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Date: Thu, 8 Jan 1998 11:04:05 +0800
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         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.