Saturday, May 30, 1998

In Microsoft case, government asks 'What if?'

By TED BRIDIS / Associated Press Writer

WASHINGTON (AP) -- Rich Schinnell bought his first home computer in 1981 for $6,000, an IBM that by today's standards is more akin to an abacus than a powerful desktop machine.

These days, he says, even a high-end computer loaded with software that lets a person surf the Internet, play the latest games and track household finances costs half as much -- or even less when that 1981 price tag is adjusted for inflation.

"The price of software is, in my estimation, pretty darn low," said Schinnell, a retiree who lives in Rockville, Md., and helps run the Capital PC User Group. "And there's a lot of competition."

For the Justice Department and the 20 states suing Microsoft Corp. in one of the most far-reaching antitrust cases in decades, the sentiments of many of the nation's computer hobbyists, like Schinnell, represent a tough sell, a formidable legal hurdle.

The case, scheduled for trial Sept. 8 in U.S. District Court, will require government lawyers to argue convincingly that Microsoft, whose Windows software is used on 90 percent of the world's desktop computers, illegally used its market muscle to stifle innovation and keep prices artificially high.

"The government case probably seems misguided to most Americans because they see that the high-tech industry is the most competitive, most dynamic and most innovative industry in America," Microsoft spokesman Mark Murray said.

Indeed, the government makes its case at a time when the computer industry is booming, as prices for midrange computers dip below $1,000 for the first time and software aisles overflow at the nation's stores.

So, why sue?

In simple terms, the Justice Department and the states are asking America to picture an "alternate reality," to imagine how much cheaper and more innovative the computer industry might be if Microsoft were not quite so powerful.

"If one company can monopolize an industry and then expand upon that monopoly, ultimately consumers lose," said Iowa Attorney General Tom Miller, representing one of the states fighting Microsoft. "Prices go up. Quality goes down. ... Innovation suffers."

"And there's a chilling effect for the giant, too," Miller added. "They aren't challenged as much."

The mantra that innovation ultimately will suffer -- and that prices ultimately will rise without competition -- is a cornerstone of federal antitrust theory.

"A single company that is a monopolist is never going to produce the degree of innovation that a competitive industry would produce," argued Robert Bork, a former federal judge who is a lobbyist for one of Microsoft's biggest rivals, Netscape Communications Corp.

The government also argues that, while computer prices continue to fall, the price of software remains relatively constant. Microsoft's critics note that the retail price of Windows 95 when it was introduced in August 1995 was $90 -- about the same price as today.

As the price for a complete computer, including software, has dropped, Windows has thus made up a greater percentage of the cost of an overall computer.

"It is worth noting that in the past few years, as computer prices have fallen at the shelf ... you'll find that the computers indeed are cheaper, all the while that the cost of Microsoft's software has gone up," said New York Attorney General Dennis Vacco, whose office is coordinating the states' case against the software maker.

Another antitrust expert, Tyler Baker of Dallas, said: "Software probably hasn't fallen as precipitously as hardware. And even if the price of software has fallen, it's certainly possible it would have fallen faster if there had been more competition."