Tough solutions at Microsoft

While it hasn’t got too much media attention in India, much of the US is waiting with bated breath for the imminent ruling of the federal appeals court reviewing the Microsoft anti-trust case. Based on the tough questioning of the government’s case in February, legal analysts are of the view that the court will over-turn at least some part of Judge Jackson’s findings that led to the ruling that Microsoft be split. Penfield had found that the company illegally tied its browser into its operational system, and that it used its market muscle to coerce companies such as Hewlett Packard not to buy rival software. Notes also surfaced during the trial showing that Microsoft was trying to carve up the browser market by asking Netscape to collude with it.

If part of Jackson’s findings are reversed, it is likely the split-Microsoft order will be reversed — the case will then go on into a long-drawn process to determine appropriate punishment and Microsoft will be home well and dry.

All that, of course, is in the future, albeit the near one, and things could just go horribly wrong for the software czar. What’s happening now, however, is almost another re-birth at Microsoft. For one, there’s Windows XP to be released on October 25, a potent new-version operating system that is especially suited to make web operations faster. Then there is the ‘Hailstorm’ Internet initiative that’s designed to get Microsoft right up there as a leader in web-based solutions — linked to these are devices such as the Pocket PC that is directly aimed at hitting the Palm kind of handheld devices market, there is the Stinger software that is supposed to do wonders to Internet telephony, the Xbox which is a game-console that’s three times more powerful than rival consoles from Sony and Nintendo, and many more (see the June 4 issue of BusinessWeek for more details). An obviously worried top executive of Sun Microsystems told the magazine these products would ‘‘turn the Internet into a company town — a Microsoft town’’.

Apart from the fact that the collapse of hundreds of Internet-based would-be rivals has helped it look tall once again, BusinessWeek reports Microsoft has a cash trove of $30 bn (30 times that of AOL, and six times that of Oracle), and this allowed it to spend an average of $16 bn per annum on R&D over 1996 to 2000, as compared to Sun’s 10 and Oracle’s nine, while AOL’s spend fell from seven in 1996 to 1.5 in 2000. While Cisco and Yahoo are laying off workers, Microsoft hopes to hire 8,000 people this year.

Apart from the impact the ruling will have on the software industry, it will also have a significant bearing on the still-evolving case law on the subject in India. While the complexities of the Microsoft case puzzled even people in lawsuit-happy America, it is safe to say few in India even comprehended what the whole fuss was about — not surprising, considering India has a less than robust case history of actions against anti-competitive behaviour.

There has been the odd lawsuit like the one Pepsi filed against Coke three years ago for attempting to disrupt its business by hiring a large number of
its core staff, its bottlers, and so on.

And Hindustan Lever’s merger with TOMCO was challenged in the courts on the grounds it would lead to a monopoly. Similarly, the government did labour over selling IPCL to Reliance Industries as this would create a huge monopoly. But all these, however, really dealt with simple monopoly issues. In the IPCL case, the arguments were also simplistic, because the government simply added IPCL and Reliance’s market shares to settle the monopoly argument — it never paid heed to the argument that since imports were allowed, this nixed the monopoly-pricing argument. Essentially, the decision was taken with a view to the potential political fallout of being seen to be favouring Reliance.

Yet, when it comes to rampant anti-competitive behaviour (like firms forcing distributors to pick up their slow-moving products if they want to sell the fast-selling ones), there is virtually no legal action. Similarly, when The Times of India, which is one of India’s largest selling newspapers, decided to give its portal a leg-up, it carried huge front-page stories that were distorted to rubbish Yahoo on successive days after its India launch — yet, no trust-buster took any kind of action against the newspaper. The closest India has got to complex anti-trust work was the telecom regulator asking MTNL to separate its proposed cellular operations, to ensure the cellular business was not subsidised by the existing fixed-line one.

The point, however, is that such complex Microsoft-kind of anti-trust activities are increasingly becoming a part of India’s corporate landscape. In telecom, for instance, how is one to deal with top players like Birla, AT&T and Tata combining to offer services? Is this anti-competitive? Or should a cellular service provider be the one providing Internet services as well, and how does one ensure there’s no anti-competitive practice here?

While the Microsoft judgement will provide clues on how India’s courts and lawyers could tackle such issues, India’s policy makers would do well to study how the US and European trust-busters operate. It’s a matter of trust!

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