History has lessons for Microsoft case

By Eddie Evans (Reuters)

WASHINGTON, April 27 (Reuters) - If the U.S. government proposes to split Microsoft Corp. (NasdaqNM:MSFT - news) in two as expected this week, it will draw immediate comparisons with the two other major breakups in U.S. antitrust history -- Standard Oil and AT&T.

Microsoft's competitors in Silicon Valley say the comparisons are apt and even extend them -- casting Bill Gates as a software tycoon in the role of a latter-day John D. Rockefeller, the oil baron.

Meanwhile, supporters of Gates and the company he founded say things have changed profoundly since the 1911 Standard Oil decision or AT&T in the 1980s. They say Microsoft cannot be split because it is about ideas and people, not oil wells or phone wires.

While the two camps dispute whether AT&T and Standard Oil are relevant to Microsoft, lawyers, historians and economists all agree there are fundamental differences.

``I don't see Microsoft as one or another of these options. They're all different,'' said James May, a legal historian at American University in Washington.

Of the two, the 1984 division of AT&T is the harder comparison. The breakup into seven local phone companies and a long-distance company resulted from an out-of-court settlement, not a remedy imposed by the court.

And, it led to a degree of deregulation, which had obvious benefits to consumers. The benefits to consumers of breaking up Microsoft are the subject of debate.

Standard Oil also has fundamental differences from Microsoft. Rockefeller deliberately built the company into an monopoly by acquiring regional oil companies, while Microsoft's monopoly grew out of the success of it Window's operating system for personal computers.

And splitting Standard Oil into the original companies was a relatively easy matter.

Microsoft says there is no easy or logical way to split the company without destroying the structure that has led to development of a wide range of compatible software.

``Microsoft is a single organic, integrated company that does not operate in any way like AT&T or Standard Oil,'' said Jim Cullinan, a spokesman for the company.

But critics charge that, in the new economy that Microsoft has helped create, ideas are the new currency in the way that oil was at the beginning of the 20th Century.

``Economic assets are economic assets. You can just as easily divide ownership of intellectual property as oil wells,'' said Glenn Manishin, a partner with the Patton Boggs law firm who has represented software industry critics of Microsoft.

Standard Oil went from one monopoly into 34 regional monopolies and may even have resulted in higher fuel prices after the split was completed in 1914. Rockefeller certainly grew richer.

Like Standard Oil, the expected proposal to break Microsoft's Windows operating system from its Office programmes would also effectively create new monopolies where previously there had been only one.

But the new structure would have advantages from the government's point of view, encouraging the Microsoft Office company to develop programmes for other operating systems like Linux, which could weaken the Windows monopoly.

Microsoft argues that, unlike the Standard Oil and AT&T cases, the government's proposed remedy is at odds with the theory of the case that Microsoft used its Windows monopoly to muscle market share for its Internet browser.

The government, seeking to prevent Microsoft from using Windows to bolster other software, may find support in a 1959 ruling against the International Boxing Club of New York, in which the Supreme Court said courts have discretion to tailor their remedy to the individual cases.

In another case, the government eventually prevailed in 1968 in its effort to break up United Shoe Machinery Corp.

Microsoft says that led to the loss of U.S. leadership in the shoe industry, while Microsoft's critics say the demise of shoe manufacturing was just an effect of the economic shift to a service economy.

And, in another major case, which did not lead to a break-up, a long-running government case against IBM that started in 1969 was dismissed in 1982 after delays that commentators said made the arguments moot.