In the game of monopoly, Microsoft went first, now comes Google

Later this month, the Justice Department’s antitrust division faces a big decision on whether to try to break up one of the richest and most powerful companies on the planet.

By November 20, the Justice Department must formally propose to the federal court what remedies it should adopt in U.S. v. Google. This summer, a federal judge said Google maintained an illegal monopoly on Internet search.

In previous court filings, the Justice Department has said it is indeed a diversion, known in antitrust circles as a structural remedy, but what for Google is better called the nuclear option: breaking up the company into separate entities.

That’s because the Justice Department had previously tried to break up a tech giant it accused of monopolistic behavior: a small company called Microsoft.

And in that hot minute it really seemed like it was about to happen. On June 7, 2000, after considering proposals from the Department of Justice, a federal judge ordered Microsoft to be split into two parts.

Like Google, Microsoft was found guilty of acting as a monopolist, largely using its dominant Windows operating system to pressure personal computer makers to favor other Microsoft applications, such as the Internet Explorer web browser.

“The thinking was that if we split Microsoft into an applications company and an operating systems company, those two separate companies would compete very aggressively,” Daniel Rubinfeld, an economist at the Justice Department during the Bill Clinton administration, said during the Microsoft trial. .

The Justice Department wanted a clean break in part because “behavioral remedies”—continuous monitoring and other conditions to make sure Microsoft was playing by the rules—would be difficult to enforce.

But Rubinfeld also hoped the split would prevent Microsoft from spreading its tentacles into a newfangled technology called the World Wide Web.

“It was a moment when we didn’t know for sure exactly how the Internet would develop, except that it was very important,” Rubinfeld said. “We wanted to see innovations that will make a big difference as the Internet evolves.”

Ultimately, the separation never happened. Microsoft successfully appealed, some controversy in Florida led to a more business-friendly George W. Bush taking the White House, and a settlement was reached in September 2001.

He prohibited Microsoft from requiring PC makers to exclusively use Microsoft software and appointed an on-site monitoring committee that would effectively oversee the company’s operations.

There is debate about how successful this agreement was. Antitrust decisions are not only aimed at punishing and preventing anticompetitive behavior. They are also going to reset the playing field to bring competition and innovation to relevant markets, including markets for technology products that may not yet exist.

Economist Fiona Scott Morton of the Yale School of Management argues that the settlement, and the legal and public scrutiny Microsoft endured during protracted and costly litigation, succeeded in at least one measure: It prevented Microsoft from closing the fledgling network to competitors.

“The Microsoft case prevented the software maker from controlling the Internet,” Scott Morton said. “And now we have the Google case, and we hope that this will stop the party that controls the Internet from dominating the next future. Maybe it’s artificial intelligence, or maybe it’s something else.”

Some advocates for stronger enforcement of antitrust laws argue that without the antitrust agreement with Microsoft, Google would not have become the Internet powerhouse it is today.

But Adam Kovacevic, CEO of the technology industry association Chamber of Progress, said attributing Google’s success to Microsoft misreads history.

“The founders of Google certainly weren’t thinking about the Microsoft antitrust case at all,” said Kovacevich, who previously worked at Google on antitrust issues. “They weren’t trying to compete with Microsoft. They were trying to improve Yahoo.”

But beyond the debate over the implications of the actual antitrust agreement with Microsoft, a counterfactual looms: If Microsoft were broken up, what would happen?

“I believe if there was more competition, we would see more innovation,” Rubinfeld said. “I mean, I’m very happy with a lot of the products I use, but I think they could be better.”

The logic behind the government’s argument for breakup is that having many smaller companies means there is more competition to develop the best technology at the lowest cost.

It may sound like a lesson from an Economics 101 textbook, but in the real world, sometimes real innovation requires enormous scale, argues Joseph Coniglio, director of antitrust policy at the technology-funded Information Technology and Innovation Foundation.

“Large firms are those that have the resources and incentives to be able to make large investments to create new products,” Coniglio said.

If Microsoft had broken up in the early 2000s, Coniglio added, it might not have become a major player and innovator in cloud computing.

“If you were to break up Google, how would that affect the company’s ability to invest in artificial intelligence and next-generation new technologies?” Coniglio asked.

The Justice Department has moved to separate the Android mobile phone operating system and Chrome browser from Google, arguing that the products strengthen Google’s search engine monopoly.

Rubinfeld said consumers need to know that the pace of technological progress is not dictated solely by Silicon Valley.

“I think it is wrong to think that the path of innovation is predetermined and that it cannot be influenced by actions actually taken by competition authorities,” he said.

For the record, Rubinfeld still uses Windows as his operating system and Google as his search engine.