9 February 1998
Source: http://www.access.gpo.gov/su_docs/aces/aces140.html

-----------------------------------------------------------------------

[Congressional Record: February 5, 1998 (Senate)]
[Page S413-S418]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
[DOCID:cr05fe98-129]


                               MICROSOFT

  Mr. GORTON. Mr. President, while the Senate is conducting its morning
business, a conference is being held in Georgetown by the Progress &
Freedom Foundation (PFF) on an issue that has gotten a great deal of
attention over the past few weeks. From the conference title--
Competition, Convergence and the Microsoft Monopoly--one might be
deceived into believing these are frightening times for American
consumers.
  Any fears about the success of Microsoft isn't coming from those who
buy Microsoft products, but from frustrated competitors. While I don't
dismiss the concerns expressed by anti-Microsoft factions, their
arguments certainly lack force when consumers appear to be so
completely uninterested in this tale.
  In fact, that's the untold story in the drama of the past several
months--what does the consumer think of all this? How are American
consumers being impacted? These questions are appropriate when you
consider that the anti-trust laws of this country came into being to
encourage competition and to protect consumers, not to settle bickering
among business competitors.
  Unfortunately, a lot of words have been printed and broadcast on this
subject, but we've hardly heard a peep from the people who matter
most--the consumers. This concerns me precisely because it appears that
so many people

[[Page S414]]

