The Ethical Spectacle, April 1995,

Microsoft: An Unprincipled, Rapacious Company

Judge Sporkin did the right thing, both legally and ethically, when he set aside the Justice Department's wimpy antitrust settlement with Microsoft.

The Justice Department, after years of investigation by it and the FTC, apparently became hopelessly mired in technical details it didn't understand. It copped out by deciding to settle with Microsoft on a single count pertaining to the licensing of Windows to hardware sellers, leaving Microsoft undaunted in its numerous other rapacious practices.

Antitrust law protects the public against companies which attain an undue domination of the marketplace via mergers, the tying of one product to another, vertical integration, and other practices tending to eliminate competition or bar entry to a marketplace to newcomers. Who can argue that Microsoft has not engaged in all of these practices over the years?

By purchasing companies such as Intuit and Fox Software, Microsoft has pursued a step-by-step strategy of leveraging its power in operating systems to dominate each significant application sector. I am writing this essay on a Compaq Prolinea running Windows; I am using the bundled Notepad. Major applications on my office machine are Access, Word and Excel, all Microsoft products. For some years, it has been possible to program, crunch numbers, store information in a database, process words, and prepare multimedia slide shows, without ever using a non-Microsoft product. Now, unless the Justice Department intervenes, you will also do your banking, buy your software, and log on to the Internet, without ever doing business with someone other than Microsoft.

I happen to like many of the Microsoft products I use--Access in particular is a marvel, allowing me to create sophisticated applications without coding. The danger Microsoft represents to the computer industry and to our lives lies in the innovation it has already stifled on the part of others, and even more largely in the fact that, when there is only Microsoft, it will have no further incentive to create products like Access.

When I was first practicing law in the early 1980's, Microsoft--a much smaller company--already had a rapacious reputation. I represented a developer in licensing his work to Microsoft, and we were aware that the company had a reputation for terminating licenses ruthlessly once it figured out how to clone the technology, legally or not. Stacker's successful lawsuit against Microsoft for patent infringement of its compression technology, and the pending Apple lawsuit for the copyright infringment of Quicktime, are both examples of cases in which Microsoft allegedly licensed something, then kept it. Back then, Microsoft had some vibrant competitors--Borland, which pioneered low price programming products, Ashton Tate, which had the first P.C. database, Visicalc and Lotus with spreadsheets, Fox, with another dBase competitor, WordStar and WordPerfect with word processors. Today, Borland is on dangerous ground, Lotus is bleeding in the spreadsheet marketplace and running scared with Notes, and the rest of the companies have merged out of existence or are defunct. In every one of these sectors--programming environments, databases, spreadsheets and word processors--Microsoft has the leading product.

This is not a coincidence. Microsoft has put most of these companies away, either by buying them or by driving them into the ground, and it was not done via fair, arms-length competition. Microsoft had the operating system. By definition, if the OS maker creates applications, they will run better with the OS than a third party's, and the OS owner can, over time, create modifications that will make this even more so. Microsoft has often been accused of using tricks buried deep in the code to suggest or promote incompatibilities with rival operating systems. Certainly, it sued every maker of a compatible BIOS, putting them all out of business until Phoenix used clean room techniques to create a noninfringing BIOS. After that, when Microsoft had lost control of DOS and legal clones were prevalent, its Windows strategy put it back in command.

This is not to say that Microsoft was not exercising legal rights; so was Ashton-Tate when it sued Fox for infringing dBase. But both companies missed the point. Copyright law gives software developers the right to refuse to create public standards. But public policy calls for standards, and companies are smart to release code, designs, and interfaces that they wish to become standard, into the public domain. Microsoft has always wished to have the best of both worlds: universal use of its products while retaining the specifications as proprietary. In other words, the whole world should run Windows, but as a private product, not a public standard.

Microsoft has been able to behave this way not because its people are so much brighter and smarter, or its products so much better, but because it has always been able to leverage the operating system to get whatever else it wanted. This is the "vertical integration" the antitrust law speaks about. The next generation of Windows will contain a Mosaic-style web browser; with a click of a key, you will log into a Microsoft-owned gateway to the Internet. Why would you ever need another company's product?

Microsft recently announced, then backed off, a CD-ROM code-named Ali Baba. This would have contained limited "demo" versions of Microsoft applications. With credit card in hand and a phone call to Microsoft, you would unlock the application, transforming it from demo into the thing itself. A firestorm of protests from resellers, and possibly Microsoft's new fears of the government after the Sporkin decision, may have caused Microsoft to change its mind.

Like everything else Microsoft touches, it didn't invent the CD-ROM concept, which has existed in the Next world for a while. Microsoft didn't invent spreadsheets, databases, word processors, programming environments, or even the operating system (everyone knows the story of how IBM visited Gary Kildall of Digital Research, author of CP/M, before turning to Microsoft for the IBM PC operating system.) Microsoft products are frequently not even the best available (the integration of objects in the Next environment, for example, pasting a spreadsheet into an email message, was far ahead of OLE integration in Microsoft applications). But the power and momentum this behemoth has gained from its incredible luck in dominating operating systems has given it the ability to bulldoze everything in its path.

