An antitrust remedy for monopoly leveraging by electronic networks

Northwestern University Law Review

Volumn 93, Issue 1, 1998, Pages 1-62

  Piraino Jr , Thomas A ^a  

^a NONE

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EID: 0345867272     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (329)

1. 15 U.S.C. § 1 (1996).
2. William H. Pratt et. al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531, 533 (1997).
3. See Mark A. Lemley, Antitrust and the Internet Standardization Problem, 28 CONN. L. REV. 1041, 1052 (1996).
4. See Software Industry: Hearings Before the Senate Comm. on the Judiciary, 105th Cong. 3 (1998) (testimony of Bill Gates, Chairman and CEO, Microsoft Corp.) [hereinafter Hearings].
5. See, e.g., David Bank, Subpoenas Issued in Probe of Microsoft, WALL ST. J., Feb. 3, 1998, at A3 (describing antitrust actions against Microsoft by federal government and 11 states).
6. Steve Lohr, Unbundling Microsoft, N.Y. TIMES, Dec. 13, 1997, at A1.
7. America's high technology companies are often referred to as the "new economy," while more traditional industrial companies are referred to as the "old economy." See, e.g., Marcia Vickers, Still High on Low-Flying Technology Stocks, N.Y. TIMES, Jan. 4, 1998, at BU5.
8. See John R. Wilke, Senate Internet Panel to Probe Microsoft's Power, WALL ST. J., Nov. 3, 1997, at B6 ("In capitalism, there are winners and losers, and the losers always look for someone else to blame . . . . Companies shouldn't be prosecuted simply for being successful.") (quoting Charles F. Rule, former assistant attorney general for the Antitrust Division of the Department of Justice).
9. The computing power of microprocessors, for example, has increased a millionfold in the last 25 years, leading to significant new computer capabilities and applications. See Rick Karlgaard, Digital Warriors Want Baby Bells' Blood, WALL ST. J., Dec. 8, 1997, at A24. In describing the increased pace of technological change, many economists refer to "Moore's Law," which derives from the observation by Gordon Moore, chairman emeritus of Intel Corp., that semi-conductor performance roughly doubles every 18 months. See John J. Keller, Ex-MFS Managers Plan Global Network Based on Internet, Rivaling Phone Firms, WALL ST. J., Jan. 20, 1998, at A3.
10. The computing power of microprocessors, for example, has increased a millionfold in the last 25 years, leading to significant new computer capabilities and applications. See Rick Karlgaard, Digital Warriors Want Baby Bells' Blood, WALL ST. J., Dec. 8, 1997, at A24. In describing the increased pace of technological change, many economists refer to "Moore's Law," which derives from the observation by Gordon Moore, chairman emeritus of Intel Corp., that semi-conductor performance roughly doubles every 18 months. See John J. Keller, Ex-MFS Managers Plan Global Network Based on Internet, Rivaling Phone Firms, WALL ST. J., Jan. 20, 1998, at A3.
11. See Alan Murray, The Outlook: Antitrust Isn't Obsolete in an Era of High Tech, WALL ST. J., Nov. 10, 1997, at A1. Bill Gates has argued that even Microsoft's monopoly over computer operating systems is tenuous in the new economy: Rapid and unpredictable changes constantly create new market opportunities and threaten the position of existing competitors. The position of a product - no matter how popular - is never secure because it is impossible to know when the next new idea will come along that could render the entire product category less important or even obsolete. Hearings, supra note 4, at 5 (testimony of Bill Gates).
12. See Alan Murray, The Outlook: Antitrust Isn't Obsolete in an Era of High Tech, WALL ST. J., Nov. 10, 1997, at A1. Bill Gates has argued that even Microsoft's monopoly over computer operating systems is tenuous in the new economy: Rapid and unpredictable changes constantly create new market opportunities and threaten the position of existing competitors. The position of a product - no matter how popular - is never secure because it is impossible to know when the next new idea will come along that could render the entire product category less important or even obsolete. Hearings, supra note 4, at 5 (testimony of Bill Gates).
