As most people now know, Judge Thomas Penfield Jackson has issued his ruling in the Department of Justice antitrust suit against Microsoft. He has accepted the government’s proposal to divide Microsoft into two companies and to place additional controls on the new companies. It is worth reviewing this proposal in light of the precedents it will create concerning the undue control of businesses and intellectual property.
Like all software makers, Microsoft has made its central investment in creating intellectual property. While the company has a large investment in real estate and equipment, the majority of its value lies in its software products. It has also built value into its name and logos.
A movie studio provides a reasonable comparison. For instance, a movie studio has substantial physical properties, such as its studio and facilities; it may also have theme parks. But even if those properties went up in flames tomorrow, the studio would still be worth billions of dollars. Why? First, it owns the rights to its movies. Entire libraries of movies can be shown to each new generation of viewers, as well as provide content for television and cable TV channels and the foundation for sequels. In addition, characters created and popularized by the movies are worth a mint in merchandising opportunities.
Microsoft’s wealth similarly lies in its copyright-protected products and trademarks. Customers recognize the flying window logo and know that a product has Microsoft’s stamp of approval. In addition, Microsoft’s software is not just valuable today, but has future value built into it based not just on additional sales, but on subsequent versions as well.
The government’s proposal to control Microsoft’s property undercuts these investments,investments shared by millions of shareholders as well. The proposal would violate the company’s property rights in at least two fundamental ways. First, one half of the company would be taken and spun off into a whole new company. The proposal calls for creating an IPO in which stock would be sold in the new company, and the people behind Microsoft would be forbidden from buying the new stock. This scenario could be compared to the government taking someone’s house without providing compensation.
In addition to this overt violation of property rights, the government plans to proscribe how the new Microsoft companies use their trademarked images. The proposal stipulates that Microsoft will be compelled to do business with certain companies and that those companies can change the image of Microsoft’s logo and the look of their software on the screen.
Several good comparisons come right from the high-tech world. Consumers and businesses alike often make computer and software choices based on brand recognition. They recognize the name and logo of the microprocessor maker, the computer manufacturer or the software company. Microsoft is certainly well known, but think of how many other high-tech companies enjoy instant name recognition based on years of investment in advertising and marketing, not to mention developing reliable, cutting-edge products. When consumers shop for technology, they look for familiar, trusted names and logos in the same sort of way that they look for their favorite fast-food restaurant when hunger strikes on a car trip.
Many technology leaders negotiate to have their logos and names put on other companies’ computers, software and Web sites, and Microsoft should be able to do the same. Any company that invests heavily in developing and promoting an image and name,”branding”,deserves to reap the rewards of its effort. The government’s proposal, however, prevents Microsoft from earning the full benefits of this intellectual property, too.
The proposed redistribution of Microsoft’s property far outweighs the issues of the antitrust trial, even if one accepts the judge’s decision,which is currently under appeal. The trial focused on one small area,the Web browser market and whether Microsoft had unfairly competed with another browser manufacturer. The judge even determined that Microsoft’s competitor was not prevented from distributing its product to every computer user.
The far-reaching “remedy” to divide Microsoft might be comparable to the government’s seizing first an individual’s car and then his house for a small and dubious traffic violation,20 mph through a blind intersection instead of 15 mph. This proposal should certainly be of concern to every U.S. business as well as any person who believes in the importance of property rights.
Zaremberg is president of the California Chamber of Commerce.