Sporkin's decision overturned the consent order on the grounds that 1. the government refused to give the court enough information about the decree; 2. the decree was too narrow, failing to deal with issues such as vaporware, OS/application leverage, and allegations that Microsoft deliberately made changes to the OS to make third party applications hard to run; 3. the parties hadn't adequately addressed certain anticompetitive issues; and 4. the enforcement and compliance mechanisms of the decree were unsatisfactory.

Though I agree with the gist of the court's decision, it may have been incorrect about vaporware. In the '80's, this term was used to describe announcing a not-yet-existent product to kill an existing one. Sporkin's decision seems to criticize Microsoft for pre-announcing real products under development. On the other hand, internal Microsoft memos that reached the court spell out clearly that Microsoft intended such announcements to dampen sales of competitors; "QB3 preannounce to hold off Turbo buyers", one internal memo read.

Microsoft always seems to reach out to take a swipe at, or take over, whatever is big and near to it. It is a serious sign of an ethical problem when a company, instead of asking what its customers need, does its planning based on a "killer" philosophy: QBasic as the Turbo killer, NT as the Unix killer, Exchange as the Notes killer. Businessmen-- and I say this as a businessman myself, who does very well, thank you-- can become millionaires in marketplaces where there are several lively forces competing. Businessmen who figure out not merely how to compete effectively, but how to leverage their economic power to dominate the market and "kill" the competition, may become billionaires like Bill Gates, but they will not serve the public interest in doing so.

NT, for example, was not designed to do anything better than Unix, except run Windows applications. Having used the OS to dominate the application world, Microsoft is now geared to use the apps to dominate the server--another sector it hadn't previously entered. And, in so doing, it would replace a public standard, Unix, with a proprietary but dominant one. It is too soon to tell if this strategy has failed.

Let's get to the ethical heart of the situation. It will be awhile--maybe a very long time--before Microsoft has so cleared out the landscape that it can charge whatever prices it wants--the traditional evil of monopolies. A greater danger will happen much sooner, and may already be happening: innovation will slow down and will ultimately stop when there is no competition. A company which dominates its marketplace becomes intellectually lazy and has no further incentive for intense research and development, when its customers have nowhere else to turn. We have already seen Microsoft killing superior products; why improve its own, when there is no-one left to kill? As users of computers, it is in our interest to see standards released into the public domain. The open systems world, unless it is run down and smashed by the Microsoft juggernaut, has shown that effective competition can take place in a world of public standards such as Unix and X-11. Things have long since passed the point at which we could vote with our pocketbooks, by buying the competition's products, without putting ourselves outside the desktop mainstream entirely. We should be able to stay in the mainstream, while supporting more than one vendor.

But why should businessmen regulate themselves? Why should anyone stop short of a profit goal? In the 1980's, an idea became prevalent that there should be no ethics in business, only laws. Any act--for example, dismantling companies and putting people out of work to give the shareholders a short-term benefit--was acceptable as long as not actually illegal. Business is war.

This concept, of business as war, is actually very wrong-headed, and a relatively modern invention. The "tragedy of the commons", taught in the first week of environmental and economics courses, is an illustration. Though enlightened self-interest would seem to dictate that business, like any other private activity, should be conducted so as to perpetuate the resources it exploits, the exact opposite is usually true. In most cost benefit analyses, the quality of life of the people affected by our actions, let alone the interests of people not yet born, is assigned no economic value.

Software development can be a very ethical business. My company, which is very profitable, promotes creativity, facilitates the personal development of its employees and others, does no harm to the environment, and plays a modest role in promoting societal change by assisting at the birth of technological innovations such as distributed computing and the Internet. Our corporate mission statement is to be the best in our niche, but not to destroy anyone else.

Microsoft's goals, by contrast, are to be the only, not necessarily the best. Businesses, like any other human activity, illustrate values by behavior. Microsoft's values are based on rapaciousness, greed, and a desire for domination.

Is this a fit area for the law to intervene? Or is it one of those areas of human activity where society may criticize, but the law should not be involved? I believe that the harm Microsoft is causing to the public interest--to each of us individually as computer users--passes that threshold. The antitrust laws should be applied against Microsoft because there is no other way to repair what is being done or avoid worse harm in the future.

When Ashton-Tate sued Fox, and when Lotus sued Borland for copyright infringement, some people wanted to change the copyright laws to state that computer languages and interfaces could not be protected. I disagreed with this then, and still do. The solution was not to change the laws, but to vote with your wallet: buy those products whose publishers dedicated their standards to the public domain, and avoid those who did not.

We are long past the point at which such a strategy would work with Microsoft. In too many sectors, there are no longer full-featured competing products, and in many others, there soon may not be. Microsoft's competitors are no longer robust enough to be revived. If there was ever a fit case, since the early days of oil and steel cartels, for the government to take antitrust action, it is Microsoft.

In the February 20 Infoworld, Stewart Alsop suggests that Microsoft be forced to document the API's in Windows, so that other companies could legally clone it. This would still give Microsoft an 18 month head start on each release, much the way Intel has a head start before AMD and others clone each new chip. Others have suggested that Microsoft be broken up, with the OS and applications in separate companies, and that it be denied the right to buy Intuit or found its online service and Internet gateway.

Judge Sporkin said:

Microsoft, a rather new corporation, may not have matured to the position where it understands how it should act with respect to the public interest and the ethics of the marketplace.

This has been obvious for the 15 years of Microsoft's "youth". It is time to do something about it.