participating in this dispute have already decided who gets to wear the
black hat, and who the white.
  At this morning's event my colleague from Utah, Senator Hatch, who
chairs the very committee that exercises jurisdiction over the
antitrust laws, spoke to the PFF conference about the Microsoft
dispute. Normally, I don't keep track of where my colleagues make
speeches and what they speak about, but because Senator Hatch has been
quoted in the news media as taking a very hard anti-Microsoft line, I
feel compelled to share some of his statements with my colleagues and
rebut some of the criticism that he, and other Microsoft critics, have
tossed out in the past several weeks about one of America's most
visible, and successful, companies.
  On Jan. 25th, Senator Hatch spoke at length to the San Jose Mercury
News about Microsoft and his competitors, and I was surprised by the
tone of his remarks. The newspaper quotes Senator Hatch as saying, ``if
Microsoft has engaged in driving out competition, and I think it has--
most everybody who's looked at it carefully believes it has--and takes
control of (Internet standards), they're going to exercise a tremendous
amount of control over Internet content and commerce.'' Senator Hatch
goes on to say, ``if they're using anticompetitive practices to achieve
that, it's wrong--and we have to do something about it.''
  In light of Senator Hatch's comments, I am concerned about how
Microsoft is treated on Capitol Hill. Fortunately, Senator Hatch has
promised that the Judiciary Committee has no intention of interfering
with [the Microsoft litigation] and as our examination goes forward, we
will work in a bipartisan manner to ensure that it continues to be fair
and balanced. (Feb. 3 letter to Gorton/Murray)
  I appreciate this statement, but I must admit it concerns me when he
speaks at a conference that refers to Microsoft as a ``monopoly.''
  Having said that, I would like to begin my comments on the Microsoft
investigation by making a couple of points:
  First, the question of whether the company has violated antitrust
laws is something of an abstract question that has been posed, not by
American consumers, but by Microsoft's competitors. I believe that to
be the key of this entire discussion, and why I feel so strongly that
Microsoft is being treated unfairly. This isn't an effort led by those
who purchase software products . . . if it were, you can be sure that
my attitude would be much different . . . this fight was started by
those who must compete with Microsoft, which, in my opinion, makes it
very hard for those individuals and companies to make an argument that
is not completely driven by their self-interest.
  Let's remember why we have anti-trust laws in this country--these
laws weren't written to preserve unsuccessful competitors; they were
written to encourage competition, and thereby protect consumers. And to
date, I haven't seen one bit of evidence to support the theory that
consumers are being hurt by Microsoft's success, or the success of any
other company in the software industry.
  Second, as a former state attorney general, I support government
enforcement of antitrust laws, but I cannot support the DOJ's attempts
to restrict Microsoft's ability to produce and market the full-featured
products its customers demand. Product design decisions should be made
by software developers responding to consumer demand in the
marketplace, not by governmental agencies.
  And so on behalf of the American consumer, indeed the American
economy, I'd like to review a few facts that we simply should not
overlook today.
  From 1990 to 1996, the number of software companies in the United
States grew 81 percent, from 24,000 to 44,000 companies.
  During the same period, employment in the American software industry
grew 70 percent, to more than 600,000 jobs today.
  The industry generated direct wages of more than $36 billion in 1996,
and another $83 billion in related sectors of the economy.
  It generated $7.2 billion in taxes paid to federal and state
governments, and another $7.9 billion through the ``ripple'' effect.
  Venture capital investment in new technology companies is at an all
time high--$2.4 billion invested last year alone.
  Prices for personal computer hardware and software are constantly
falling. Where a single Microsoft application such as Microsoft Word
cost $399 in 1990, today consumers can acquire all of Microsoft Office
(which includes word processing, spreadsheet, presentations, scheduling
and other functionality) for just $499 at retail.
  If Microsoft's competitors are right, how could all of that success
taken place? Wouldn't logic tell us that if a ``Microsoft Monopoly''
actually existed, prices would be higher, job growth would be lower,
and venture capital investment would be next to nothing? Yet, the facts
show the opposite course.
  Also, I think it's important to remind ourselves that all of these
accomplishments took place without government regulation or
interference.
  Let's review that again: Competition in the American software
industry is not only healthy but vigorous. America leads the world.
Innovation is at an all-time high. Employment is flourishing. Prices
continue to fall for consumers and businesses alike. Productivity is
skyrocketing. And barriers to entry for any company or individual that
wants to compete in this industry are low.
  The principal assets required to create software are human
intelligence, creativity and a willingness to assume entrepreneurial
risk. All of the hallmarks of a thriving, healthy industry are in place
in America's software industry.
  Let's return now to this question--what is the basic goal of
antitrust law in America?
  I believe that the basic goal of our anti-trust laws is to promote
competition, thereby insuring that consumers benefit from the
widespread availability of goods and services at fair prices. Often
competition is vigorous, but the fact that certain companies perform
better than others is no reason to doubt that consumers benefit greatly
from their success. As many courts have recognized, all companies
should strive to do as much business as they can, even if that means
taking business away from rivals, because it is that quest that causes
the creation of new and better products offered to consumers at
attractive prices.
  So, why are a handful of Microsoft's competitors so successful at
scaring up government investigations, public policy debates and media
scrutiny? One might argue that all of these incredible statistics that
I've just reviewed are somehow skewed because Microsoft is really the
only beneficiary. In other words, all of the benefits accrue to
Microsoft. Well, that's just wrong. Once again, the facts tell another
story:
  The top 20 companies in the industry account for only 42% of the
total revenues from packaged software sales--demonstrating that the
software industry is highly competitive and decentralized.
  Microsoft represents less than 4% of total worldwide software
industry revenues. In 1996, total software industry revenues were $250
billion; Microsoft's portion was less than $10 billion. How can there
be a ``Microsoft Monopoly'' if Microsoft accounts for less than 4% of
industry revenues? If such a monopoly existed, shouldn't that
percentage be more like 60%, 70%, 80% or higher?
  But what about Microsoft's dominance in the PC software space? Well,
a few more facts:
  In online services, Microsoft represents only 9.8 percent of the
online services sector. America Online has 75 percent.
  Database software: Microsoft represents only 6 percent of the
database software sector, compared to Oracle's 30 percent share.
  E-mail software: Microsoft represents only 14 percent of e-mail
software revenues, compared to 43 percent for IBM/Lotus.
  Server operating systems: Microsoft represents only 27 percent of
server software revenues, compared to 41 percent for Novell.
  Again, where is the monopoly? Percentages of 9.8, 6, 14 and 27 hardly
sound like monolopies to me.
  So we're still left to ponder, why the fuss over Microsoft, given all
of this good news? This is the question so many in the media are
striving to answer. The New Republic recently attributed it to techno-
angst--society's

[[Page S415]]

anxiety about the Information Age and its desire to focus that angst on
someone or some company.
  I think a more plausible answer is a coordinated PR and lobbying
campaign by a handful of Microsoft's competitors. Two weeks ago, the
author and management guru James Moore wrote in The New York Times:

       The courtroom drama played out in Washington in recent
     weeks concealed what was happening backstage: a small number
     of companies that compete with Microsoft have managed to make
     the Federal Government an unwitting tool of their narrow
     competitive objectives.
       These sorts of unholy alliances almost always lead to bad
     policy. If users are better served, if the cost of software
     is reduced and if new layers of information-industry
     innovation are built, a strong argument can be made that the
     public good is being achieved without Government
     intervention.

