A Guide to the Microsoft Case

September 1998 -- Robert A. Levy, a senior fellow in constitutional studies at the Cato Institute, received his Ph.D. in finance and investments from the American University in 1966. For the next twenty-five years, he ran CDA Investment Technologies, Inc., a major provider of financial information and software. During that time, Levy wrote a book on the application of quantitative techniques to the stock market, as well as several dozen articles on investment.

In 1991, Levy left his position as chief executive officer of CDA and returned to school, earning a J.D. in 1994 from George Mason University Law School, where he was chief articles editor of the law review. He went on to clerk for two years, first for Judge Royce Lamberth of the U.S. District Court in Washington, D.C., and then for Judge Douglas Ginsburg of the U.S. Court of Appeals for the D.C. Circuit. Along the way, Levy wrote several law review articles, such as "Calculating Tort Damages for Lost Future Earnings," "The Prudent Investor Rule," and "An Equal Protection Analysis of the Davis-Bacon Act."

Since joining the Cato Institute in 1996, Levy's principal research interests have been tort law, antitrust, financial markets, and constitutional issues. In 1997, he wrote the monograph "Tobacco Medicaid Litigation: Snuffing out the Rule of Law" (Policy Analysis no. 275) and in 1998 he wrote a second monograph, "Microsoft and the Browser Wars: Fit To be Tied" (Policy Analysis no. 296, available on-line ). He has also published numerous articles and op-eds in such magazines and newspapers as National Review, The Weekly Standard, The Washington Post, and USA Today. In addition to his position at Cato, Levy is an adjunct professor at the Georgetown University Law Center and a director at the Institute for Justice.


Navigator: Perhaps to begin you could tell us something about the law under which this trial is being prosecuted—when it was enacted, who pushed it through, and why did they do so?

Levy: Congress passed the first of several antitrust laws, the Sherman Antitrust Act, in 1890. The act had bipartisan support; its purported rationale was the rapid industrial consolidation of the time and what some viewed as anti-competitive business practices.

Navigator: What actions are specifically forbidden by the act?

Levy: The Sherman Act—one of seven major antitrust acts—prohibits any contract, combination or conspiracy in restraint of trade. That's Section 1. In Section 2, it prohibits monopolizing or attempting to monopolize interstate or foreign trade. The Sherman Act was soon followed by the Clayton Act, which prohibits price discrimination and exclusive dealing and some forms of tying contracts, and also prohibits stock acquisitions where the effect is substantially to lessen competition or tend to create a monopoly.

Navigator: But, at least according to the New York Times, the Microsoft case is being brought under the Sherman Act, Sections 1 and 2.

Levy: That's correct. But the other antitrust acts have established the overall framework within which the courts have interpreted the Sherman Act.

Navigator: Can a company know in advance what constitutes restraint of trade or monopolization?

Levy: Both the executive branch and the federal courts have followed an uneven course in enforcing and interpreting the antitrust laws. There's been an alternation between strict enforcement and lax enforcement. Adherents to the Chicago school argue that Senator John Sherman, and Congress generally, had one goal in mind and that was consumer welfare, which roughly means lower prices. But some experts disagree; they say that Congress also wanted to preserve and promote smaller businesses, for social and political reasons as much as for economic reasons. Indeed, in one case, Chief Justice Earl Warren said that the law called for the protection of small businesses, even if it meant higher prices for consumers. So there's been that back-and-forth between those approaches.

Navigator: All right. Let's turn now to the beginning of the Microsoft case. In 1994, Microsoft and the Antitrust Division of the Justice Department entered into a consent decree. [For Levy's account of how the consent decree came about, see "Outtakes" ] Then last October, the DOJ came back into court saying that Microsoft was violating the consent decree. What was the accusation?

Levy: The consent decree forbade any tie-in between Windows 95 and a separate product. But, at the same time, the consent decree provided expressly that that prohibition should not be construed to prohibit Microsoft from developing integrated software products. The DOJ's complaint was that Windows 95 and its Web browser, Internet Explorer (IE), were two separate products, not integrated products, and that Microsoft was tying them. On that basis, Antitrust Division chief Joel Klein proposed that the judge, Thomas Penfield Jackson, fine Microsoft a million dollars a day until the company unbundled its Windows operating system and Internet Explorer.

