Appraising Microsoft II


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Examination of the need for a divestiture remedy in the United States v. Microsoft antitrust case, contrasting the intrusive enforcement effects of a conduct-oriented injunction with what the Supreme Court has called the “surer, cleaner remedy” of a structural break-up. Delivered at Ralph Nader’s Which Remedies?: Appraising Microsoft II conference, this call for restructuring Microsoft into so-called “Baby Bills” followed from my February 1999 White Paper on Microsoft remedy issues for the Software & Information Industry Association. April 1999

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Appraising Microsoft II

  1. 1. 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 700 Washington, DC 20036 202.955.6300 <> Which Remedies? Appraising Microsoft II April 1999 — Washington, DC
  2. 2. Roots of Antitrust Policy <ul><li>Government market intervention justified for “market failure” </li></ul><ul><li>Antitrust relief objectives: </li></ul><ul><ul><li>“ Pry open” market to competition </li></ul></ul><ul><ul><li>Prevent recurrence of exclusionary conduct </li></ul></ul><ul><li>Regulation (administrative, judicial, etc.) is imperfect substitute for competition </li></ul>April 30, 1999 Glenn B. Manishin <> Page
  3. 3. Conduct v. Structural Relief <ul><li>Ban specific behavior </li></ul><ul><li>Dependent on enforce-ment oversight and resources </li></ul><ul><li>Risks of evasion and enforcement failure (decree “proliferation”) </li></ul><ul><li>Inconsistent with rapid technical change </li></ul><ul><li>Violations can be simple cost of doing business </li></ul><ul><li>Remove anticompetitive power and incentives </li></ul><ul><li>Eliminates risk and costs of “regulation by decree” </li></ul><ul><li>Avoids judicial definitions of technology products and license price-setting </li></ul><ul><li>Maintains complete incentives for innovation </li></ul><ul><li>Violations easily detectable and curable </li></ul>April 30, 1999 Glenn B. Manishin <> Page
  4. 4. An Historical Anecdote <ul><li>“ [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.” </li></ul><ul><li>“ [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.” </li></ul><ul><li>Standard Oil Co. of New Jersey v. United States, </li></ul><ul><li>221 U.S. 1 (1911) </li></ul>April 30, 1999 Glenn B. Manishin <> Page
  5. 5. Structural Relief Alternatives <ul><li>Divestiture along business lines </li></ul><ul><ul><li>Operating systems (OS), applications, and content businesses in separate entities </li></ul></ul><ul><li>Windows OS as “Open Source Software” </li></ul><ul><li>Divestiture of multiple vertically integrated entities </li></ul><ul><ul><li>Each “Baby Bill” spin-off competes in all market segments </li></ul></ul>April 30, 1999 Glenn B. Manishin <> Page
  6. 6. Rating The Options (I) <ul><li>“ Horizontal” OS/Apps./Content Divestiture </li></ul><ul><ul><li>Eliminates ability of divested OS entity to leverage monopoly power </li></ul></ul><ul><ul><li>Reduces long-term gov’t oversight, but initial line-drawing required </li></ul></ul><ul><ul><li>Maintains OS monopoly (pricing) power </li></ul></ul><ul><ul><li>Prevents realization of any scope economies from OS product integration </li></ul></ul><ul><ul><li>Absent reintegration ban (transitional?), potential risk of recreating current competitive problems </li></ul></ul>April 30, 1999 Glenn B. Manishin <> Page
  7. 7. Rating The Options (II) <ul><li>Windows Family As “OSS” Product </li></ul><ul><ul><li>Novel application as antitrust remedy, but alters OS market structure and incentives </li></ul></ul><ul><ul><li>Avoids “bundling” dilemma, i.e., browser integration, and judicial line-drawing </li></ul></ul><ul><ul><li>Potential conflict between IP rights (license payments) and judicial price-setting </li></ul></ul><ul><ul><li>Requires continued gov’t and judicial oversight role to ensure source code disclosures </li></ul></ul><ul><ul><li>Long-term impact on OS innovation unclear </li></ul></ul>April 30, 1999 Glenn B. Manishin <> Page
  8. 8. Rating The Options (III) <ul><li>“ Vertical” Divestiture of Integrated Entities </li></ul><ul><ul><li>Avoids all judicial product definitions and technical line-drawing </li></ul></ul><ul><ul><li>Maintains all efficiencies (economies of scale and scope) </li></ul></ul><ul><ul><li>Potentially more complex corporate reorganization issues (employees, stock options, etc.) </li></ul></ul><ul><ul><li>Risk of OS “fragmentation” largely illusory and offset by entry of compatibility-enhancing products </li></ul></ul>April 30, 1999 Glenn B. Manishin <> Page
  9. 9. Conclusions <ul><li>Conduct remedies present serious risks of decree scope/definition, enforcement and repetitive antitrust litigation </li></ul><ul><li>Structural relief offers clean mechanism for eliminating anticompetitive incentives without intrusive gov’t oversight </li></ul><ul><li>“ Vertical” divestiture is preferable in view of efficiency and gov’t regulation impacts </li></ul>April 30, 1999 Glenn B. Manishin <> Page