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Date: Tue, 21 Apr 1998 14:33:55 -0500
From: Declan McCullagh <declan@PATHFINDER.COM>
Subject: The amazing contortionist duo: Bork & Dole
To: CYBERIA-L@LISTSERV.AOL.COM
****
http://cgi.pathfinder.com/time/daily/0,1237,101980421-microsoft,00.html
Who's Who of Microsoft haters: Netscape, American Airlines, Oracle,
Sun Microsystems, and Sybase. Taking their case to the Capitol is
former presidential contender turned "strategic adviser" Bob Dole.
Which is quite a turnaround for a man who told the Senate, in June
1995, that the DOJ's investigation of Microsoft was "out of control."
Dole's 1998 take: "The Justice Department is doing the right thing."
****
PROJECT TO PROMOTE COMPETITION AND INNOVATION IN THE DIGITAL AGE
NEWS CONFERENCE REGARDING MICROSOFT AND ANTITRUST LAWS
MONDAY, APRIL 20, 1998
FORMER SENATOR ROBERT DOLE
FORMER JUDGE ROBERT BORK
MIKE PETTIT
MR. PETTIT: Well, thanks for coming. Sorry to keep you waiting
for a few minutes. My name is Mike Pettit, and I am the executive director
of the Project to Promote Competition and Innovation in the Digital Age.
What I thought I would do today is make a couple of brief comments, and
then I know you're anxious to hear from Judge Bork and from Senator Dole,
and we will try to quickly hear from them. I know Senator Dole has a
scheduling problem. He has to leave after making some brief comments. But
I think Judge Bork may stay a while and help answer questions.
The Project to Promote Competition and Innovation has also been
dubbed "Pro Comp," so I'll be referring to that today. Pro Comp is
comprised of a number of companies and trade associations, both
domestic and international. And we're dedicated to the proposition that we
need a strong free market in this country. We need to strengthen our free
market by strengthening the competitive forces that exist in some of our
critical and emerging new markets particularly.
We believe that strong antitrust enforcement is the best way to
ensure that competition can flourish. So at the heart of it, our message
is to ensure that consumers have maximum choices, that the producer or
manufacturer that produces a product can have access to the marketplace and
that innovation can flourish in this country.
We believe that only if there is strong antitrust enforcement can
we avoid unwanted and unneeded and unnecessary regulations down the road.
We're not asking for new laws and new regulations, but we think the time to
really closely examine many of these issues is now.
So principally, we'll be educating the public. We'll be educating
policymakers about some of the nuances of software markets and other
related markets. We will be shining some spotlights on what we believe to
be anticompetitive practices. We believe already, through the act of
reviewing some of the practices of some of the players in this (space?),
some of the practices may have been changed. So we continue to shine a
light on some of those practices, and we will continue to do so.
We think that some have raised the question of whether antitrust
laws are appropriate and relevant in new markets which are characterized by
rapid technological change. The answer for us - and I should say Judge
Bork and others have stronger answers and more credible answers than me -
but to us, a monopoly is a monopoly is a monopoly. It doesn't matter
whether it's in steel or software or railroads or oil. So we believe the
antitrust laws, as they have existed for over 100 years, can serve us well
as we transition to a digital age.
Digital age is a fancy name for something that's very obvious to
many of us, and that is that increasingly, as we purchase goods and
services, we will be using personal computers to do so. As we do that, we
remember that one single entity controls more than 90 percent of the
operating systems that make that computer work. And with that control of
operating systems, they can control the computer screen and they can
control the consumer's eyeballs and they can control the conduit to the
Internet, which is this dizzying, exciting new medium that promises to
change our laws in ways to come, in ways that we haven't even envisioned
yet.
So as we transition to this digital age, it's not the same anymore.
We don't - if we're going to buy a pair of jeans, we get in our car and we
drive to the downtown mall or the suburban mall and we shop around. We go
to the Gap or Nordstrom's or anyplace and we compare and buy the best
product we can. It's not quite the same when you sit down at your computer
and somebody has control of that desktop computer, and when that person or
entity that controls the desktop computer also controls content on the
Internet. We think that in itself raises public policy questions, and we
intend to examine those questions.
Now, all we're saying is as we transition to a new age, let's make
sure we have ample consumer choice. Let's make sure we have competition
and innovation. So who would object to that? Well, the truth is, there
are others that have a competing vision. And let's not kid anybody. We're
talking about Microsoft.