  The public good is being achieved without Government intervention.
This cannot be overemphasized. The Progress and Freedom Foundation has
played an important role in developing intelligent public policy with
an eye toward limiting the role of government in markets. In 1995, PFF
published a major study on the need to replace the FCC and
substantially deregulate the telecommunications marketplace. Today, PFF
is conducting a major project designed to limit government interference
in the market for digital broadband networks. I applaud PFF's efforts
on behalf of the free market in those industries, and am somewhat
mystified by the organization's apparent inconsistency with regard to
Microsoft and the software industry. Based on the organization's past,
I simply want to encourage the Progress and Freedom Foundation to
remain steadfast in its belief in the American marketplace.
  Now, I'd like to turn for a moment to addressing some of what I will
call the myths out there about Microsoft. I think it's important that
we deal with some of the less scholarly thinking and ideas up front.
  Myth #1: Microsoft is somehow going to control access and commerce on
the Internet.
  I was amused to see a press release earlier this week from the New
York Attorney General's Office making this claim. It's almost as though
the PR campaign being championed by several Microsoft competitors who
have decided these buzzwords have the most media appeal. Anyone who
goes out onto the Internet to find the world of knowledge and
information available there knows that no one will ever control access
and commerce on the Internet. Such a thought is as laughable as
suggesting one company will control all commerce and information in the
world. The Internet is a vast information source that will continue to
grow and expand. No company will ever represent more than a tiny
fraction of all the commerce and all the content available on the
Internet.
  Myth #2: Some companies are afraid to come forward with complaints
about Microsoft because they are afraid that Microsoft will use its
dominance in the marketplace to punish them.
  My colleague, the chairman of the Judiciary Committee, Senator Hatch,
has made this charge himself in interviews with the news media. This is
a serious accusation but one that is also baseless. Microsoft has gone
so far as to give the Justice Department a letter that it can present
to anyone and everyone doing business with the company encouraging them
to cooperate with the DOJ on its investigation. Microsoft has been
extremely cooperative for years with the DOJ. And it would be out of
character for Microsoft--a company that values its partners--to make
this an issue with them.
  Myth #3: Microsoft's license agreements with Internet Service
Providers unfairly force ISPs to promote only Internet Explorer, and
prohibit ISPs from even mentioning the existence of Netscape Navigator.
  Like PC manufacturers, ISPs know and understand their customers. They
provide their customers with choice--whether it's Internet Explorer,
Navigator or some other product. Microsoft has no exclusive
arrangements with ISPs. This is a non-issue.
  Myth #4: Microsoft is entering into proprietary agreements with
Content Providers to create popular websites that can only be viewed
using Microsoft's browser.
  Let me be absolutely clear. A consumer can use any browser he or she
wants to view any material on the Internet. A content provider may
choose to take advantage of technology available in either Internet
Explorer or Navigator to make their content even more compelling.
  Content providers like Warner Brothers want to reach the most
customers. They aren't looking for exclusionary technology. They are
looking for the best technology to serve their customers. Right now
Warner Brothers believes that Microsoft has the best technology. There
are other content providers that believe Netscape has the best
technology. That's what competition is all about. This is similar to
saying that manufacturers of VHS videocassette players entered into
proprietary deals with Hollywood studios to force their movies on VHS
tapes rather than Beta tapes. Just as VHS and Beta were competing
standards, so too are Internet Explorer and Netscape Navigator. May the
best technology win.
  Myth #5: The Justice Department is working to restore choice for
consumers.
  This is disingenuous at best. Consumers have always had choice.
Netscape and thousands of other software programs run wonderfully on
Microsoft Windows. In fact, the great untold story is how Microsoft
spends more than $65 million and 1,000 Microsoft employees to work with
its competitors to build great software applications that run on
Windows.
  It's important to understand these myths. Sound public policy must be
based in fact, not competitive rhetoric.
  These are exciting times for American consumers and for American
business. Microsoft's business model, which is focused on rapid product
development, broad distribution at low prices and close collaboration
with hardware and software vendors, is helping to drive demand through
the high technology sector. We are seeing upgrades to
telecommunications networks--telephone, cable, satellite and wireless--
the introduction of new types of devices such as hand held computers
and automobile PCS--and the creation of innovative new software to make
these networks and devices improve the lives of all consumers.
  New technologies and new ideas are being introduced at a dizzying
pace--led largely by innovative and highly competitive American
companies.
  I've spoken today about the American consumer and the American
software industry. I'd like to conclude by talking a little about
Microsoft. You can hardly talk about innovation and competition without
focusing on Microsoft. It's founder, Bill Gates, is one of the true
visionaries of the Information Age and his company has produced
technology that will forever change the way we work, play and think.
  I have enjoyed watching this phenomenal man and his company for many
years. And over those years, I have seen Microsoft remain committed to
four very important business principles that have guided the company
since its founding:
  1. Microsoft builds software that improves the quality of people's
lives. Bill Gates' vision of Information at Your Fingertips brings
businesses closer to their customers, voters closer to their elected
officials, doctors closer to their patients and teachers closer to
their students.
  2. Microsoft listens closely to its customers and focuses on how it
can do a better job. If you want to know the true secret to Microsoft's
success, look at its intense focus on incorporating customer feedback
into its products.
  3. Microsoft believes that innovation is at the heart of its future.
Microsoft will spend more than $2 billion this year on research and
development. More than 16 percent of its revenues are dedicated to R&D.
Its competitors, Sun and Oracle will spend about 8 percent of revenues
on R&D.
  4. Microsoft partners with many companies, large and small, who share
these principles. Microsoft's thousands of partners are in every state
in America--independent software vendors who build great software
products for the Windows operating system, PC manufacturers, solution
providers who support and implement Microsoft technology solutions and
many other partners.
  In conclusion, I believe that a review of the facts shows that the
American

