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Microsoft: Breaking Up Is Good to Do | The Nation

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Microsoft: Breaking Up Is Good to Do

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The pace of recent events made one of the most significant rulings in the history of American antitrust law seem like an anti-climax. The headline news that Microsoft will cease to exist as we have known it, if the government has its way, was thoroughly anticipated in the weeks of final maneuvering.

About the Author

Eben Moglen
Eben Moglen, professor of law and legal history at Columbia University Law School, serves without fee as general...

Also by the Author

Eben Moglen has been
representing parties sued by the recording industry and is working on a
book about the death of intellectual property.

The recording
industry has been celebrating the supposed defeat of Napster. The
Court of Appeals for the Ninth Circuit has affirmed the grant of a
preliminary injunction that may well have the effect of closing the
service down completely and ending the commercial existence of
Napster's parent (that is, unless the record companies agree to an
implausible deal Napster has proposed). But despite appearances, what
has happened, far from being a victory, is the beginning of the
industry's end. Even for those who have no particular stake in the
sharing of music on the web, there's value in understanding why the
"victory"over Napster is actually a profound and irreversible
calamity for the record companies. What is now happening to music
will soon be happening to many other forms of "content" in the
information society. The Napster case has much to teach us about the
collapse of publishers generally, and about the liberative
possibilities of the decay of the cultural oligopolies that dominated
the second half of the twentieth century.

The shuttering of
Napster will not achieve the music industry's goals because the
technology of music-sharing no longer requires the centralized
registry of music offered for sharing among the network's listeners
that Napster provided. Freely available software called OpenNap
allows any computer in the world to perform the task of facilitating
sharing; it is already widely used. Napster itself--as it kept
pointing out to increasingly unsympathetic courts--maintained no
inventory of music: It simply allowed listeners to find out what
other listeners were offering to share. Almost all the various
sharing programs in existence can switch from official Napster to
other sharing facilitators with a single click. And when they move,
the music moves with them. Now, in the publicity barrage surrounding
the decision, 60 million Napster users will find out about OpenNap,
which cannot be sued or prohibited because, as free software, no one
controls its distribution and any lawsuits would have to be brought
against all its users worldwide. Suddenly, instead of a problem posed
by one commercial entity that can be closed down or acquired, the
industry will be facing the same technical threat, with no one to sue
but its own customers. No business can survive by suing or harassing
its own market.

The music industry (by which we mean the
five companies that supply about 90 percent of the world's popular
music) is dying not because of Napster but because of an underlying
economic truth. In the world of digital products that can be copied
and moved at no cost, traditional distribution structures, which
depend on the ownership of the content or of the right to distribute,
are fatally inefficient. As John Guare's famous play has drummed into
all our minds, everyone in society is divided from everyone else by
six degrees of separation. The most efficient distribution system in
the world is to let everyone give music to whoever they know would
like it. When music has passed through six hands under the current
distribution system, it hasn't even reached the store. When it has
passed through six hands in a system that doesn't require the
distributor to buy the right to pass it along, it has already reached
several million listeners.

This increase in efficiency
means that composers, songwriters and performers have everything to
gain from making use of the system of unowned or anarchistic
distribution, provided that each listener at the end of the chain
still knows how to pay the artist and feels under some obligation to
do so, or will buy something else--a concert ticket, a T-shirt, a
poster--as a result of having received the music for free. Hundreds
of potential "business models" remain to be explored once the
proprietary distributor has disappeared, no one of which will be
perfect for all artistic producers but all of which will be the
subject of experiment in decades to come, once the dinosaurs are
gone.

No doubt there will be some immediate pain that will
be felt by artists rather than the shareholders of music
conglomerates. The greatest of celebrity musicians will do fine under
any system, while those who are currently waiting on tables or
driving a cab to support themselves have nothing to lose. For the
signed recording artists just barely making it, on the other hand,
the changes are of legitimate concern. But musicians as a whole stand
to gain far more than they lose. Their wholesale defection from the
existing distribution system is about to begin, leaving the music
industry--like manuscript illuminators, piano-roll manufacturers and
letterpress printers--a quaint and diminutive relic of a passé
economy.

The industry's giants won't disappear overnight,
or perhaps at all. But because their role as owner-distributors makes
no economic sense, they will have to become suppliers of services in
the production and promotion of music. Advertising agencies,
production services consultants, packagers--they will be anything but
owners of the music they market to the world.

What is most
important about this phenomenon is that it applies to everything that
can be distributed as a stream of digital bits by the simple human
mechanism of passing it along. The result will be more music, poetry,
photography and journalism available to a far wider audience. Artists
will see a whole new world of readers, listeners and viewers; though
each audience member will be paying less, the artist won't have to
take the small end of a split determined by the distribution
oligarchs who have cheated and swindled them ever since Edison. For
those who worry about the cultural, economic and political power of
the global media companies, the dreamed-of revolution is at hand. The
industry may right now be making a joyful noise unto the Lord, but it
is we, not they, who are about to enter the promised land.

