MS/DOJ: Harm to buyers hard to prove

For 11 weeks now, the government has been building its case against Microsoft Corp., citing inflammatory company e-mail messages and videotapes of an evasive and testy CEO Bill Gates through seemingly damaging testimony. But as the government's final witness stepped down last week, a key question remained: Has all this testimony shown that Microsoft has harmed consumers?

For 11 weeks now, the government has been building its case against Microsoft Corp., citing inflammatory company e-mail messages and videotapes of an evasive and testy CEO Bill Gates through seemingly damaging testimony.

But as the government's final witness stepped down last week, a key question remained: Has all this testimony shown that Microsoft has harmed consumers?

"That is [the] Achilles' heel of the case, if there is one," said William Comanor, a former chief economist at the U.S. Federal Trade Commission and economics professor at the University of California at Santa Barbara. That question came into focus last week, the midpoint of the trial.

Microsoft began its defense with Richard Schmalensee, dean of the Sloan School of Management at MIT, who said Microsoft has helped consumers through product innovation, by raising the quality of products and by keeping its prices low.

It's expected that Schmalensee will be followed by a string of Microsoft officials who will be called to explain e-mail messages addressing Microsoft's effort to "wrest control" of Java and about contracts the government said were used as weapons against competition.

For instance, when Walt Disney Co. subsidiary Buena Vista Internet Group negotiated a deal to put an icon on Microsoft's Active Desktop, the agreement included an almost blanket prohibition that stops Disney from using Netscape Communications Corp. in any way to promote its product. "We are being roughed up by the 1,000-pound gorilla of the industry," said Steve Wadsworth, a Disney vice president, in a videotaped deposition. Fighting the exclusive contract charges "may be the toughest part of their case," said William Kovacic, a visiting professor at George Washington University Law School in Washington.

But beating up competitors is one thing; proving that those Microsoft contracts hurt the competition and harmed consumers "is the more difficult task," Comanor said.

That difficulty was illustrated last week by government witness Franklin Fisher, a professor of economics at MIT. He told the lead government attorney that, up to a point, he didn't think consumers had been hurt by Microsoft's conduct.

Microsoft, Fisher said, has used its operating system monopoly to protect itself from future threats. Consumers benefit from free browsers but may be hurt if browser competition disappears, he said.

But Fisher also argued that Microsoft is a monopolistic power that has hurt consumers by charging high prices for its operating system and by thwarting innovation. Corporate customers have been denied a choice in browsers because of Microsoft's integration of the software in the operating system, he said.

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