Navigator: What is a tying arrangement, economically speaking?

Levy: A tying arrangement exists when the sale of a product is conditioned on the purchase of another product. So you might say that selling tires with cars is a tying arrangement, or selling cream with coffee, or selling laces with shoes. Those are all tying arrangements. And the consent decree said that there could be no tie-in of a separate product with Windows 95. The issue was: Were the products separate?

Navigator: Obviously, the DOJ thought so. What did Judge Jackson do after Justice asked him to fine the company a million dollars a day?

Levy: Jackson would not agree to Justice's request to hold Microsoft in contempt or impose a fine. But he did issue a preliminary injunction that directed Microsoft to offer OEMs [original equipment manufacturers, that is, manufacturers of personal computers] the option of installing Windows 95 with Internet Explorer or without Internet Explorer. And, in addition, he appointed a Special Master with technical expertise to evaluate the legal and factual questions and report back to the court, at which time Jackson would consider whether a permanent injunction should be issued.

Navigator: Presumably Microsoft complied, although it had warned the court the browser was an integrated product?

Levy: Microsoft responded by offering two versions of Windows 95 without the browser, in addition to the version that they continued to offer with the browser. But they were playing hardball. One of the versions that they offered without the browser excluded all of the browser files and didn't work. The second version dated back a couple of years, to the time before they had actually bundled Internet Explorer with Windows. It worked, but it didn't include recent enhancements. Predictably, Justice was not happy with that response and accused Microsoft of bad faith. DOJ again asked for a finding of contempt and a fine of a million dollars a day.

After a hearing on the second contempt petition, the DOJ and Judge Jackson expressed a new willingness to live with a compromise solution. Microsoft agreed to offer computer makers two options, in addition to the bundled package. One, the computer maker could use the uninstall function to remove the Internet Explorer icon but leave all the software in place on the system. That would make Explorer harder to access, but not impossible. Somebody who wanted to reinstall it could do so. The second option was to remove both the icon and some of the files. That would make IE inaccessible to the ordinary user. That compromise was embodied in the final injunction.

Navigator: But Microsoft appealed to a three-judge panel.

Levy: Yes. Then in May, the Court of Appeals stayed the consent decree with respect to Windows 98. Bear in mind that the consent decree applied to Windows 95. But Judge Jackson had said that it would also apply to a "successor product." Microsoft asked for a stay of the decree with respect to Windows 98, and the Court of Appeals granted that request, saying there was no evidence that Windows 98 was not an integrated product and, further, that an extension of the injunction, to cover Windows 98, would put the court in "the unwelcome position of designing computers." That, in my view, is a tip-off to where the Court of Appeals stands on this issue.

Then in June, the panel reversed the preliminary injunction with respect to Windows 95.

Navigator: Is the consent-decree case a dead letter, then?

Levy: I think so. Legally, it's not dead. That is, the case was remanded back to the district court. Judge Jackson could proceed without the preliminary injunction and still find that there's reason to issue a permanent injunction. But the appellate court suggested to Judge Jackson in so many words that he might find that to be unproductive, hinting not too subtly that if a permanent injunction were to be issued the court would slap it down.

Navigator: On the grounds. . . ?

Levy: On the grounds that Windows 98 is clearly integrated and the court doesn't want to be in the position of designing computer products. So I think that effectively kills the Windows 95 extension to Windows 98. Since the systems now being shipped have Windows 98, the court is unlikely to go forward with a permanent injunction against Windows 95.

Navigator: Okay. So we move to a new arena, the antitrust suit.

Levy: Yes. But I should summarize what else the Court of Appeals said in its opinion, which I think sets the stage for the antitrust suit. First they said the Special Master was not needed because the issues were more legal than technological. Secondly, the Court of Appeals said the preliminary injunction was procedurally improper. Although it was within Judge Jackson's remedial powers—that is, he could issue a preliminary injunction even though Justice had not asked for one—still, Microsoft had no notice and no opportunity to argue against the issuance of the injunction.

