MS didn't hurt nobody, and anyway it was scared – defence witness

Richard Schmalensee's deposition is heroic in both scale and, surely, chutzpah

Microsoft’s case for the defence began yesterday with a massive 328 page deposition from MIT’s Richard Schmalensee who – as conspicuously telegraphed by Microsoft on many a courthouse step – dismissed the government case as spurious. The core of Schmalensee’s pitch is that we should ignore the vast number of apparently damaging emails the DoJ has painstakingly assembled in an attempt to incriminate Microsoft, and focus instead on the real issue, which is whether or not Microsoft has used a monopoly position to damage its competitors. His argument – note that he is operating as an advocate of Microsoft, and is therefore arguing for the company – is that there has been no measurable damage done, QED there is no case to answer. One might suggest that this is a neat piece of footwork, but not quite neat enough. If we accept the pitch that no damage done equals no antitrust case to answer then we can indeed ignore documentation which indicates plans to inflict damage. But do we want to do that? And how do we decide whether or not damage has been done? These are holes in Schmalensee’s deposition which lawyers should be able to drive large tanks through. He argues that, as the Windows component of typical total system cost is less than 5 per cent, Microsoft’s pricing can’t be judged as being monopolistic. But this is surely a desperate thrust. Windows prices, as Microsoft OEM boss Joachim Kempin has made clear, is not going to go down with the fall in total system prices, so the take has already climbed way beyond 5 per cent. DoJ evidence also shows that Microsoft’s prices have increased over the years, while prices of other software and the base hardware have fallen. For his next trick, he points to what he says is a fundamental inconsistency in the DoJ’s case. It argues that Microsoft is a monopoly which keeps entry costs to its market high, while at the same time claiming that Microsoft is prepared to spend vast amounts of money because it’s scared of, say, Netscape. If it owns the market, why should it be scared? It clearly was scared, he says, and that explains the tone of so many of these emails. Microsoft isn’t a monopoly, and is constantly worried about losing business to rivals. “Microsoft itself was extremely insecure about its leadership in operating systems,” he says. Whilst retaining our usual impartial stance, we at The Register can’t help observing that this is gobsmacking stuff. But onwards and upwards. Schmalensee moves on to Netscape, pointing out that although the government argues that Microsoft has moved heaven and earth to destroy the company, Netscape has managed to increase users of Navigator by 14 million over the past two years, and adds that Microsoft’s requirement that OEMs ship IE with their machines actually increases the choice available to users. An interesting perspective, this. Microsoft’s attempt to flush Netscape out of the market clearly didn’t work anything like as effectively as the company anticipated, because although Netscape’s share has fallen, it’s been a long, hard slog for IE. But we don’t know where Netscape would be if Microsoft’s allegedly anticompetitive actions hadn’t taken place, and the notion that stitching up exclusive contracts and bundling deals amounts to offering more choice is bizarre. Is he drowning in his attempt to execute his pro-Microsoft brief? Similarly he cites AOL’s success and MSN’s failure as proof that placement on the desktop isn’t important, despite the fact that Microsoft’s high command was (and remains) convinced that control of the desktop is vital. AOL seemed to think it was important too, otherwise it wouldn’t have cut that deal with Microsoft that got it placement there in exchange for money and switching to IE. Schmalensee on the contrary says that the desktop isn’t a “particularly important channel of distribution.” Complete Register trial coverage

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