[[Page S416]]

software industry is healthy, vigorous, innovative and continually
improving the lives of American consumers. Microsoft is one of many
aggressive and innovative companies in this industry. Its leadership is
an asset for the nation. Its leadership is also not guaranteed. In any
dynamic, innovative industry such as software, your position in the
market is only as strong as your last product release. The competitive
threats to Microsoft are real.
  As PFF, the participants at its conference, and many of my colleagues
know all too well, it is the marketplace, not government regulation
that will ensure continued innovation and consumer benefits.
  Mr. HATCH. Mr. President, I ask unanimous consent that an address I
gave to the Progress and Freedom Foundation be printed in the Record.
  There being no objection, the address was ordered to be printed in
the Record, as follows:

    Address of Sen. Orrin G. Hatch before the Progress and Freedom
                      Foundation February 5, 1998

                      Antitrust in the Digital Age

       Good morning. It is a true pleasure to be with you this
`    morning and to be included in such a distinguished group of
     leading economic and antitrust thinkers. I know that, given
     the early hour, some of you no doubt are looking for some
     eye-opening comments. Well, I hate to disappoint, but, let's
     not kid ourselves folks, this is antitrust we're talking
     about, so I hope you've had your coffee.
       Seriously, though, I would like to applaud the Progress and
     Freedom Foundation for convening this symposium, as well as
     those who have focused their intellectual energies on the
     topics to be discussed today.
       It is, I believe, no overstatement to say that the so-
     called Digital Revolution is one of the most important
     economic developments of our age, one which promises to
     fundamentally change our economy, our business, and our daily
     lives.
       Just when I have finally mastered how to set the clock on
     my VCR, I discover that it won't be long before I'll be
     watching movies off the Internet, not my VCR. Now I'm really
     beginning to understand that ``virtual reality'' means
     something more than simply getting up in the morning.
       These rapid changes present numerous challenges to
     policymakers who are seeking to understand what, if any, role
     the government should play both in the transition to our new
     digital economy and in the new economy itself. These changes
     present challenges to policymakers who are seeking to ensure
     that, where there truly is a productive role for government,
     this role is both limited and effective.
       While of course the Digital Revolution impacts numerous
     policy areas, I believe that, ranking high among those is the
     task of understanding the proper role of antitrust in high-
     technology markets. I promise to keep my comments brief this
     morning, but thought I would spend a few minutes discussing
     why I believe it is important for antitrust policymakers, law
     enforcers, and intellectuals to engage in a serious
     examination of market power and structure, and the proper
     role for antitrust enforcement, in the Digital Age.
       Make no mistake about it--these are difficult issues.
     Anyone who suggests that the answers are easy cannot be
     taking the issues very seriously. But anyone who suggests
     that these are not serious policy issues, worthy of debate
     and study, has, for one reason or another, chosen to ignore
     reality.
       But, the difficulty of the questions should not deter us
     from seeking answers. And, especially given the breathtaking
     pace by which technology is advancing, it is imperative that
     we search all the more diligently and assertively.