Then the court went further, and this is the interesting part:The court reached the merits of the case, which it didn't have to do. All it had to say was: Look, the preliminary injunction was procedurally improper; either vacate it or give Microsoft a chance to argue. Instead, the court said, "Oh, by the way, if you had given Microsoft a chance to argue, it would have won, and therefore on the merits this preliminary injunction is improper." In reaching that decision, the court rejected the antitrust definition of a separate product. [Under that definition], courts have held that a separate product is one that has sufficient separate demand to make a viable market. But the court applied a new criterion: It defined an integrated product as one that combines features in a way that offers advantages unavailable if the products were bought separately and combined by the buyer. [For more of Levy's views on the economics and law of tying arrangements, see his monograph "Microsoft and the Browser Wars," plus the "Outtakes" section.]

Navigator: One more point for background: When the DOJ brought its antitrust suit, twenty states also announced that they were suing the company. Does the states' suit add anything?

Levy: It doesn't add much. On July 17, the states withdrew the unique part of their suit, which was charging Microsoft with a tying violation in respect to Office Suite.

Navigator: All right. Let's look at the six charges against Microsoft in the federal antitrust case. The first charge says: "That Microsoft's conduct requiring OEM's to license and distribute the Internet Explorer web browser or any other software product as a condition of licensing any Microsoft operating system violates Sections 1 and 2 of the Sherman Act." Is this just the tie-in charge all over again?

Levy: Yes. And as to whether the Appeals Court decision places the Justice Department's tying claim at risk, I think the answer is that quite clearly it does. But there is one little wrinkle. The court rejected the antitrust formulation of what constitutes a separate product because, it said in effect, "We're talking not about antitrust law, we're talking about the consent decree. And under the consent decree, this is the way we interpret what constitutes 'integrated.' We'll leave open whether we'd be applying this same standard when discussing a suit under the Sherman Act." So, the court was imprecise about that; they did not decide that this is the antitrust standard. Rather, they acknowledged that the antitrust standard of a tying arrangement may indeed be different than the standard to be applied under the consent decree.

And Judge Patricia Wald, who dissented on that issue, suggested that a product is separate unless there are synergies great enough to justify Microsoft's extension of its monopoly to an otherwise distinct market.

Nevertheless, I think the court majority was hinting pretty strongly that this tying issue is not one that's going to meet with favor at the appellate level because, again, the court does not want to be in the business of designing computer products.

Navigator: The second charge alleges: "That Microsoft's agreement with OEM's restricting their right to modify the screens and functions of Microsoft's Windows operating system, or to add non-Microsoft Internet browser software or any other software products during the boot-up sequence or to substitute non-Microsoft Internet browser software or other software products, violates Sections 1 and 2 of the Sherman Act." What is this about?

Levy: Well, the charge is simply nonsensical on the face of it. OEMs can load any software, including software by Microsoft rivals, before the computer goes out the door. They can display any icons on the first screen, including icons of Microsoft rivals. They can even display the icon for a shell product to replace the Microsoft screen. They can create channels on Microsoft's Internet Explorer. Or they can exclude the channel bar altogether. So that gives the OEM an enormous amount of flexibility in deciding about that opening screen. There are only two things the OEM can't do. It can't delete certain Microsoft products, like IE, and it can't create a shell to replace the opening screen. But the OEM can create an icon for that shell. So if the consumer, the end user, never wants to see Microsoft's opening screen after the first time, he can replace the opening screen with the shell. And users can also delete IE channels and delete the icons for Microsoft products. So this argument about the opening screen: I don't understand it. Not to mention the underlying issue: Whose real estate is this? Why should Microsoft be required to allow somebody else to decide the contents of the opening screen? It's Microsoft's product.