Their vision seems to be to not maximize consumer choice. Their
vision seems to be to use coercive and predatory practices to ensure that
original equipment manufacturers can't choose what your screen looks like
when you turn your computer on, that Internet service providers don't have
maximum choices and that content providers don't have all the choices they
need. So we think that is a vision that we disagree with.
And lastly, I would say, with regard to innovation, which has been
so important in this country, we have a vision that in this country we
should have opportunities for the entrepreneur in his garage to develop his
product and get it to the market and become the next Microsoft.
Microsoft's vision, as enunciated by Bob Herbold (sp), was this: If you
want to compete with Microsoft, you have three options. You compete with
Microsoft and go head to head and you lose; number two, you sell out to
Microsoft; or number three, don't bother in the first place, because if
you're a betting man, hey, you know how it's going to turn out. We think
that's the wrong policy for this country, so we'll be talking about those
things in the months to come.
Now, without any further ado, let me introduce Senator Dole to make
a statement.
SEN. DOLE: Let me follow on to what Mike Pettit has just indicated
so well. I think it's fair to say that the Internet promises to become the
newest and biggest market in our economy, and access to it should not be
controlled by any one company.
If anyone builds a toll booth to charge admission to the Internet,
consumers are the ones who will inevitably suffer. Microsoft currently
enjoys a monopoly that controls more than 90 percent of the desktop
computers in the market today. Now, they may have earned that monopoly
through legal, aggressive competition. But it can't be allowed to violate
antitrust laws that protect consumers by using that monopoly to then stifle
competition and to slow down innovation and leverage itself into monopolies
in other markets.
By controlling the user interface, which is what users first see on
their computers, Microsoft controls access to the explosion of information
and services found on the Internet. Microsoft already exploits that
position to direct consumers to its own content sites to
the disadvantage of consumers, who are deprived of the fair choice
that Mr. Pettit talked about.
The company's executives have stated publicly that they also intend
to charge a fee for each commercial transaction accomplished through the
use of their controlling software. This also is unfair to consumers. I
believe the Justice Department is doing the right thing by investigating
practices such as these. And this project, the Project to Promote
Competition and Innovation in the Digital Age, was formed to educate the
general public and policymakers about this very, very important issue.
And we welcome the help and participation of any group or
individuals who share our concern for the future of competition and
innovation in electronic commerce. And I can tell you from first-hand
experience that there are many companies out there who support our efforts
quietly but are fearful to do so publicly. This is proof of Microsoft's
market power and is a very troubling public policy question in itself.
Thank you very much. Judge Bork?
JUDGE BORK: Bye, Senator. Thank you.
My role is simply to outline the legal framework under which we
will proceed. And this is a challenge, I think, as has been made clear,
not to Microsoft's size but to the predatory practices that Microsoft uses
to disadvantage its rivals. And they do that in order to maintain and
expand a monopoly that has now reached 90 to 95 percent in the market for
operating systems. And this predation through their practices violates
traditional antitrust principles, specifically Sections 1 and 2 of the
Sherman Act.
The closest case is a case called the Lorain Journal against United
States, a 1951 Supreme Court case. And the Journal, as the court put it,
enjoyed a substantial monopoly in Lorain, Ohio for the mass dissemination
of news and advertising, both of a local and national (character?). And
they had 99 percent coverage of families in Lorain County. These factors,
the court said, made the Journal an indispensable medium for advertising
for local concerns.
Now, that was - a challenge arose to that when a small radio
station was set up in a town eight miles from Lorain, Ohio and began
to take advertising, whereupon the Journal, the newspaper, stated
publicly that they would refuse to accept local advertising from any
concern that advertised on that radio station, WEOL. And the Supreme Court
held that was clearly an instance of monopolization and in violation of
Section 2 of the Sherman Act. There was no apparent efficiency
justification for the practices, and they were therefore deemed predatory.
If there is no efficiency justification or a slim efficiency justification
for a practice that excludes competitors from the market, then you have
predatory conduct.
And I think the parallel between the Journal's behavior in that
case and Microsoft's behavior here is exact. Microsoft has a similarly
overwhelming market share and it imposes conditions on those with whom it
deals to exclude rivals without any apparent efficiency justification.
Now, we don't know all of the practices that Microsoft uses yet,
but we know a number of them. For example, their operating system, when
they license it to original equipment manufacturers, computer
manufacturers, they require that the manufacturer not alter the first
display on the screen from that provided by Microsoft. And, of course,
that makes the display of competing companies hard to use, if not
impossible.