13. See Lemley, supra note 3, at 1071.
14. See id.
15. Robert Pitofsky, the Chairman of the Federal Trade Commission, has pointed out that "[t]he market power of today's high-tech firms may be just as great and even more durable than the market power of Standard Oil, International Harvester and American Tobacco a hundred years ago." Alan Murray, The Outlook: It's Time Gates Placed Trust in Trustbusters, WALL ST. J., Mar. 9, 1998, at A1.
16. See, e.g., John Cassidy, Rich Man, Richer Man, THE NEW YORKER, May 11, 1998, at 32 (referring to the view of economist Brian Arthur that in high technology industries "inferior products can beat out superior products merely because of happenstance . . . and they can remain in a dominant position for a long time").
17. Id. at 98.
18. The consent decree is set forth at United States v. Microsoft Corp., 159 F.R.D. 318 (D.D.C. 1995).
19. See id. § IV(E)(i).
20. 980 F. Supp. 537, 539 (D.D.C. 1997).
21. A "browser" is an interface between a personal computer and the Internet that allows users to view and retrieve information from the portion of the Internet known as the World Wide Web. See id. at 539 n.4; Samuel Miller, Does Netscape Really Have An Antitrust Claim Against Microsoft?, COMPUTER LAW., Nov. 1996.
22. See Microsoft, 980 F. Supp. at 539.
23. Id. A tying arrangement is "an agreement by a party to sell one product (the tying product) but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958).
24. See Microsoft, 980 F. Supp. at 539.
25. Nos. 98-1232, 98-1233, (D.D.C. filed May 18, 1998).
26. See Complaint, United States v. Microsoft Corp., No. 98-1232, 1998 ExtraLEXIS 89, at *71-72 (D.D.C. filed May 18, 1998) [hereinafter DOJ Complaint]; Complaint, New York v. Microsoft Corp., No. 98-1232, at 9 (D.D.C. filed May 18, 1998) (available at 〈http://www.oag.state.ny.us/press/may98/microsoft.html〉) [hereinafter States' Complaint].
27. See States' Complaint, supra note 24, at 12.
28. See David Bank & John Simons, Microsoft Returns Fire at the U.S., Rivals, WALL ST. J., Nov. 12, 1997, at B6.
29. See Steve Lohr & John Markoff, Why Microsoft is Taking a Hard Line with the Government, N.Y. TIMES, Jan. 12, 1998, at C4 ("Microsoft sees its crusade in the current case not as arrogance, as its critics charge, but as an uncompromising defense of principle. It is saying that Microsoft and Microsoft alone should be the arbiter of what goes into its products, and how it defines an integrated product.").
30. See Steve Lohr, Microsoft Digs In Against a "Poorly Informed" U.S., N.Y. TIMES, Dec. 24, 1997, at C1.
31. For comments of Steve Ballmer, executive vice president of Microsoft, see Ben Heskett & Michael Kanellos, Ballmer: MS is the American Way, C/Net News (visited Dec. 5, 1997) 〈http://www.news.com/News/Item/0,4,17081,00.html?st.cn.nws.rl.ne〉: I think what we're doing is right, lawful, moral, proper and competitive. I might even say it's the American way. We're innovating, adding value, driving down prices, competing, and we're doing it well. A lot of other companies in the United States are benefiting because they're building on top of our platform and thriving. I might start playing the "Star-Spangled Banner" if I went on too long. Id.
32. See Lizette Alvarez, Stung By a Government it Ignored, Microsoft Abandons Isolationism, N.Y. TIMES, Dec. 21, 1997, at 16 ("This is a company whose strategy is to become a tollgate collector at every toll and a choke point at every juncture.") (quoting Ralph Nader); Lisa M. Bowman, Nader's Finale: Microsoft Could Win Internet, ZDNN, Nov. 14, 1997; James F. Rill, Why Bill Gates Is Wrong, WALL ST. J., Nov. 20, 1997, at A22; Wilke, supra note 8, at B6.
33. See Lizette Alvarez, Stung By a Government it Ignored, Microsoft Abandons Isolationism, N.Y. TIMES, Dec. 21, 1997, at 16 ("This is a company whose strategy is to become a tollgate collector at every toll and a choke point at every juncture.") (quoting Ralph Nader); Lisa M. Bowman, Nader's Finale: Microsoft Could Win Internet, ZDNN, Nov. 14, 1997; James F. Rill, Why Bill Gates Is Wrong, WALL ST. J., Nov. 20, 1997, at A22; Wilke, supra note 8, at B6.
