a rival's innovation, the politicians will hold hearings and threaten to regulate the offending innovator. Under those terms, future productivity and growth in the U.S. economy will be held hostage to pandering politicians and politically connected corporations seeking shelter from the process of creative destruction-to advance an absurd politically correct notion of competition.

Issues When looking at antitrust it seems prudent to consider, to whatever degree possible, whether regulatory intervention achieves the intended goals or whether it merely substitutes one set of problems for another. Market dominance/penetration has been a major issue in antitrust. Reduction of consumer choice through stifling of innovation should be included with predatory pricing and other consumer impacts in consideration of antitrust. At a workshop presentation last spring I suggested a non-regulatory way to include reduction in choice effects. Under the proposed changes Congress would set market size and penetration limits for all markets (based on SIC or its newer offspring) exceeding some minimum size threshold (e.g., 0.1% GNP) and enabling competitors to sue in federal court for removal of trademarks and copyrights of the monopolist related to the industry in question. Since trademarks and copyrights are privileges and not rights they can, theoretically, be rescinded. Under this new regimen companies would be inclined to self-police rather than risk legal proceedings from their competitors. By setting legal market share limits and placing the initiative in the hands of competitors rather than the DOJ it is hoped to remove much of the political involvement in antitrust. steve

At 12:39 PM 8/8/2001 -0700, georgemw@speakeasy.net wrote:

On 7 Aug 2001, at 14:48, Steve Schear wrote:

...

At a workshop presentation last spring I suggested a non-regulatory way to include reduction in choice effects. Under the proposed changes Congress would set market size and penetration limits for all markets (based on SIC or its newer offspring) exceeding some minimum size threshold (e.g., 0.1% GNP) and enabling competitors to sue in federal court for removal of trademarks and copyrights of the monopolist related to the industry in question. Since trademarks and copyrights are privileges and not rights they can, theoretically, be rescinded.

So under this "no fault antitrust" proposal, we strip away the illusion that the DOJ is punishing predatory behavior and accept that, in fact, what is being punished is market share dominance?

Interesting notion, here's why I don't think this will work: the single difficult point in most of these antitrust cases is determining what constitutes the market in question in the first place. For example, in the Microsoft case, Microsoft was held to have a monoploly on operating systems for computers which use intel processors. Obviously, there is no such market in the first place.

I think many or most on this list, not to mention within the computer industry, might disagree with you.

There's a server market (in which sun competes), there's a personal computer market (in which Apple competes), but there's no fucking such thing as the Intel (or compatible) powered computer market, it's as absurd a concept as the spaghetti sauce with Paul Newman's picture on the jar market.

This was discussed at the workshop. Its the reason I mention the SICs. My hope is that by extending these Standard Industry Codes to somewhat smaller gradations, none of which would be allowed to fall below some GNP threshold, that MS' classification (almost all of whose business currently falls in the Software Publishing category) might be subdivided into, for example, OS and Office Software Application Suites.

...

Under this new regimen companies would be inclined to self-police rather than risk legal proceedings from their competitors. By setting legal market share limits and placing the initiative in the hands of competitors rather than the DOJ it is hoped to remove much of the political involvement in antitrust.

steve

The other possible advantage of allegedly punishing companies for actually engaging in unethical actions rather than merely for getting too large a market share is the (admittedly unlikely) psossibility that in some cases the claims might be true.

For example, consider a hypothetical case in which, due to economies of scale or whatever, that there really only ought to be one supplier of a given product.

No. Though my readings in antitrust have led me to the conclusion that there are few industries in which greater than 50% of market share are required for sufficient economies of scale. One that comes to mind is commercial aircraft.

Would forcing that company to raise its prices until its market share falls to approved levels really be to anyone's benefit?

It might if I get to have choices which would otherwise be foreclosed once one company reaches a "friction free" point in that industry. steve

On Wednesday, August 8, 2001, at 05:47 PM, georgemw@speakeasy.net wrote:

I'm not disputing that Microsoft had a monoply BTW. I think it's a perfectly reasonable position that Apple's competition is sufficiently meager to say that Microsoft has an effective monoply on personal computer operating systems. I'm just saying that refusing to consider it because it gets its cpus from a different vendor was completely fucked up reasoning on the part of the judge.

Anyone who doesn't wish to use Microsoft operating systems is perfectly free to use the Macintosh OS, as I do, or one of the many flavors or Linux, or one of the three flavors of BSD, or to buy a machine running Solaris, or AmigaDOS, or whatever. The fact that most of the sheeple pick Windows is not a criminal act by Microsoft.

I'm not quite sure what you mean by this. Who can say what possible choices you might have in the future, and when those possibilities might be foreclosed? If AMD died off, Intel might not have quite as strong an incentive as they do now to keep coming up with improved chips, but they'd still have a strong incentive, because much of their sales come from people upgrading their systems from an old Intel CPU to a new one. (Or buying a whole new Intel CPU system to replace the old one). This is even truer in the software industry; square cut or pear shaped, programs never lose their shape, programs are a girls best friend I mean forever.

I happen to know a _lot_ about Intel, for historical reasons, and I can tell you that Intel is in a vastly stronger "monopoly position" than Microsoft is. Lots of reasons. I can write a short article explaining why if there's sufficient real interest. Do I argue that Intel should be sanctioned? Far from it. In fact, I argue that anyone who tries to interfere in Intel's ability to sell products has earned killing.

Oh, one other thing I just thought of. I'm not comfortable with the idea that trademarks are priviledges that can be revoked. It seems to me that a trademark essentially is a way of attaching a reputation for quality to a product, and that "revoking" the trademark and allowing any random bozo to use it is essentially defrauding the consumer.

Nonsense. --Tim May

On Tue, 7 Aug 2001, Steve Schear wrote:

Issues When looking at antitrust it seems prudent to consider, to whatever degree possible, whether regulatory intervention achieves the intended goals or whether it merely substitutes one set of problems for another. Market dominance/penetration has been a major issue in antitrust. Reduction of consumer choice through stifling of innovation should be included with predatory pricing and other consumer impacts in consideration of antitrust.

At a workshop presentation last spring I suggested a non-regulatory way to include reduction in choice effects. Under the proposed changes Congress would set market size and penetration limits for all markets (based on SIC or its newer offspring) exceeding some minimum size threshold (e.g., 0.1% GNP) and enabling competitors to sue in federal court for removal of trademarks and copyrights of the monopolist related to the industry in question. Since trademarks and copyrights are privileges and not rights they can, theoretically, be rescinded.

You consider Congress setting market penetration limits as 'non-regulatory'? Somebody didn't eath their Wheaties this morning... -- ____________________________________________________________________ natsugusa ya...tsuwamonodomo ga...yume no ato summer grass...those mighty warriors'...dream-tracks Matsuo Basho The Armadillo Group ,::////;::-. James Choate Austin, Tx /:'///// ``::>/|/ ravage@ssz.com www.ssz.com .', |||| `/( e\ 512-451-7087 -====~~mm-'`-```-mm --'- --------------------------------------------------------------------