                     I. Antitrust and Free Markets

       While there has always been, and probably will always be,
     considerable debate about the proper role of antitrust
     enforcement, it is important to note here something that just
     about everybody agrees with: some degree of antitrust
     enforcement is important to protecting our free market system
     and the consumers that system is meant to benefit.
       Thus, most who, like myself, trumpet the free enterprise
     system, also recognize that proper antitrust enforcement
     plays an important role in protecting free markets. Let me
     repeat that. Proper antitrust enforcement plays an important
     role in protecting free markets.
       From Adam Smith to Robert Bork, free market, free-
     enterprise proponents have long recognized as much. So let me
     debunk the myth that economic conservatives do not believe in
     antitrust. To the contrary, we believe strongly in
     antitrust--so long as the role of antitrust is understood
     properly and not overextended.
       Properly conceived, the role of our antitrust laws is to
     maximize consumer welfare--allowing the marketplace to work
     its will so that the products consumers want can be produced
     in an efficient fashion and offered at competitive prices.
     The basic premise is that antitrust protects ``competition''
     in the marketplace, and that a competitive marketplace
     enhances consumer welfare. In a properly functioning
     competitive market, consumer choice dictates which products
     will be produced and sold, and competition among firms
     determines who will make them and at what price. Consumer
     welfare is maximized, and society's ``pie'' is larger.
       At the same time, though, our society and our antitrust
     laws recognize that markets will not always operate freely
     and achieve their objective of maximizing consumer welfare.
     The reality is that, in some circumstances, private market
     power can distort the workings of the marketplace and, as a
     consequence, can hurt consumer welfare by raising prices,
     restricting consumer choice, or stifling innovation. This is
     where antitrust steps in.
       As Judge Bork has written, proper antitrust enforcement
     actually ``increase[s] collective wealth by requiring that
     any lawful products . . . be produced and sold under
     conditions most favorable to consumers . . .. The law's
     mission is to preserve, improve, and reinforce the powerful
     economic mechanisms that compel businesses to respond to
     consumers.'' That's an important point--preserving ``economic
     mechanisms that compel businesses to respond to consumers.''
     [The Antitrust Paradox at 91 (1993).]
       The $64,000 question, though--or, perhaps in today's
     context I should say the $300 billion question--lies in
     defining what actually injures consumer welfare, calling for
     antitrust enforcement. For it is not enough to say that any
     reduction in the amount of rivalry in a particular industry
     reduces competition, injures consumers, and should be stopped
     by antitrust laws. The very nature of competition and
     capitalism is for firms to beat each other in the
     marketplace. While this process--competition--certainly
     benefits consumers, its natural outcome is that the firms who
     succeed do so at the expense of other firms. [See id. at 49.]
       Antitrust law certainly cannot be about punishing winners
     or protecting losers. The goal is not simply to identify
     practices that reduce competition or rivalry. Rather, it is
     to identify when the exercise of market power impedes markets
     from operating freely and, as a consequence, hurts consumers.
       Where such situations can be identified, antitrust has the
     additional burden of identifying effective remedies that
     actually benefit consumers and are not more costly than the
     so-called anticompetitive practices identified in the first
     place. This sounds pretty simple, but it is not, especially
     when you are dealing with highly complex, fast-moving
     marketplaces such as high technology.
       But it is my hope that those participating in this
     symposium today will help those of us in policymaking or
     enforcement positions arrive at the right answers. For
     getting the answers right is, I would argue, more important
     now than ever, especially with respect to these markets which
     will be the key to our economy for years to come.