34. See Lizette Alvarez, Stung By a Government it Ignored, Microsoft Abandons Isolationism, N.Y. TIMES, Dec. 21, 1997, at 16 ("This is a company whose strategy is to become a tollgate collector at every toll and a choke point at every juncture.") (quoting Ralph Nader); Lisa M. Bowman, Nader's Finale: Microsoft Could Win Internet, ZDNN, Nov. 14, 1997; James F. Rill, Why Bill Gates Is Wrong, WALL ST. J., Nov. 20, 1997, at A22; Wilke, supra note 8, at B6.
35. See Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958).
36. See United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998).
37. See Where Attorneys General Fear to Tread, CONN. L. TRIB., Nov. 10, 1997; see also infra note 225 and accompanying text.
38. One commentator has compared Microsoft III to "the police responding to a report of a robbery in progress two years late, after the property is gone." Andrew Pollack, Netscape Plays It Cool While Rival Is Sued, N.Y. TIMES, May 25, 1998, at D1.
39. See United States v. Terminal R.R. Ass'n, 224 U.S. 383, 411 (1912) (granting railroads right to use facilities of association that controlled the only means of access across the Mississippi River to St. Louis). For a more detailed discussion of the essential facilities doctrine, see infra notes 139-159 and accompanying text.
40. See RON CHERNOW, TITAN: THE LIFE OF JOHN D. ROCKEFELLER, SR. 283-98 (1998) (describing Congress' concern about the ability of the Standard Oil trust to maintain its monopoly by refusing to permit competing refiners to use its pipelines and inducing the railroads to charge higher rates to such competitors).
41. See Terminal R.R. Ass'n, 224 U.S. at 383.
42. See Silver v. New York Stock Exch., 373 U.S. 341 (1963) (requiring access to an electronic connection among stock brokers); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656 (1961) (requiring that "seal of approval" from industry standards-setting organizations be made equally available to all competitors); Associated Press v. United States, 326 U.S. 1 (1945) (precluding members of Associated Press from denying access by their competitors to wire service news).
43. See United States v. Microsoft Corp., 980 F. Supp. 537, 539 n.3 (D.D.C. 1997).
44. See States' Complaint, supra note 24, at 5.
45. Robert Prentice, Vaporware: High-Tech Products and Real Antitrust Liability in a Post-Chicago World, 57 OHIO ST. L.J. 1163, 1229 n.270 (1996).
46. See Cassidy, supra note 14, at 33; Lemley, supra note 3, at 1057.
47. See Prentice, supra note 41, at 1229.
48. See States' Complaint, supra note 24, at 5.
49. See States' Complaint, supra note 24, at 6. Indeed, Microsoft's market share has increased to virtually one hundred percent during the last few years. Windows 95 has been installed on almost all personal computers sold during the last three years, and Windows 98 will be pre-installed on nearly all personal computers beginning in June, 1998. See Memorandum of the United States in Support of Motion for Preliminary Injunction, at 15, United States v. Microsoft Corp., No. 98-1232, 1998 ExtraLexis 92, at *12 (D.D.C. filed May 18, 1998) [hereinafter, DOJ Brief].
50. See Stuart Taylor, What to do With the Microsoft Monster, AM. LAW., Nov. 1993, at 72, 78 ("[M]y job is to get a fair share of the software applications market, and to me that's one hundred per cent.") (quoting Michael Maples of Microsoft). At the same time, however, Microsoft has denied being a monopolist. William Neukom, Microsoft's general counsel, has stated that, "We have never admitted to it, nor has any court ever found that to be the case. In this industry, we do not have the sort of monopoly power where one can reduce the supply and increase the price to the point of extracting monopoly rent." Cassidy, supra note 14, at 33. Bill Gates continues to argue that Microsoft does not have monopoly power in the computer operating system market because it cannot control prices or restrict entry by new firms. See Hearings, supra note 4, at 12 (testimony of Bill Gates).