Incidentally, here's an interesting quotation on this issue. This is from Alan Weinberger, who represents value-added resellers. "Resellers are not forced to sell only Windows. Resellers install Windows because it gives good value. And it works with hundreds of packages of software from independent developers, and because of Microsoft's continuing effort to integrate new functions. If Microsoft were to raise its prices substantially, either directly or through bundling requirements, resellers would turn to alternatives." It's quite clear that OEMs don't feel that they are being coerced. They feel that they are being given a product which is better than available alternatives. And that's why they're making the choices they're making.

Navigator: The third charge, which deals with getting others to promote Microsoft, says: "That Microsoft's conduct in requiring persons to license and distribute its Internet browser software or any other software product as a condition of receiving placement in or access to any Microsoft operating system, including any screen or function thereof, violates Sections 1 and 2 of the Sherman Act." The fourth charge, which deals with keeping companies from promoting Microsoft rivals, says: "That Microsoft's conduct in requiring or inducing persons to agree not to license, distribute, or promote any non-Microsoft Internet browser, or to license, distribute, or promote such browser only on terms or under conditions that materially disadvantage it, violates Sections 1 and 2 of the Sherman Act." What are they talking about?

Levy: There are twelve Internet Service Providers that Microsoft has special deals with, and the current arrangement is that those providers can promote rival products but they cannot do so to a greater extent than they promoted Microsoft's product, the Internet Explorer.

As for Internet content providers (ICPs): Microsoft has also made a concession there. It had cross-promotional deals, which provided that ICPs who were given a favored position on the IE channel bar could not promote a rival browser on the same Web page to which the channel bar linked. Microsoft has now altered that arrangement; those content providers can promote a rival browser, but not to a greater extent than they promote Microsoft's browser.

What remains, then, are so-called on-line service providers, the OSPs. The big ones are AOL, Compuserve, Prodigy. They are still restricted from promoting rival browsers. But they do get, in return, a customized version of the Internet Explorer. They don't get the standard Internet Explorer. That may still be an issue that concerns the Justice Department.

Navigator: What is supposed to be wrong with such exclusive deals?

Levy: Say an Internet content provider receives placement as one of the favored channels on the browser. Some people have argued, and Justice makes the argument, that Microsoft is thereby using its browser to dictate Internet content. Internet Explorer is on its opening screen, and it has active channels that guide users to favored content providers, like MSNBC for example. But Netscape also has cross-promotional deals, except of course with different partners. In Netscape's case, the equivalent of MSNBC would be ABC News.

The important point is this. Users can easily remove or add to these channels and go to any Web site they want. Would anybody, any rational person, be upset with a car manufacturer presetting the radio stations on your car radio? Obviously not, because you can easily, within a couple seconds, change the pre-sets. That's the way the Microsoft channels work as well.

In fact, Microsoft's rules are far less restrictive than the rules imposed by your favorite restaurants. Try to bring your own dessert to a dining establishment. The rule is: If you want to eat in my restaurant, you're going to select from the items that are on my menu. Microsoft is far friendlier than that. It displays the items on its menu. It says, "Look, here are the ones we prefer. We'll make it very easy for you to get these items, to order these desserts. But if you want to bring your own dessert to my restaurant, we're going to let you go ahead and eat it." That is, I think, from the consumer's point of view, about as flexible an arrangement as one can possibly ask for. To suggest that the consumer is somehow being coerced to visit various Internet sites seems to me to be absolutely silly.

Navigator: The last two charges are very general. The fifth says, "Microsoft has attempted to monopolize the browser market." Since Microsoft's browser and Netscape's browser are both free, it seems like a strange market to "monopolize."

Levy: Yes. As you point out, Microsoft gives away its browser. So any consumer who doesn't want to use the free browser is perfectly welcome to use another one. Netscape's browser is also free. Judge Jackson, when he issued his injunction ordering Microsoft to provide a version of its operating system without the browser, found out from a court employee that it took ninety seconds to uninstall Microsoft's browser. The judge's conclusion was, "My gosh, if it only takes ninety seconds, it's little enough to ask Microsoft to do this for us." His conclusion should have been, "Why in the world do we need to commandeer the elephantine resources of the federal government to solve a problem that any consumer can solve in a minute and a half?"