       II. The Importance of Antitrust to the Digital Revolution

       The stakes are high, because ill advised antitrust policy,
     whether it is overly aggressive or overly timid, could have
     drastic consequences for the future of our economy. I would
     like to spend the rest of my time this morning explaining why
     I think understanding and implementing appropriate antitrust
     policy for the digital marketplace is a singularly important
     policy issue.
       1. First is the very simple fact that high technology
     represents the most important sector of our economy. High
     technology is the single largest industry in the United
     States, leading all other sectors in terms of sales,
     employment, exports, and research and development. [American
     Electronics Association. ``Cybernation,'' 1997.]
       Perhaps more importantly, high technology is the key to the
     development of our future economy. Not only will
     technology continue to be one of the driving forces behind
     our economy's growth, but it also will drive the
     development of the Internet, the ``Information Highway,''
     which, by all accounts, will fundamentally alter the way
     we do business.
       Even Congress, which has traditionally been an institution
     of Luddites, is getting into the swing of things.
     Communication and accountability to our constituents is much
     improved by web sites and e-mail. Although, come to think of
     it . . . we may want to rethink this e-mail thing. Now we get
     feedback instantly--not even a grace period.
       The future direction of the Internet will be shaped in no
     small part by events occurring in today's marketplace. A
     handful of developments in today's marketplace could, I
     believe, have tremendous impact on the Internet, electronic
     commerce, and information technology as a whole, for years to
     come.
       2. Which brings me to my second, somewhat related reason
     for suggesting that antitrust enforcement in high technology
     is a vitally important policy issue. We are currently in the
     midst of important structural shifts in the computing world.
       Given the unique nature of high technology markets, it is
     with respect to precisely such technological paradigm shifts
     that healthy competition and effective antitrust policy is
     most important. Allow me a moment to elaborate on this point,
     which I believe is a fundamental and important one.
       As many economists and capitalists alike have come to
     recognize--including, I might note, many of today's
     participants, and software industry leaders such as Bill
     Gates--the economic dynamics in so-called ``network'' markets
     such as the software industry often allow individual firms to
     garner unusually large market shares in particular segments.
       Most who have studied such markets closely, agree that the
     cyclical effects of network

[[Page S417]]

     effects or increasing returns can translate early market
     leads into rather large market dominance, if not de facto
     monopolies, as well as a significant degree of installed base
     lock-in. This in itself is not anti-competitive when it
     results from proper market behavior.
       While lock-in effects and single firm dominance of
     particular sectors certainly render a market less than
     competitive, and consequently has costs in terms of consumer
     welfare, it also produces an important positive effect.
       When one firm dominates the market for a product which
     serves as a platform--a product to which other software
     developers will write their programs--that firm creates a de
     facto standard, a uniform platform. Software developers thus
     are not faced with the cost, in terms of time and resources,
     to develop applications that run across a variety of
     platforms. This can lead to significant boosts in
     productivity and innovation.
       Indeed, this is precisely what we have seen with respect to
     Microsoft's successful establishment of the Windows monopoly,
     which, by creating a uniform platform for software
     developers, has had a tremendous effect in the recent boom in
     software applications and the software industry generally.
     Even those who are concerned about Microsoft's exercise of
     its vast market power must enter this efficiency gain in the
     ``plus'' column of their consumer welfare calculation. The
     fact of the matter is that Microsoft and the success of
     Windows has been an important ingredient in the innovation
     and wealth creation our software industry has produced over
     the past decade or so.
       So, if a single firm's domination of a particular sector at
     a particular point in time might be the result of perfectly
     rational market behavior, and indeed may have some economic
     benefits, where do we go from here? Does this mean that
     antitrust is useless, irrelevant, or even counterproductive
     in high technology markets? To some extent, perhaps. On
     balance, the antitrust machinery in Washington, D.C. probably
     shouldn't concern itself with every technology market which,
     at a particular point in time, is dominated by a particular
     firm to an unusual, even unhealthy extent.
       Where antitrust policy should focus, I would propose (with
     a large footnote to the Judiciary Committee testimony of
     Professor Joseph Farrell, and other economists who have
     studied these markets), is on the transition from one
     technology to the next--on so-called paradigm or structural
     shifts in computing.
       While it may be likely and even, to a degree, useful, to
     have a particular firm dominate a particular segment at any
     point in time, it is dangerous, unhealthy, and harmful to
     innovation and consumer welfare where that firm can exploit
     its existing monopoly to prevent new competitors with
     innovative, paradigm shifting technologies, from ever having
     a fair shot at winning and becoming the new market leader or
     de facto standard.
       This is especially the case where a single firm exercises
     predatory market power to prevent healthy competition over a
     series of structural computing shifts. Where this is so, one
     would imagine that investors and innovators would find other
     things to do with their time and money than to try to compete
     with the entrenched firm to establish an important new
     technology. Innovation is chilled, and the consumer suffers.
       The critical question, then, is how a dominant or monopoly
     firm exercises its market power, even if fairly and naturally
     obtained, with respect to the new guy that comes down the
     pike offering an innovative, potentially paradigm shifting
     technology. Does this new firm, offering a new technology
     that may compete with, replace or otherwise threaten the old
     firm's entrenched monopoly, have a legitimate opportunity to
     compete in the marketplace?
       To borrow a phrase recently attributed to Professor Carl
     Shapiro, do innovative start-ups get a ``market test,'' or
     are they ``killed in the crib before they get a chance to
     become a core threat?'' [Steve Lohr with John Markoff, ``Why
     Microsoft is Taking a Hard Line with the Government?'' The
     New York Times, January 12, 1998 at D1.]
       In high-technology markets displaying a high degree of
     single-firm dominance, this is perhaps the most important
     question for antitrust policymakers and enforcers:

