Slapping Microsoft's Wrist

The antitrust case against Microsoft Corp. has always been a tangled web of complex technologies, economic trade-offs, and unsatisfying remedies. War and recession muddy the situation even further. We admit to a certain sympathy for the Bush Administration's desire to settle the case now to clear the decks and focus on higher priorities--fighting the war in Afghanistan, bolstering home security, and restoring economic growth. But the Justice Dept.'s weak censure of Microsoft for its serious monopolistic practices could cost the U.S. mightily in the years ahead. The great strengths of the American economy are its openness, its competitiveness, and its innovativeness. Monopoly is the enemy of all three.

The truth is that the Justice Dept. basically chose to ignore the findings of a federal district court and the U.S. Court of Appeals, which determined that Microsoft engaged in a pattern of monopoly behavior. It chose to deny information showing that the company spent enormous energy on maintaining its Windows platform monopoly while undermining threats from rivals. In agreeing to mild remedies, the Justice Dept. sends the wrong message to the marketplace.

The settlement as it now stands is riddled with loopholes. It tells Microsoft to stop bullying personal-computer makers and mandates that Microsoft offer fixed prices to all computer makers so they cannot be punished for loading non-Microsoft applications. But the remedy still allows Microsoft to charge whatever it wants for its Office suite software, which is loaded onto most PCs. Microsoft retains a huge club to wield over computer makers that cross it. Furthermore, the settlement applies only to PCs, not to handheld devices or some servers. This remedy needs to be tightened up considerably.

The settlement also tells Microsoft to share Windows or XP operating-system code with competitors so they can write new programs that work seamlessly with those systems. But it allows Microsoft to wait until after it sends out 150,000 copies of its beta, or testing, software to begin to share. This is far too late for rivals to start competing with Microsoft's own teams of applications writers, who know the code from the start. This remedy also should be tightened up.

Perhaps the most serious problem is that the settlement does nothing to keep Microsoft from leveraging its Windows monopoly on PCs onto the Web by bundling its MSN portal, instant messaging, e-mail, and streaming-media applications. Bundling applications into the monopoly operating system, while making it difficult for rivals to connect to the OS standard, is at the heart of the Microsoft antitrust case. And Microsoft shows few signs of ending its past behavior. It has already raised the ire of Eastman Kodak Co. and RealNetworks Inc. by writing an early version of XP that funnels customers to Microsoft's own photo and media sites.

Striking a balance between consumer convenience and innovative competition is always difficult, and much more so in an era of technological change. The Justice Dept. in its current settlement with Microsoft fails to strike that balance. In caving in on the issue of monopoly, it leaves a serious problem that could haunt the country's economy for years.

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