As for Microsoft's leveraging power, it's useful to note that Microsoft also ties the Microsoft Network to Windows in exactly the same way that they tie the browser. In the case of MSN, they're trying to dislodge America Online. The result is that Microsoft Network lost about $200 million a year, selling to two million customers. AOL has, with Compuserve now, about 12 million customers. Despite all the whining about Microsoft's clout with respect to tie-ins, it turned out to be impotent. Consumers didn't like the Microsoft Network, and they couldn't be coerced into buying it. Any customer who doesn't like Microsoft's browser can buy a competitor's browser or even a competitor's operating system, because Microsoft doesn't impose any barriers to entry into either market, nor could Microsoft even if it wanted to. Any company that wants to produce and market an operating system or a browser can do so. And huge companies, like IBM, avail themselves of that opportunity.

Microsoft does discourage competitors, by advertising, by lowering its prices, by improving its quality, by adding features to its system and to its browser, offering better service. But while it can discourage competitors in that manner, it can't bar them. Lasting barriers don't come from private power. They come from government misbehavior, from special-interest legislation, that keeps competitors out or misconceived regulation that protects existing producers from potential competitors.

Navigator: The final charge goes to the heart of Microsoft's operating system market. It claims "That Microsoft has willfully maintained its monopoly in the market for PC operating systems in violation of Section 2 of the Sherman Act."

Levy: Any company that has a monopoly, or a partial monopoly, or a niche that it monopolizes—any company in its right mind—is going to try to maintain that monopoly. I was chief executive officer of a software development company for 25 years, and there wasn't a waking moment that I wasn't thinking about how to keep whatever "monopoly" I could arrange to garner, whatever market niche I could carve out for my company. That's what competition is all about. The competitive market process that propels the economy is the struggle for monopoly power.

But the threshold issue is: Does Microsoft have a monopoly? If you look at the economist's definition, monopoly is the ability to keep people out; but Microsoft cannot maintain barriers to entry, only government can do that. Monopoly is also the ability to raise price and restrict output. But there is no restriction of output because the marginal cost of production with operating systems is close to zero. Once you have your first copy, the next copy is effectively free. There's absolutely no reason to restrict output. And as far as raising price: the price of Windows on a comparable-features basis has plummeted. It was introduced in '95, for about $167. Now you can get it for about $89, about 3 percent of the total cost of the PC. The Macintosh operating system is about a hundred bucks. OS/2, IBM's system, is about $275.

Moreover, the features that are now a standard part of Windows—for example, modems, fax utilities, and CD-ROM drivers—were originally available as separate products. And each originally cost more than all of Windows costs today. So we're talking about a product that on a comparable-features basis has had a very substantial decline in price. And on that basis, too, Microsoft doesn't meet the economist's definition of monopoly.

If you put aside that technical definition, raising price and restricting output, and look just at alleged market domination: Microsoft's 85 to 90 percent share of the PC operating-system market does not by itself signify monopoly power. Using a midpoint, 87.5 percent, that means 12.5 percent have found an alternative. That's one customer in eight, which is not a huge number, but it's not a meaningless number. There are alternatives: Mac OS, Unix, OS/2.

What is still more important, and has not been played up in the literature, the Microsoft of the future has to compete against a company that controls nearly 90 percent of the PC operating system market: the Microsoft of today. Even if Microsoft went out of business this afternoon, all of its installed systems would continue to function indefinitely. If Microsoft wants to sell a new product to me, say, Windows 98, it has to convince me to pay more money, to learn a new system, and to risk that my existing software may be partially incompatible. It's inconceivable that Microsoft would alienate consumers like me who will be generating its new sales. In a real sense, the toughest competition for Microsoft is Microsoft itself. That's why the really interesting market statistic is not the 85 to 90 percent that Microsoft has. It's the 33 percent that Windows 95 has. There's still 32 percent buying Windows 3.0 and 3.1, 15 percent on MS-DOS, and 20 percent on various other systems. If Microsoft has such enormous power, such coercive monopoly power, how is it that they've only been able to get one-third of their customers to buy their flagship product? The existence of this installed base imposes a real discipline on Microsoft's behavior. The owner of a durable good, like an operating system, has available to him an option that the owner of a non-durable good doesn't have. Namely, he can sit tight. If I don't like Windows 98, I can stick with Windows 95 for a long time. And indeed that's exactly what I'm doing right now.