       To what extent are innovators who offer potentially
     fundamental changes to the nature of computing given a fair
     ``market test,'' and just what practices by the entrenched
     firm should be considered anticompetitive or predatory
     efforts to foreclose the opportunity for such a genuine
     market test?

       I believe this is precisely the question--or one of the
     questions--presented by Microsoft today and is one of the
     reasons why Microsoft in particular inescapably invites
     scrutiny in the course of assessing competition policy in
     this digital age.
       Of course, while antitrust policy in the Digital Age
     encompasses more than scrutiny of a particular firm, the fact
     remains that Microsoft in particular does raise a handful of
     questions, given its dominance of the desktop, together with
     its admitted effort to coopt important paradigm shifts and,
     in the process, extend its dominance to a number of new
     markets.
       The Internet generally and, more specifically, the
     potential promise of browser software, and object-oriented,
     ``write once, run anywhere'' software, represent important
     and possibly critical developments for the computer industry.
     Both the possibility of a new, browser-based platform and
     interface, and the possibility of a programming language that
     is genuinely platform independent, able to interoperate with
     any type of operating system, could fundamentally change the
     nature of computing.
       Among other things, both of these developments, likely
     representing the next generation in computing, introduced a
     serious threat to Microsoft's desktop dominance. As we all
     now know, Microsoft has clearly come to recognize as much.
       Thus, with respect to both the so-called ``browser wars''
     and the battle between Java (Sun's essentially open
     programming language) and ActiveX (Microsoft's proprietary
     alternative to Java), we see Microsoft in a fever pitched
     battle to control two potentially fundamental technological
     developments and to prevent new technologies, developed by
     other firms, from undercutting the current desktop monopoly
     Windows enjoys.
       I am confident that nobody from Microsoft would dispute
     this assertion. Nor should they. Microsoft has all the right
     in the world not to be asleep at the switch and allow a
     fundamental, structural technology shift from undermining its
     current dominance of the software market. Its shareholders no
     doubt would demand as much.
       At the same time, this is precisely where the practices of
     a currently dominant firm, such as Microsoft, must be
     scrutinized, and where the appropriate rules of the road must
     be clarified and enforced. Tying arrangements, free product
     offerings, licensing or marketing practices that are
     effectively exclusionary--these and other practices may be
     entirely appropriate in most instances.
       But the question that, in my view, must be addressed is
     whether such practices, when engaged in by an entrenched
     monopolist with respect to paradigm shifting innovations,
     have the predatory effect of foreclosing innovators from
     getting a fair market test. Where they do, I would suggest
     that we have a significant market imperfection which impedes
     innovation, and in the process hurts both the industry and
     the consumer.
       The questions that I believe law enforcers and policymakers
     must address are first, how to identify when particular
     practices have such an effect; and, second, whether our
     current antitrust regime adequately guides industry as well
     as the courts and the enforcers to reach the right answer in
     a timely fashion. These are some of the questions I plan to
     give close scrutiny in the coming months, and which I hope to
     learn more about from today's presenters and panelists.
       Answering these questions, and coming up with the proper
     policy and/or enforcement solutions, is more important now
     than ever. The market battles being waged today are likely to
     have significant consequences for the Digital Age tomorrow.
       3. Which brings me to my third and final reason why I
     believe sound antitrust policy is so critically important to
     the Digital Age: because it could prove critical to the
     growth of a free and open Internet.
       Interfaces. In the proper hands, software interfaces are
     everything. To oversimplify somewhat grossly, software
     interfaces refer to certain critical external links or hooks
     in a software program that permit other programs to
     communicate, and therefore interoperate, with the first
     program. Because interfaces are the key to interoperability,
     and interoperability is the key to software markets,
     relentlessly aggressive, savvy companies with vast resources
     can be quite successful at translating the control of a
     critical interface into control of the markets on either side
     of the interface.
       And the ultimate interfaces are the interfaces to Internet
     access and content.
       Microsoft has made no secret of the fact that it has made
     dominating the Internet space a corporate priority. And I
     credit them for it. Any genuine free-marketeer, any genuine
     capitalist, must admire the efforts the company has recently
     taken to go after what Microsoft itself has called the huge
     ``pot of gold'' the Internet represents.
       Like many, I cannot help but admire and applaud Microsoft's
     drive to pursue this vision. Whether it be a no-holds barred
     approach to competing with alternative browser vendors,
     seeking to control Web software programming and tools markets
     with proprietary products, buying the intellectual property
     of WebTV, making large investments in the cable industry
     while vying to control the operating systems of cable set-top
     boxes, linking Internet content to the Windows desktop, or
     any other of a handful of aggressive steps to control the
     groundwells, plumbing and spigots of the Internet, one can
     hardly question Microsoft's ambition to dominate the Internet
     space, or their business savvy in getting there.
       Just how much control over the Internet Microsoft will
     exercise is anyone's guess, and I certainly do not pretend
     that I know the answer. But many certainly do believe that
     this is what Microsoft is out to achieve, in effect a
     proprietary Internet, and that the answer lies in the outcome
     of market battles which are being waged right now. For
     controlling the key Internet interfaces is a critical step to
     controlling much of the Internet itself.
       This, then, is my third reason for why properly calibrated,
     vigilant antitrust enforcement is all the more imperative
     today. In the end, the marketplace should be permitted to
     choose whether it wants a proprietary Internet. I think I
     know what the answer would be. But I can assure you that, if

