Latest Microsoft Ruling Has Global Implications

In a unanimous opinion, the U.S. Court of Appeals ruled that the settlement agreement reached with Microsoft by the Department of Justice and 19 states is in the public interest, rejecting a call for more stringent sanctions against Microsoft by the state of Massachusetts and a group of Microsoft competitors. 

This decision, however, was about much more than Microsoft versus Massachusetts (search). It has ramifications for consumers and the technology sector all around the globe. The case also raises important policy questions that need to be addressed as the economy becomes increasingly global.

To understand the significance of the ruling, it’s important to remember how we got to this point.  In November 2002, the U.S. District Court approved a settlement that had been reached the year before by Microsoft, the U.S. Department of Justice and nine other states. The District Court also largely rejected arguments by other states for harsher sanctions against Microsoft. In the end, only Massachusetts continued to litigate the case.

In other words, all other litigants, most notably the federal government, had assented to the U.S. District Court’s Final Judgment. Most states were not even party to the lawsuit. Massachusetts’ appeal, had it been successful, would have established a new set of regulations for Microsoft that far surpassed what the federal government had deemed appropriate.           

The problem, then, is not just that Microsoft would have had to live with a special set of restrictions conceived by Massachusetts. It’s that any consumer or business outside Massachusetts would have had to endure the results of the restrictions as well.

What might these results have been? For one, Microsoft’s flagship product, Windows (search), could have been forcibly stripped of a good deal of its functionality. Today, thanks to Windows, your computer can perform many seemingly basic functions right out of the box. You can access the Internet, surf the Web, view pictures from your digital camera and so on. You can also add thousands of other programs made by other software companies that run just fine on Windows.

If Massachusetts’ had prevailed, consumers everywhere could have been denied the experience they’ve come to expect from the PC. Massachusetts’ proposed sanctions would have required consumers, businesses and computer manufacturers to take additional steps to set up PCs -- just so that they can execute some of the very operations they perform seamlessly today.

Designed largely in the first half of the 20th century, antitrust laws still need to find their way in the digital age. Applying the brakes to innovation and inconveniencing consumers is hardly a step in the right direction.

Creating a hodgepodge of complex and sometimes conflicting regulatory schemes also poses enormous problems. If businesses cannot reasonably predict regulatory action, they will be slow to invest in expansion and innovation. The time and labor of tracking and complying with multiple overlapping antitrust rules (search) also drives up the cost of doing business. In turn, these costs erode shareholder value and get passed on to consumers.

As globalization continues to expand, policy makers at all levels of government -- state, federal and international -- need to explore new ways to find unified solutions when it comes to regulating businesses and industries. In the Microsoft antitrust case, Massachusetts posed one threat to unified and reasonable antitrust regulation. As we’ve seen recently, the European Union poses another threat. The European Union’s recent ruling attempts to override sanctions against Microsoft that were approved by our federal government and court system. 

The European case is based largely on complaints of other U.S.-based companies against Microsoft. It would make sense for the U.S. to have jurisdiction over these complaints. In fact, the Final Judgment in the U.S. case essentially addresses the issues raised by the allegations of these companies. 

For now, the Appellate Court rejection of Massachusetts’ proposed sanctions against Microsoft prevents state antitrust laws from overriding federal authority in a case that reaches well beyond any single state’s borders. Massachusetts should recognize the weakness of its position and forego an uphill appeal to the U.S. Supreme Court.

Even with Microsoft’s appeal to the European Court of First Instance (search) moving forward, the European case might still reach a resolution that does not undermine the ruling of the U.S. courts. Nevertheless, such a resolution would still not establish a precedent or policy for achieving uniform antitrust rules for our global economy.

Jim Prendergast is the executive director of  Americans for Technology Leadership.