That is why Microsoft does not have a monopoly. The company cannot coerce its own customer base. Microsoft has to satisfy its customers, or it's not going to get upgrade business. And the upgrade is critical. There are 300 million computers out there using Microsoft's products. And Microsoft is shipping new Windows 98 systems at the rate of about two million a month. You can imagine which is the guts of the business. It's that upgrade market, the 300 million computers, switching to Windows 98, that's going to make the difference.

Navigator: What penalties are being sought, if Microsoft is found guilty?

Levy: Justice wants, first, for Microsoft either to remove Internet Explorer from the Windows operating system, or, if they want to leave it in, to include Netscape also. Secondly, they want PC manufacturers, OEMs, to be able to replace the first screen. Not just alter it, which they can do now, but replace it, so that the PC goes out the door with something other than Windows' first screen. Thirdly, they want the on-line service providers and Internet service providers and Internet content providers not to have to promote Internet Explorer at all.

Navigator: Judge Jackson has indicated that he's going to force the trial along. Would you care to make a projection about how it will proceed and what the result will be?

Levy: The trial is supposed to start September 8. Microsoft, by the way, had asked for seven months to prepare for a hearing on the preliminary injunction, and then some more months before preparing for the full trial on the merits. Jackson said September 8, which was only four months away, for both the preliminary injunction and the trial, set a maximum of twelve witnesses per side, and combined the federal and state suits. He wants it quite clearly to be on a fast track. Perhaps he remembers the thirteen-year antitrust fiasco against IBM, which turned out to be just a wealth transfer from IBM shareholders to lawyers and expert witnesses.

So it's on a fast track. That doesn't mean the outcome will be quick in coming. It's a very complicated issue and I don't have a time frame, but I do have a projection of the result. Justice is not going to get anything on the tying issue. That's a product design issue that the court's going to stay away from. And, for much the same reason, Justice is not going to get anything on the first-screen issue. They may force a modification of the on-line service provider contracts—that is, AOL, Compuserve, and Prodigy. Microsoft has already conceded on the Internet service providers and the Internet content providers, for the most part. On balance, this is going to be a victory for Microsoft. The shame of it is that it has to go forward at all.

Navigator: Let's look at the broader issue of today's antitrust climate, which will certainly interest Navigator's readers. While researching this subject, I learned the following discouraging datum. When Ronald Reagan was in office, his antitrust chief William Baxter was considered the intellectual father of the administration's laissez-faire attitude. As it happens, Baxter was also professor to Clinton's ferociously aggressive antitrust chief Anne Bingaman, who admired Theodore Roosevelt for breaking up Standard Oil. Does this indicate that all the good historical-legal work libertarians have done, as in showing how stupid the Standard Oil case was, is lost on the next generations of lawyers if they do not share their professors' libertarian premises?

Levy: That is exactly the problem with an efficiency-based standard. Yes, there are important efficiency gains from what Microsoft is doing. Users demand integration. It's easier to use a system that's integrated. It's easier for Microsoft to document, debug, and distribute the system. And most important, it provides a uniform standard for developers, who don't have to produce software for twenty different platforms.

But that said, if your standard is going to be efficiency, then neither the lesson of Standard Oil nor libertarian historical-legal analyses will necessarily control. Somebody somewhere will either twist the facts, or indeed find facts, legitimately, showing that the costs of intervention are less than the benefits, and accordingly we should go ahead and intervene. That's precisely Robert Bork's position on the Microsoft case. He says, in effect: "Ordinarily, I am opposed to antitrust intervention. Nevertheless, on this set of facts it works; it will improve consumer welfare."

