U.S. V. Microsoft : Breaking Up Should Be Hard to Do

After two years of litigation, the Department of Justice (DOJ) and the 19 states suing Microsoft have proposed draconian remedies (Plaintiffs Proposed Final Judgment 2000, hereafter, PPFJ) to address the violations of the Sherman Act found by Judge Thomas Penfield Jackson (Conclusions of Law 2000). The centerpiece of the proposal - breaking Microsoft into two companies, with one owning the operating systems and the other with applications and everything else - bears virtually no relationship to the anticompetitive acts found by Judge Jackson. It is based on new reasoning offered by Plaintiffs' economic experts, none of whom testified during the liability phase. Moreover, the underlying logic conflicts with the theories used to find Microsoft liable. This paper analyzes the likely consequences of the proposed remedy. In addition, the author considers a remedy offered by Robert Litan and William Nordhaus - a remedy that would split rights to Microsoft's operating systems among three separate companies, in addition to breaking off applications. The next section provides a framework for analysis and a brief review of the evidence of consumer harm. The author then reviews the DOJ remedy and the proposal by Litan, Noll, Nordhaus and Scherer (Litan et al. 2000, Litan and Nordhaus 2000). Finally, concluding remarks are offered