51. See Stuart Taylor, What to do With the Microsoft Monster, AM. LAW., Nov. 1993, at 72, 78 ("[M]y job is to get a fair share of the software applications market, and to me that's one hundred per cent.") (quoting Michael Maples of Microsoft). At the same time, however, Microsoft has denied being a monopolist. William Neukom, Microsoft's general counsel, has stated that, "We have never admitted to it, nor has any court ever found that to be the case. In this industry, we do not have the sort of monopoly power where one can reduce the supply and increase the price to the point of extracting monopoly rent." Cassidy, supra note 14, at 33. Bill Gates continues to argue that Microsoft does not have monopoly power in the computer operating system market because it cannot control prices or restrict entry by new firms. See Hearings, supra note 4, at 12 (testimony of Bill Gates).
52. See Peter Burrows, The Fall of an American Icon, BUS. WK., Feb. 5, 1996, at 34 (describing Apple Computer's small market share); Jim Erickson, IBM Hopes China Picks Warp Over Windows, AUSTIN AM.-STATESMAN, May 15, 1995, at D1 (describing IBM's small market share).
53. See Peter Burrows, The Fall of an American Icon, BUS. WK., Feb. 5, 1996, at 34 (describing Apple Computer's small market share); Jim Erickson, IBM Hopes China Picks Warp Over Windows, AUSTIN AM.-STATESMAN, May 15, 1995, at D1 (describing IBM's small market share).
54. See James Gleick, The Microsoft Monopoly, N.Y. TIMES MAG., Nov. 5, 1995, at 50-51.
55. See Kerry A. Dolan, The Billionaires - The World's Working Rich: The Top 10, FORBES, July 6, 1998, at 190.
56. See Hiroko Asami et al., The Superich, FORBES, July 15, 1996, at 124; Timothy Egan, Microsoft's Window on 1998 is Creating a Siege Mentality, N.Y. TIMES, Jan. 17, 1998, at A1.
57. See Hiroko Asami et al., The Superich, FORBES, July 15, 1996, at 124; Timothy Egan, Microsoft's Window on 1998 is Creating a Siege Mentality, N.Y. TIMES, Jan. 17, 1998, at A1.
58. See Computers & Technology, INVESTOR'S BUS. DAILY, Dec. 7, 1994, at A8; John R. Wilke & David P. Hamilton, Microsoft Took "Extreme" Steps to Defy Judge's Order, U.S. Argues at Hearing, WALL ST. J., Jan. 14, 1998, at B4 ("[Microsoft] has expanded . . . Windows by offering more and more functions for computer users, along the way swallowing niche software markets, such as fax modem and other products."). A recent survey of fifty corporate chief information officers indicated that fifty-nine percent believe that Microsoft abuses its monopoly in operating systems. See David Bank & John R. Wilke, Microsoft and Justice End a Skirmish, Yet War Could Escalate, WALL ST. J., Jan. 23, 1998, at A1.
59. See Computers & Technology, INVESTOR'S BUS. DAILY, Dec. 7, 1994, at A8; John R. Wilke & David P. Hamilton, Microsoft Took "Extreme" Steps to Defy Judge's Order, U.S. Argues at Hearing, WALL ST. J., Jan. 14, 1998, at B4 ("[Microsoft] has expanded . . . Windows by offering more and more functions for computer users, along the way swallowing niche software markets, such as fax modem and other products."). A recent survey of fifty corporate chief information officers indicated that fifty-nine percent believe that Microsoft abuses its monopoly in operating systems. See David Bank & John R. Wilke, Microsoft and Justice End a Skirmish, Yet War Could Escalate, WALL ST. J., Jan. 23, 1998, at A1.
60. See Computers & Technology, INVESTOR'S BUS. DAILY, Dec. 7, 1994, at A8; John R. Wilke & David P. Hamilton, Microsoft Took "Extreme" Steps to Defy Judge's Order, U.S. Argues at Hearing, WALL ST. J., Jan. 14, 1998, at B4 ("[Microsoft] has expanded . . . Windows by offering more and more functions for computer users, along the way swallowing niche software markets, such as fax modem and other products."). A recent survey of fifty corporate chief information officers indicated that fifty-nine percent believe that Microsoft abuses its monopoly in operating systems. See David Bank & John R. Wilke, Microsoft and Justice End a Skirmish, Yet War Could Escalate, WALL ST. J., Jan. 23, 1998, at A1.