If property rights set your standard, the principle is what governs, not the particular facts of each situation.

Navigator: Last January, John Cassiday wrote an article for The New Yorker in which he argued that economist Brian Arthur had shown "there is no guarantee that the market left to its own devices, will select the best products and maximize benefits to consumers." The QWERTY keyboard is usually cited in these cases. But Cassidy mentioned the dominance of VHS and Microsoft products as other examples. What is your comment on these alleged market failures?

Levy: First, with respect to QWERTY: It turns out that the guy who made the claim was Dvorak, and of course Dvorak designed the alternative system. He conducted the tests and then published the claims that his own system was so much more efficient. All of the more recent tests have indicated there's no discernible difference in efficiency between the QWERTY keyboard and the Dvorak keyboard. So as an empirical matter, that claim falls by the wayside.

The Beta/VHS dispute: Some said Beta was a better technology, but everybody bought VHS. Why? Because they wanted to be able to tape long movies and VHS had greater capacity. Quite plainly, consumers use something more than just pure technological features to make product choices. They consider matters of price and quality and service and contract terms and reputation, many things that go into a buying decision beyond pure technology.

Similarly, in terms of DOS and Macintosh, maybe Macintosh was better as a purely technical matter, maybe it wasn't. Technically, most people thought Mac had the edge. But it was probably too expensive and had features that a lot of people didn't need. There weren't very many upgrades. There were fewer applications packages. Mac was harder to network, and, most important, users were locked into Apple as their sole source of hardware because Apple refused to license Macintosh. Moreover, it's not particularly productive to be debating whether or not MS-DOS was better or worse than Mac. The real issue is not which one is better, but who gets to decide? Is it going to be consumers who reveal their preferences by purchases in the marketplace? Or is it going to be some specialists in the Justice Department who rate each product according to some formalistic appraisal of technical features and who ignore all the other attributes that go into the purchase decision? If we permit government to make those kinds of assessments, and we permit assessments by government bureaucrats to trump the choices of consumers, we're well on the road to tyranny.

Navigator: Business Week had a very flattering article about Antitrust chief Joel Klein and FTC Chairman Robert Pitofsky, touting their "post-Chicago pragmatism." as an example of such pragmatism, the article cited the FTC's opposition to the Staples/Office Depot merger as a decision based on data rather than ideology. What do you make of this?

Levy: Well, first, on the narrow issue of the Staples/Office Depot merger: Anybody who points to this as a mark of achievement has got his head where the sun doesn't shine. Stopping that merger was simply a sop to the competitors of Staples and Office Depot. And the data mentioned in the Business Week article was rebutted by economics experts who testified in the case.

On the broader issue of "post-Chicago pragmatism," I can't overemphasize that antitrust policy should be dictated by property rights, not economic efficiency or consumer welfare. The principles are simple, they're straightforward, and I think they conclusively resolve the Microsoft dispute. Here we have the Department of Justice, and twenty states' attorneys general, and what they are trying to do is mutate Microsoft's private property into something that belongs to the public. It's going to be designed by bureaucrats, and sold on terms that are congenial to Microsoft's rivals—companies that are bent on Microsoft's demise. Supposed advocates of the free market, like Robert Bork, endorse this kind of foolishness, evidently oblivious to the destructive implications of what happens when you strip private property of its protection against confiscation.

Nobody other than Microsoft has a right to the operating system that Microsoft created. Consumers can't demand that it be provided at a specified price, or with specified features. And for sure, competitors are not entitled to share in its advantages.

When the Justice Department demands that the Windows desktop be expropriated and exploited for the benefit of competitors, or even for the benefit of consumers, Microsoft's property rights are being violated—regardless of economic efficiency or consumer welfare. Politicians and misguided businessmen, and lawyers and academics, are debasing private property. In the process they do an enormous disservice to the rest of us who have respect for free markets and a free society.

As far as I'm concerned, that's it. That's the end of the story. All the rest is just filler.

This interview was conducted for Navigator by IOS editorial director Roger Donway, with the help of IOS's office assistant, David M. Brown

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