When James Delong testified before Congress in April, he told legislators the uncomfortable truth about antitrust law and the economics of software.

"My conclusion is simple," said the then-general counsel for the National Legal Center for the Public Interest. "A system of thought that was not adequate for dealing with the old economy, based on heavy machinery and physical investment, provides a poor foundation for dealing with a new economy based on intellectual property. Extrapolating these inadequate doctrines to the new concept will create a system of enforcement by whim, not by law, [and] the consequences will be destructive."

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Simple, indeed. Today's statutes can't handle the information economy. In Silicon Valley parlance, the law " doesn't get it." That is why, said DeLong and others, the most important issue in law today is redefining legal principles—literally through trial and error—so that they can be applied realistically to IT.

This shift only starts with the Department of Justice's tentative trustbusting of Microsoft Corp. (Nasdaq: MSFT). In fact, the U.S. Supreme Court, if it decides this month to hear the case or send it back to the appeals court, will likely focus on one key issue: product tying, which, in the Microsoft case, involves the integration of Internet Explorer into Windows. Legal experts and economists warn that the iceberg of case law hiding under the DOJ's current waterline is comparatively massive.

"The Microsoft decision will be key," said Hillard Sterling, an antitrust lawyer and expert at Gordon and Glickson LLC, in Chicago, who worked on the Staples Inc. antitrust suit in 1997 and has kept close tabs on the Microsoft trial. "But the new frontier of antitrust law—and law in general—will be dominated by cases that look at [business-to-business] consortia. And the Internet. Intellectual property. Napster. It goes on and on."

The Microsoft case, it turns out, ushers in an unprecedented era of legal review in which many expect antitrust law to change more in the next 10 years than it did in its first 100. Along the way, how the law changes will dictate how software changes—and that, in turn, will have a direct impact on how technology is used.

Some corporate users and developers hope the law surrounding software solidifies sooner rather than later—as it will bring better products to them.

"Some Microsoft partners say that Microsoft's products are better. This simply illustrates the power of their monopoly," said Doug Schmutz, an IT manager at EG&G Inc., a large engineering company in Gaithersburg, Md. "Anyone who has used competing products at any length would know that the only reason the existing Microsoft products are as feature-rich as they are is because they were trying to keep up with the competition.

"WordPerfect is still a much better word processor than Word," Schmutz said. "With the possible exception of the operating system, [Microsoft's] products are not better than others. But their operating system clout, coupled with undisclosed operating system hooks and features of which their applications could take advantage, gave them the ability to steamroll vendors into bundling their products. This makes it appear to those who only look at market share that Microsoft is the vendor of choice."

Burden of proof
Such change will undoubtedly come fitfully and grudgingly until legislators come up with a new way to look at the problem, experts say.

"In every case, [it's] the same central question that needs to be answered," Sterling said. "How do you prove anti-competitive behavior in the digital era?"

As DeLong noted to Congress, economic phenomena of information make it incredibly hard to prove antitrust violations in a software economy. Others agree, including Stanley Liebowitz of the University of Texas at Dallas. "A lot of antitrust history is very disappointing," Liebowitz said. "It hasn't been used to help consumers. And it's certainly much less relevant to a market like software where distribution costs are so low."

Some economists counter that the difficulty of proving antitrust violations shouldn't be used as a cop-out to avoid the issues.

"Traditional antitrust analysis is and should be applicable to innovative industries," said Franklin Fisher in an article to be published in the Anti trust Law Review next month. Fisher testified for the government in the Microsoft case and earlier for IBM in its antitrust case. "The difficulties in doing so should prompt no change in the rules, properly understood," Fisher said in the article.

So, the debate centers on whether the law needs to adapt to software or software developers need to observe applicable laws through a better understanding of the legal lines. Either way, economists on both sides argue, something has to give.