61. See Judy Fahs & Steven Oberbeck, Utahns High on High Tech Merger But Wary Wall Street Gives Low Marks Initially to Novell-WordPerfect Deal, SALT LAKE TRIB., Mar. 23, 1994, at A1.
62. See Microsoft Says Exchange Gains on Lotus Notes, REUTERS, Nov. 18, 1997.
63. See The Future of Microsoft: Today Windows, Tomorrow the World, THE ECONOMIST, May 22, 1993, at 25.
64. See Group Says Microsoft Uses "Elements of Extortion," REUTERS, Nov. 21, 1997.
65. David Bank, How One Sweet Deal for Netscape Unraveled After Microsoft Called, WALL ST. J., Nov. 13, 1997, at A1.
66. See States' Complaint, supra note 24, at 7.
67. See DOJ Brief, supra note 45, at *46. Sun Microsystems' "Java" programming language amplifies the potential challenge posed by Internet browsers to Microsoft's monopoly in operating systems. Java is designed to permit applications written in its code to run on different operating systems. See DOJ Brief, supra note 45, at *16. Thus, Java itself poses a threat to the dominance of the Windows operating system. Internet browsers are a primary distribution vehicle for the software programs necessary to run applications in the Java programming language. See DOJ Brief, supra note 45, at *50. Microsoft allegedly believed that limiting Netscape's growth in the browser market would "choke off Java's main distribution channel." Steve Lohr, Still Another Adversary for Microsoft, N.Y. TIMES, May 25, 1998, at D4.
68. See DOJ Brief, supra note 45, at *94.
69. See Miller, supra note 19. Other firms are also attempting to develop new operating systems based on an Internet-related interface. Sun Microsystems Inc., for example, is seeking to establish its "Java" software as an alternative to Windows. See Leslie Cauley & David Bank, Microsoft Battles Sun Over TCI Set-Boxes, WALL ST. J., Jan. 9, 1998, at A3.
70. See United States v. Microsoft Corp., 980 F. Supp. 537, 541 (D.D.C. 1997). As Joel Klein, assistant attorney general for the Antitrust Division, recently explained, Microsoft's documents show that what Bill Gates cared about from Day One was that browsers could go after the operating system. We have quote after quote from their executives saying, "We are not worried simply about the browsers, we are worried about control of the desktop, and therefore we have got to win the browser war." Cassidy, supra note 14, at 36.
71. See, e.g., Rill, supra note 30.
72. See Audrie Krause, Don't be Soft on Microsoft, antitrust@essential.org, May 12, 1997.
73. See Group Says Microsoft Uses "Elements of Extortion," supra note 55.
74. See Prentice, supra note 41, at 1221 n.244 ("[T]he question is now being asked is not whether the Internet will kill Microsoft, but whether Microsoft will soon dominate the Internet."); John R. Wilke, Microsoft, Justice Department Face Off, But Hearing Ends Without a Decision, WALL ST. J., Dec. 8, 1997, at B6.
75. See John R. Wilke, Microsoft is Now Poised to Control Commerce on Internet, Witnesses Tell Senate Panel, WALL ST. J., Nov. 5, 1997, at B6 (quoting Kevin Arquit, a former official of the Federal Trade Commission).
76. James Taranto, Nader's Raiders Try to Storm Bill's Gates, WALL ST. J., Nov. 18, 1997, at A22. As Netscape's general counsel, Roberta R. Katz, has pointed out, "How are you going to compete if Microsoft won't put you on the Microsoft Shopping Center which will be the opening screen on everyone's computer?" Id.