[[Page S418]]

     one company does exert such proprietary control over the
     Internet, and the Internet does in fact become a critical
     underlying medium for commerce and the dissemination of news
     and information, rest assured that we will be hearing calls
     from all corners for the heavy hand of government
     regulation--for a new ``Internet Commerce Commission.''
       It seems far better to have antitrust enforcement today
     than heavy-handed regulation of the Internet tomorrow.
       So, let me suggest to those of you who abhor the regulatory
     state that you give this some thought. Vigilant and effective
     antitrust enforcement today is far preferable than the heavy
     hand of government regulation of the Internet tomorrow.

                            III. Conclusion

       In closing, I would like to come back to what I said at the
     outset. These are difficult, but very important, policy
     issues. Because of what is at stake, effective and
     appropriate antitrust policy is critical to our digital
     future. Antitrust policy that errs on either side--be it too
     aggressive or too meek, could have serious consequences. But
     because of the uniqueness, and the complexity of high
     technology markets, discerning the proper role for antitrust
     requires some fairly hard-headed analysis.
       Those who dismissively say that technology is complicated
     stuff that changes like quicksand are in a sense correct.
     But, is the answer, as has been suggested by some politicians
     and other new-found friends of Microsoft here in Washington,
     simply to throw up our hands and move on to other, easier,
     and less sensitive issues? Hardly.
       Rather, let me suggest that the answer is to make sure that
     the rules of the road are the right ones, and that the
     referees do a good job enforcing them, when and where it is
     appropriate. Antitrust policymakers and enforcers should not
     shirk their duties just because the task is a hard one.
       I have a great degree of confidence that the current head
     of the Antitrust Department is up to the task, and, as
     Chairman of the Committee with antitrust and intellectual
     property jurisdiction, I plan to do what I can to ensure that
     the rules are being applied both fairly and effectively. We
     in Congress not only can, but in my view must, ask the
     questions and help ensure the right answers.
       Toward this end, I would like again to thank the Progress
     and Freedom Foundation, and those who have dedicated the time
     and intellectual effort to these difficult questions, for
     taking a very productive step in this process of
     understanding and implementing a sound, effective role for
     antitrust policy in the Digital Age. I expect that we all
     will learn a great deal from what I trust will be a vibrant
     and energetic discourse throughout the remainder of the day.

  Mr. GORTON. Mr. President, I want particularly to thank my friend
from Nevada for agreeing to let me proceed.
  The PRESIDING OFFICER. Under a unanimous consent request, the Senator
from Nevada is recognized for up to 15 minutes.
  Mr. REID. I say to my friend from Washington, it was a pleasure to
yield that time and to listen to his statement, which was typically
much like the Senator from Washington; it was very thorough and
educational for me.
  Mr. President, I ask unanimous consent that following my statement,
the Senator from California be recognized for 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________