And they use restrictive agreements with Internet service provides
and on-line services who are forced to deal with Microsoft because of this
monopoly. And it imposes conditions, for example, that they are forbidden
to mention the availability of alternative or competitive software or
browsers or whatever they are foreclosing.
We have a list of these practices. For example, they have codes
that they apparently include in their operating systems and other software
programming so that it's difficult for consumers to load competitive
browsers, including the Netscape browser. And these practices impose
substantial costs upon rivals, much heavier costs on their rivals than upon
Microsoft. And it is that kind of thing that we wish to challenge and wish
the Department of Justice to investigate.
And that is, in a bare-bones recitation, our case. If there are
any questions, I will do my best to evade them. (Laughter.)
Yes.
Q In your book in 1978, you were critical of the Justice
Department and the government's use of predatory - (inaudible).
JUDGE BORK: Yeah. And you'll find consistency in the analysis in
that book of predatory pricing. And I believe it's page 344, something
like that. (Laughter.) I know this because it was cited to me in the
analysis if the Lorain Journal.
The reason that predatory pricing does not work as an effective
technique for predation is that it requires the predator to expand output
in order to drive the price down. And that, of course, elicits fresh
demand for the product. The so-called victim can indeed cut back on
production so that the predator, in keeping prices down and satisfying the
fresh demand, bears losses, more losses that are disproportionate to the
victim's losses. And I think I said in that case, in that connection, that
the best method of price predation was to convince somebody you were a
likely victim and get them to attack you, because the predator winds up in
very bad shape.
Now, what is true about Lorain Journal and about Microsoft is that
it does not require the predator to expand output, so that the predator
need not bear disproportionate losses. Now, of course, imposing these
conditions upon others imposes a cost on Microsoft as well. But Microsoft
has huge reserves, need not expand its output and take losses. And this is
a device which can work in a way that predatory pricing cannot work. So I
trust that the book is consistent with what I'm saying today. Even though
20 years have passed, I continue to admire that book. (Laughter.)
Q (Inaudible.) What is your view about whether or not a
browser can be integrated into an operating system (by?) Microsoft (within
or without?) the antitrust laws?
JUDGE BORK: Whether it can be integrated? Well, it would depend
on how it's used, whether it's used to disadvantage rivals unfairly or not.
I don't think we have come to the point yet where we have to say that it
can't be integrated, but I think we can say that if it is integrated, it
must not be used in a way that makes it impossible or very difficult or
costly to use other people's browsers.
Yeah.
Q Have you thought about remedies?
JUDGE BORK: I've thought about remedies, and I think that we are
premature to discuss that. I think we'll have to develop the facts and
think about the alternative remedies that will be possible. Of course,
there is injunctive relief in which a court tells Microsoft or some other
predator to cease those practices. But whether that is sufficient or
whether it will require a more complex set of injunctive relief, I'm not
now in a position to say.
Q But yet you definitely would like to see the Justice
Department file - (inaudible).
JUDGE BORK: Yes. I think the Department of Justice, if it looked
at this - and it is looking at this - will see that predatory practices
are, in fact, being used and that they should be stopped.
Q I was over at the Cato Institute for a debate on this issue
before I came over here. And as I was talking to some of the rank-
and-file Cato people, who hadn't heard about this press conference,
some of them were pretty surprised to hear that you were going to be
holding this kind of a press conference. How did you - is it through the
client? Or what brought you to this press conference? What's the story
behind -
JUDGE BORK: Well, I was retained by Netscape and I was asked if
I'd be willing to come to a press conference. And I said yes. That's how
I got here.
Q As an advocate, though you're expressing your own views.
JUDGE BORK: No, having written the book I refuse to take a case
that contradicts my book, because that would be altogether too shabby -
(laughter) - and I won't. And it was when I became convinced from
examining what Netscape was saying, and examining what I had said 20 years
ago in that book, and finding that the two were consistent, that I took the
case.
Q So what is this group going to do after this press conference?
JUDGE BORK: Well, the group I don't speak for. What's the group
going to do?
MR. PETTIT: We are going to continue to have a debate about these
matters. We are going to make sure that the public and the policymakers
understand just exactly the details of some of these practices that have
been engaged in. And we hope the Department of Justice is listening and we
hope the public is listening and that they do the right thing.
Q Do you have anything planned with the Department of Justice?