77. Rill, supra note 30.
78. See Wilke, supra note 66, at B6 ("[Microsoft's anticompetitive practices] have serious implications not just for electronic commerce, but for the scope of information available on the Internet.") (quoting Sen. Orrin Hatch (R-Utah)); Wilke, supra note 8, at B6 ("If they control content on the Internet, they can control the information people get, and that is a serious public policy concern.") (quoting Kevin Arquit, a former official of the Federal Trade Commission). The Department of Justice is, in fact, investigating Microsoft's exclusive relationships with providers of Internet content. See id. One Interventionist recently gave an example of how Microsoft could use its control over Internet content to manipulate public information. Gary Reback, a member of a law firm representing Microsoft's competitors, explained that Microsoft bought the Funk & Wagnalls encyclopedia and turned it into an on-line service called "Encarta" in 1993. The original version had described Bill Gates as a "tough competitor," but Microsoft's new version described instead his penchant for "personal and corporate contributions to charity and educational organizations." John Heileman, Talk of the Town: E-Mail From Silicon Valley, THE NEW YORKER, Dec. 22 & 29, 1997, at 49.
79. Bill Gates, Why the Justice Department Is Wrong, WALL ST. J., Nov. 10, 1997, at A22. Gates has also stated that it is preposterous to think that any one company could ever control access to the Internet. The openness of the Internet is inherent in its architecture. The information on the Internet is distributed across thousands of computers around the world, and there are an essentially infinite number of access points to that information. Hearings, supra note 4, at 9.
80. Bill Gates, Why the Justice Department Is Wrong, WALL ST. J., Nov. 10, 1997, at A22. Gates has also stated that it is preposterous to think that any one company could ever control access to the Internet. The openness of the Internet is inherent in its architecture. The information on the Internet is distributed across thousands of computers around the world, and there are an essentially infinite number of access points to that information. Hearings, supra note 4, at 9.
81. See John R. Wilke et al., Slow Approval of WorldCom Deal Likely, WALL ST. J., Nov. 10, 1997, at A2 (comments of Catherine Sloan, a lobbyist for WorldCom Inc.).
82. See Lemley, supra note 3, at 1077 n.142.
83. See Roger Parloff, What was Microsoft Thinking?, AM. LAW., Mar. 1998, at 5.
84. See DOJ Brief, supra note 45, at *53.
85. See infra notes 16-23 and accompanying text.
86. See supra note 17.
87. United States v. Microsoft Corp., 159 F.R.D. 318, at § IV(e)(i) (D.D.C. 1995).
88. See United States v. Microsoft, 980 F. Supp. 537, 539 (D.D.C. 1997).
89. See id. at 539-40.
90. Lohr, supra note 28, at C1. "Each new version of Explorer has been improved and more closely integrated with the operating system." Lohr & Markoff, supra note 27, at C4. Microsoft has argued that "Explorer is crucial to word processing, imaging and drawing functions of the operating system, as well as the system's control panels." Will Roder, Deadlock in D.C., ZDNN (visited Dec. 5, 1997) 〈http://www.zdnet.com/zdnn/content/inwo/1205/260964.html〉. Robert Herbold, Microsoft's Chief Operating Officer, has stated that "Microsoft has chopped the browser into a series of small pieces that are integrated into the heart of the operating system." David Vausky, Microsoft Executive "Sorry" for Harsh Rhetoric, REUTERS, Jan. 9, 1998.
91. Lohr, supra note 28, at C1. "Each new version of Explorer has been improved and more closely integrated with the operating system." Lohr & Markoff, supra note 27, at C4. Microsoft has argued that "Explorer is crucial to word processing, imaging and drawing functions of the operating system, as well as the system's control panels." Will Roder, Deadlock in D.C., ZDNN (visited Dec. 5, 1997) 〈http://www.zdnet.com/zdnn/content/inwo/1205/260964.html〉. Robert Herbold, Microsoft's Chief Operating Officer, has stated that "Microsoft has chopped the browser into a series of small pieces that are integrated into the heart of the operating system." David Vausky, Microsoft Executive "Sorry" for Harsh Rhetoric, REUTERS, Jan. 9, 1998.
92. See Microsoft, 980 F. Supp. at 540-41.
93. Id. at 540. The original draft of the consent decree stated that it should "not be construed to prohibit Microsoft from developing integrated products which offer technological advantages" (emphasis added). Lohr & Markoff, supra note 27, at C4. At Bill Gates' insistence, the italicized phrase was eliminated from the consent decree in order to make it clear that Microsoft would not accept any limitations on its right to design new products. See id.