The challenges
Other challenges surround the central concern; no one facet of technological development is at issue. Several economic forces make antitrust and software unique bedfellows. They include the following:

* Market share: "In the old days, antitrust looked at big market share; it was a no-no," said Liebowitz, co-author of the book "Winners, Losers & Microsoft: Competition and Antitrust in High Technology." He mostly op poses anti trust intervention in the software market and has spoken on behalf of the Association for Competitive Technology, a pro-Microsoft lobbying group. The very reasons antitrust violations are so hard to prove, he argues, are part of what make the law inapplicable.

"But in a software market, large market shares create efficiencies," he said. "It's similar to a natural monopoly. Imagine if antitrust went after English because of its dominant market share in language. Well, English's dominance actually creates efficiency in communication; it's good for consumers."

Opponents argue that no one company owns English, while Microsoft certainly owns Windows. Fisher agrees that market share is not a good starting point for levying antitrust charges, but from there, his arguments split sharply from Liebowitz's.

"It's just not as hard to tell as some say when a company is taking anti-competitive actions," Fisher said. "When the only justification for an action is to protect monopoly rents or monopoly position, that's anti-competitive."

Fisher makes another huge distinction: Large market shares create efficiencies and innovation, but only for the market-leading company, not the industry as a whole. Tying the browser to the operating system, for example, was an innovation with benefits only to the dominant company, Microsoft, and not consumers, Fisher said.

* Tying: The Microsoft case's legacy will likely rest with the issue of product tying. Is Microsoft extending into new markets with its desktop monopoly, or is the company improving a product by adding a feature? Where do products end and features begin? There are not yet legal answers to these questions.

When the Supreme Court does rule on tying, the ruling will have massive implications for all software design. It could very well demarcate what developers can and cannot integrate over time. The court could rule that tying is in the interest of progress, essentially validating Microsoft's tactics and creating an integration free-for-all.

* Durability: Another economic factor that makes tying unique to software is that software, theoretically, doesn't wear out. If vendors didn't tie, there would be no impetus to upgrade because the software, unlike steel or shoes, will work as well on its 10,000th day as it did on its first.

* The Internet: Distribution costs also make it hard to prove antitrust violations in the digital economy. The secret of the Internet, really, is that it has reduced distribution costs to nearly nil. If a startup or a dominant company's competitor has access to zero-cost distribution, how can it be prevented from competing?

"These point issues are no longer the focus, though," argued Jonathan Baker, a professor at American University, in Washington, who in April testified before Congress in support of antitrust laws' applicability in the digital economy. Baker calls Liebowitz's arguments "aggressive" in their efforts to dismiss antitrust laws' applicabil ity. "The malleability makes it hard to deal with some of the burden of proof, I suppose, but you don't rewrite or, worse, throw out the rules because of that," he said.

Complex answers
The great unknown is what effect these coming legal battles, especially the efforts to apply antitrust law to IT, will have on corporate enterprises.

Antitrust law is designed to protect consumers, so being able to prove anti-competitive practices is important for enterprise customers as well. Further, innovation and the law are inextricably linked, so changing the law will change how products are made, sold and used.

The rate and type of innovation will change because of the Microsoft ruling and others. If B2B consortia are regulated, for example, it will affect how an enterprise is legally able to do business with its partners and customers.

"Most of what B2B consortia do is pro-competitive. They create efficiencies and cost reductions that are hard to ignore," said American Univer sity's Baker.

The "Napster effect" also will surely change how companies share information—depending on the way the courts rule on how the technology can and can't be used. Fisher noted that, left as is, the Napster phenomenon would have a negative effect on the enterprise.

"Distributing something on the Internet or on a shared network means it's extremely efficient for lots of people to see it," Fisher said. "But if they can see it without paying for it, eventually there's less incentive to even develop something or innovate."

The bottom line is that these issues will take years to sort out. The sluggish pace of the Microsoft trial is a harbinger of what's to come. Relative to software, the law changes slowly.