MR. PETTIT: Our membership is comprised of a number of individual
companies and trade associations all of whom are talking with the Justice
Department separately. We do not have as a group a proposed set of
remedies that we are discussing with them at this time. Our group has
given blessings for the Software Publishers Association principles as a
vehicle for starting discussions, but we do not have a comprehensive set of
remedies at this time.
Q But the point is you want this press conference and this
effort - (inaudible) - to get the Justice Department to file a Sherman case
- is that right, Section One and Section Two?
MR. PETTIT: And to win it. And it -
Q Judge Bork, how do you expect to be involved in the weeks to
come in the legal strategy as it unfolds?
JUDGE BORK: I expect - you've stated what I expect to be doing: be
involved in the litigation strategies that unfold.
Q You will be writing briefs and so forth, or advising on them?
JUDGE BORK: I certainly intend that, yes.
Q Op-eds?
JUDGE BORK: Well, I don't know about writing op-eds. I may write
something about the challenge posed by networks, which is - why there isn't
a Microsoft case - I mean, there are other cases out there.
Q Could you talk about that a little bit?
JUDGE BORK: No, I don't think I - I have another client which is
interested in networks, and that is opposed to a network being used as it
is here. But I - since I haven't asked them if I should speak for them, I
think I had best not make public statements on their behalf.
Q You're talking to Justice?
JUDGE BORK: Am I?
Q Yeah.
JUDGE BORK: I hope to be. I haven't been - Netscape has talked to
Justice - or at least has made submissions to Justice - and I hope to make
a future submission.
Q And you will urge them in your submissions to file a case?
JUDGE BORK: I beg your pardon?
Q In your submissions then, will you urge them to file a case?
JUDGE BORK: If the facts warrant it, and I think they do, yes.
Q When does that actually - (inaudible) - ?
JUDGE BORK: Why would we discuss that?
Q It's -
JUDGE BORK: That's a kind of a -
Q The core of your involvement in - (inaudible) - is being
contested -
JUDGE BORK: Richard, that's right, but I don't understand why the
terms of my employment by Netscape are relevant.
Q Does that mean -
Q You don't want to answer it -
Q Does that mean you can't also tell us -
JUDGE BORK: Well, it's been a couple of months - I don't know.
Q Can you tell us how much that's worth or how much you get
paid for something like that?
JUDGE BORK: I could tell you that, yes. (Laughter.)
Q And are you retained for a year or is this sort of an ongoing
thing? How does something like that get set up?
JUDGE BORK: Something like that gets set up because you talk it
over and you go forward with it. If the case is over in less than a year
I'll be finished with it in less than a year.
Q Has the dynamics of networks that we are starting to see
cause you to rethink some of the doctrine that you -
JUDGE BORK: No, no. It - I think the closest case in terms of its
factual - I mean, Lorraine (sp) Journal I think is dead on point. But if
you take a look at Chicago Board of Trade, which is an old Brandeis
opinion, what Brandeis's opinion says is not terribly important here, but
that was a case in which the Board of Trade voted to limit price
competition to a certain part of the day, because there were four or five
warehouses who had most of a certain trading in grain. And what was true -
how could the Board of Trade force them to go along with this new rule
which prohibited them from competing overnight? Well, it's a network in
effect. They have to be on the exchange in order to compete effectively.
So even though they had superior efficiencies they had to give in to the
overwhelming size of the exchange - or, if you prefer, the network.
Q What do you think of what's being called the post-Chicago
School. Do you think it really is different? And if so are you part of
it? Are you part of the Chicago school of thought?
JUDGE BORK: Well, now, the post-Chicago school is noted primarily
for its errors. (Laughter.) There was an article I remember reading after
the Kodak case, an article called "The Post- Chicago School," or "After the
Chicago School." But then I argued and we won the cigarette case - Liggett
prominently and - (inaudible) - Myer Brook (sp) group I guess it's called,
which was a price predation case. And six of the nine justices agreed that
these low prices, some of which at sometimes were below cost, were not
predatory. And I take that to be a reinstatement of the Chicago school, as
you choose to
call it. Of course it's kind of a bit much to call it a school.
There are about three or four people who came out of Chicago who began to
apply standard microeconomic theory to legal concepts. And that I think
has revolutionized antitrust.
Q Well, it was an influential three or four. (Laughter.)
JUDGE BORK: Well, we hope so. No, I think we did change the way
antitrust was viewed. But I don't think there is anything post- Chicago.
There may be additional learning, but I don't think the Chicago outlook, if
you want to call it that, has been rejected.
Q Judge Bork?
JUDGE BORK: Yeah?
