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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 …

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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  • 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 <glenn@technologylaw.com> Which Remedies? Appraising Microsoft II April 1999 — Washington, DC
  • 2. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 3. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 4. 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)
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 5. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 6. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 7. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 8. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page
  • 9. 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
    April 30, 1999 Glenn B. Manishin <glenn@technologylaw.com> Page

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