Does Microsoft Stifle Innovation?

Frankly, we don't know if dividing Microsoft Corp. into separate operating-systems and applications companies will increase competition any better than forcing it to accept changes in its business conduct or chopping it into three rival "Baby Bills." We do know that something must be done. Innovation is at the heart of America's current and future prosperity, and every effort must be made to keep markets totally open to the information technologies sweeping society.

Just read the absolutely chilling tale of abusive, monopolistic bullying by Microsoft against the best and the brightest in the high tech industry--Compaq, Sun Microsystems, IBM, Intel, and, of course, Netscape ( The story that emerges from conservative Judge Thomas P. Jackson's fact-finding is of Microsoft using its monopoly of computer operating systems to dominate PC makers, crush potential rivals, control Internet service providers, and harm consumers.

Alas, the tale doesn't end with his July, 1999, decision. It now appears that even as Microsoft was in court, it may have redesigned software to harm Palm handheld devices and configured Windows 2000 software to favor Microsoft server software. The behavior in new markets is similar to that which brought about the antitrust case in the first place.

That conduct clearly stands out in the brief filed for the Justice Dept. by conservative Stanford economist Paul Romer, who said Microsoft acted to curb the innovations promised by Netscape's browser and Sun's Java programming language: "Microsoft's predatory acts had a chilling effect on innovative efforts by all people who might have developed other software Microsoft found threatening." And "consumers did not get the innovative products the technology being developed by Netscape and Sun might have delivered."

Innovation is the lifeblood of the economy, and behavior that inhibits it can't be accepted. The case against Microsoft isn't about big government vs. business, or civil-service clerks punishing successful entrepreneurs. It isn't even about pricing, the traditional measure of antitrust. It's about restraint of innovation--the worst sin in an era of technological change.

Romer, best known for his theoretical work on how innovation helps consumers, argues that splitting Microsoft into operating and applications companies would create new competitive markets. Small software companies would have greater incentive to innovate by selling to both of them, with consumers reaping the benefits. However the antitrust case against Microsoft plays out in the end, the solution must guarantee that innovation is promoted above all.

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