Q I can -
Q (Off mike)?
JUDGE BORK: Pardon me?
Q Would you assess the case as it has been going now up to this
point? (Off mike)?
JUDGE BORK: Well, they are - you mean tomorrow morning's -
tomorrow's argument in the court of appeals? No, I don't think it would be
prudent for me to begin discussing a case that is about to be heard by my
old court. I don't know which way my influence would run - (laughter) -
but -
Q To date, what is your impression of the case - (off mike)?
JUDGE BORK: Well, I don't see how I can discuss it "to date,"
without in effect saying what the Court of Appeals should do. That case is
not at the heart of what we are talking about here. That's a case about a
consent decree and about the hiring of a consultant - and none of that is
what I have been addressing here, which is the main antitrust thrust of
what I see. And that case does not involve, as I understand it, what I
have been discussing here.
Q Will you intervene? Will you be part of any intervention or
brief in that proceeding on behalf of your new client?
JUDGE BORK: It's a little late. (Laughter.) No, I know, but you
usually file an amicus brief or something of that sort well before the oral
argument. So I won't be doing that.
MR. PETTIT: If I could say one thing - I neglected to say this
before. In your press packets there are two papers that we would like to
have you take a look at. The first is a vision statement of our group -
and hopefully you've taken a look at that. There's also a
paper called "Crossroads" that is in there that we think describes
some of the problems that we see and some of the impediments to a
competitive economy.
I also wanted to introduce from the Software Publishers Association
Ken Wash (sp); from the Computer and Communications Industry Association Ed
Black; and also Christine Varney and Kevin Arquitte (sp) are in the back if
you have follow-up questions with lawyers that are involved in that case -
other matters.
Q Who wrote "Crossroads"?
MR. PETTIT: A number of people had a hand in "Crossroads," and it
has been a real collaborative effort that has been - we have been working
on for a long time.
Q (Off mike)?
MR. PETTIT: Our group stands behind it.
Q Mr. Dole is gone now, but we know that as far as representing
Netscape - (inaudible) - what Mr. Dole's position is here?
MR. PETTIT: Mr. Dole is a strategic adviser to Procomm, and we
will be working with him on a number of matters in the months to come. He
indicated he's talked to a fair number of people around the country about
convincing them that it's time for people that have concerns to speak out.
So that's one role that he will play, in addition to helping us with the -
Q Who - (inaudible) - ?
MR. PETTIT: Procomm.
Q Who is paying Procomm's bill?
MR. PETTIT: A number of member companies have contributed to this
effort, and a number of companies individually - we are working together
with a group that is comprised of some members that - Procomm hired some
talent, other individual companies hired lawyers, and we work together with
them. And, as indicated, there are a number of companies who choose to
remain silent partners who are contributing time and energy and resources.
Q In addition to approaching the Justice Department, does your
group and do you, Judge Bork, plan to approach state attorneys general with
regard to Microsoft's practices?
MR. PETTIT: We have been in discussion with state attorneys
general, and we are kept apprised of what they are doing, and certainly
provide information as they request it.
JUDGE BORK: Just for clarification, I have not been in touch with
any state attorney general. (Laughter.)
Q Judge Bork, recently Microsoft altered some of their
contracts with Internet service providers and content providers. Do you
feel like those contract alterations in any way go in the direction we'd
like to see in order to be - (inaudible) - ?
JUDGE BORK: Well, as I understand it - and I have to go find out
exactly what they have done and its impact - I have not done that yet. But
if they have dropped restrictions that they imposed, yeah, that would be a
good - that would be a good first step of a trip of many steps.
Q Do you have any other suggestions for other steps on that trip?
JUDGE BORK: Well, we're going to have to - I am going to have to
analyze something of the technology. I as a word processor I - my wife
gets on the Internet, but she'll have to teach me about it. There'll be -
the further steps will be analyzing the technology and the economics of
various practices - codes and so forth - and their impact upon competitors.
MR. PETTIT: I think we have time for one more question.
Q Judge Bork, if you've been that involved with Netscape for
the past couple of months, as you have said, why have you chosen now to
make your involvement publicly known?
JUDGE BORK: I was just asked to come and participate in this press
conference. There was no secret about my involvement with Netscape.
Typically, however, when a client retains you you don't hold a press
conference to say that I have been retained. (Laughter.) So I was asked if
I would appear here to discuss with you our legal analysis, and I agreed,
and here I am.
Q Thank you.
MR. PETTIT: Thank you very much.
END