But on closer inspection there was enough drama and substance to satisfy any observer. Judge Thomas Penfield Jackson's decision to speed the case in its final stages will certainly be controversial on appeal, as Microsoft will argue that it was deprived of its opportunity to submit more evidence and cross-examine extensively the Justice Department's consultants who advised on the breakup plan. The tone of Jackson's final opinion, which flatly stated that Microsoft "has proved untrustworthy in the past," reminded readers of the terrible cost in credibility that Microsoft has paid as a result of its intransigence in this and prior proceedings before the judge.

Microsoft's existence now hangs on two weak threads: that it can convince appellate judges that the remedy ordered is unjustified by the facts proved, or that the facts Jackson regards as "proved" are so clearly wrong as to warrant an exceptional decision reversing the trial court on this ground.

The first is much the more promising wager. Jackson concluded that "it is time to put...to the test" by immediate appeal the belief that Microsoft is innocent of any wrongdoing, a belief shared by Microsoft and, as Jackson stingingly put it, "a substantial body of public opinion, some of it rational." Jackson's confidence in the strength of his factual findings is justified: The government proved a pattern of business conduct amounting to an illegal attempt to maintain monopoly power, and did so through a compelling range of evidence, including Bill Gates's aggressive e-mail and his discrediting videotaped testimony denying knowledge of the very e-mail he had written. Microsoft's defense was inept where it was not self-destructive. Whether, on the other hand, Jackson's complete acceptance of the government's strong remedy was justified either by the facts proved or by the preference for a faster road to appellate review will be more difficult to demonstrate to skeptical judges on the Court of Appeals or the Supreme Court.

It is appropriate to be skeptical too about the remedy itself. If fully implemented, it results in two companies, one of which will, like the original Microsoft, possess an apparent monopoly in the market for PC operating systems. The theory is that this monopoly will be successfully undermined by the activities of Microsoft Two, which may choose to distribute, for example, Word and Excel for use with other competing operating systems. This approach to restoring competition is purely speculative. As Jackson himself said in the opinion accompanying his final judgment concerning the intended testimony of proposed Microsoft witnesses, "For the most part they are merely the predictions of purportedly knowledgeable people as to effects which may or may not ensue if the proposed final judgment is entered." The same is true with respect to the theories of the consultants who helped the government shape its own proposals.

But the more important question, now that this trial is over, is what it told us about the political relevance of antitrust law in the Internet Era. Shorn of the legal technicalities, Microsoft's defense against the government rested on three claims. Each of these assertions involved a fundamental attack on the role of antitrust in the protection of democratic equality.

First, Microsoft claimed that it was being punished for the successful exploitation of its own new ideas. As Gates claimed after the judgment was announced, "This ruling says to creators of intellectual property that the government can take away what you created if it turns out to be too popular." Of course, this statement disregarded the factual finding that the property in question had been used illegally to injure others. But it appealed to the antagonism between the "owners" of ideas and those who believe that the new world of the Internet should lessen, rather than increase, the political power of "intellectual property."

Second, Microsoft claimed, the fast-changing nature of the software industry rendered the slow processes of the law completely irrelevant: Before judgment could be reached, it said, events occurring on "Internet time" would render the decision obsolete. This amounted to an assertion of antitrust immunity for technology firms, and is no more sensible than asserting that judges were incapable of applying the Sherman Act to the rapidly changing industrial economy at the end of the nineteenth century, or the equally dizzying pace of economic change after the Second World War. However illogical it was in historical terms, this claim appealed to a widespread belief in the inherent inefficiency of government, irresponsibly propounded by a generation of Reaganite politicians in both parties.

Third, Microsoft argued that application of antitrust law would endanger the competitiveness of the United States in the global economy. Microsoft was no longer, like the bankrupt aerospace and automotive giants of the eighties, "too big to fail"; it was instead too big to punish or control. This was the most dangerous argument of all, for it was precisely this sort of bigness, towering beyond the reach of democratic government, against which antitrust law was aimed in the first place.

In the end, therefore, United States v. Microsoft did much more than bring to book a company whose illegal activities briefly made its founder the richest man in the world. Far more important, the rejection of Microsoft's defenses reasserted the importance of antitrust in preserving American democracy from the control of owners and the curse of bigness. "If there are men in this country big enough to own the government of the United States, they are going to own it," said Woodrow Wilson as a presidential candidate in 1912. In the coming months the current presidential candidates--eager to trumpet their respectful familiarity with the Internet entrepreneurs and even more avid to accept their "campaign contributions"--should be called upon to explain their own views of the Microsoft case and the limits of private economic power in a democratic society. Bad as things may look just now, during the last and perhaps most corrupt campaign of the twentieth century, Judge Jackson has reminded us that there are reasons for hope.

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