appraising microsoft ii

The Case For Structural Relief:“Breaking Up Is Hard To Do?”

Glenn B. Manishin, Esq.Blumenfeld & Cohen—Technology Law Group

1615 M Street, N.W., Suite 700Washington, DC 20036

202.955.6300<[email protected]>

Which Remedies? Appraising Microsoft IIApril 1999 — Washington, DC

April 30, 1999 Glenn B. Manishin <[email protected]>

Roots of Antitrust Policy

• Government market intervention justified for “market failure”

• Antitrust relief objectives:▼ “Pry open” market to competition▼ Prevent recurrence of exclusionary conduct

• Regulation (administrative, judicial, etc.) is imperfect substitute for competition


Conduct v. Structural Relief• Ban specific behavior• Dependent on enforce-

ment oversight and resources

• Risks of evasion and enforcement failure (decree “proliferation”)

• Inconsistent with rapid technical change

• Violations can be simple cost of doing business

• Remove anticompetitive power and incentives

• Eliminates risk and costs of “regulation by decree”

• Avoids judicial definitions of technology products and license price-setting

• Maintains complete incentives for innovation

• Violations easily detectable and curable


An Historical Anecdote

“[T]he very genius for commercial development and organization which was manifested from the beginning soon begot an intent and purpose to exclude others [by] dealings wholly inconsistent with the theory that they were made with the single conception of advancing the development of business power by usual methods.”

“[O]rdinarily [an] adequate measure of relief would result from restraining the doing of such acts in the future. But in a [monop-olization] case like this . . . the duty to enforce the statute requires the application of broader and more controlling remedies.”

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)


Structural Relief Alternatives

• Divestiture along business lines▼ Operating systems (OS), applications, and

content businesses in separate entities

• Windows OS as “Open Source Software”

• Divestiture of multiple vertically integrated entities▼ Each “Baby Bill” spin-off competes in all

market segments


Rating The Options (I)

• “Horizontal” OS/Apps./Content Divestiture▼ Eliminates ability of divested OS entity to leverage

monopoly power▼ Reduces long-term gov’t oversight, but initial line-

drawing required▼ Maintains OS monopoly (pricing) power▼ Prevents realization of any scope economies from

OS product integration ▼ Absent reintegration ban (transitional?), potential risk

of recreating current competitive problems


Rating The Options (II)

• Windows Family As “OSS” Product▼ Novel application as antitrust remedy, but alters OS

market structure and incentives▼ Avoids “bundling” dilemma, i.e., browser integration,

and judicial line-drawing▼ Potential conflict between IP rights (license

payments) and judicial price-setting▼ Requires continued gov’t and judicial oversight role

to ensure source code disclosures▼ Long-term impact on OS innovation unclear


Rating The Options (III)

• “Vertical” Divestiture of Integrated Entities▼ Avoids all judicial product definitions and technical

line-drawing▼ Maintains all efficiencies (economies of scale and

scope)▼ Potentially more complex corporate reorganization

issues (employees, stock options, etc.)▼ Risk of OS “fragmentation” largely illusory and offset

by entry of compatibility-enhancing products


Conclusions

• Conduct remedies present serious risks of decree scope/definition, enforcement and repetitive antitrust litigation

• Structural relief offers clean mechanism for eliminating anticompetitive incentives without intrusive gov’t oversight

• “Vertical” divestiture is preferable in view of efficiency and gov’t regulation impacts