94. See John Markoff, Not Exactly Micro, Definitely Not Soft, N.Y. TIMES, Dec. 28, 1997, at WK 3.
95. See Where Attorneys General Fear to Tread, supra note 33.
96. See Microsoft, 980 F. Supp. at 541-43.
97. Id. at 544.
98. See supra note 33 and accompanying text; infra note 225 and accompanying text.
99. United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998).
100. Lemley, supra note 3, at 1048 n.25.
101. "'Natural monopoly' refers to a situation where a single firm can supply all of the market demand for a product at [a] lower cost than could two or more firms." Margaret E. Guerin-Calvert, Network Merger Analysis, (Apr. 6, 1995) (unpublished manuscript, on file with author) (Paper Presented to 43rd Annual Spring Meeting of the American Bar Association, Antitrust Law Section).
102. Lemley, supra note 3, at 1045.
103. Steve Lohr, Ground Rules for the Great Global Connection, N.Y. TIMES, May 7, 1995, at E16. The natural monopoly characteristics of high-technology networks may be responsible for the lack of competition that has continued in many telecommunications markets despite the de-regulation of those markets in the Telecommunications Act of 1996. 47 U.S.C. § 151 (1996). The Act was designed to lift regulatory restrictions on cable companies and local and long-distance telephone companies and to encourage them to enter each other's markets. See infra notes 184-188 and accompanying text. Since the passage of the Act, however, there have been few challenges to the monopolies of local telephone and cable companies. Indeed, the main effect of the Act has been to encourage telecommunications firms to merge with each other. See Murray, The Outlook, supra note 10, at A1.
104. Steve Lohr, Ground Rules for the Great Global Connection, N.Y. TIMES, May 7, 1995, at E16. The natural monopoly characteristics of high-technology networks may be responsible for the lack of competition that has continued in many telecommunications markets despite the de-regulation of those markets in the Telecommunications Act of 1996. 47 U.S.C. § 151 (1996). The Act was designed to lift regulatory restrictions on cable companies and local and long-distance telephone companies and to encourage them to enter each other's markets. See infra notes 184-188 and accompanying text. Since the passage of the Act, however, there have been few challenges to the monopolies of local telephone and cable companies. Indeed, the main effect of the Act has been to encourage telecommunications firms to merge with each other. See Murray, The Outlook, supra note 10, at A1.
105. See Pratt et al., supra note 2, at 537.
106. Robert Metcalfe, the founder of 3Com Corporation, has observed that networks (whether of telephones, computers or people) dramatically increase in value with each additional node or user. Metcalfe's Law values the utility of a network as the square of the number of its users, and can be easily appreciated by considering the impact of standard railroad gauges, Morse code, and standardized electrical outlets in the last century and telephones, fax machines, and the Ethernet and Internet protocols today. Once a standard has achieved critical mass, its value to everyone multiplies exponentially. LARRY DOWNES & CHUNKA MUI, UNLEASHING THE KILLER APP: DIGITAL STRATEGIES FOR MARKET DOMINANCE 5 (1998).
107. Lemley, supra note 3, at 1045.
108. National Bancard Corp. v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1260 (S.D. Fla. 1984), aff'd, 779 F.2d 592 (11th Cir. 1986).
109. See Lemley, supra note 3, at 1052 (pointing out that, for high-technology networks, "market durability . . . may significantly outlast the competitive superiority of the product").
110. As the DOJ pointed out in its brief in Microsoft III, "the durability of Microsoft's monopoly is in large measure due to network effects that cause users to demand a ubiquitous operating system and that induce application developers to write for that platform." DOJ Brief, supra note 45, at *66.
111. Cassidy, supra note 14, at 35. Such a positive feedback process, in fact, prevented IBM from launching an effective challenge to Microsoft's operating system. IBM's OS/2 operating system initially was technically superior to Microsoft's Windows system. OS/2 was a 32-bit multi-task operating system, while Windows was a 16-bit system with no multi-task abilities. See Maureen A. O'Rourke, Drawing the Boundary Between Copyright and Contract: Copyright Pre-emption of Software License Terms, 45 DUKE L.J. 479, 516 (1995). Nevertheless, consumers preferred the Windows system because more applications were available to run on it. See id. at 545 n.281; Prentice, supra note 41, at 1232.
112. See Lemley, supra note 3, at 1069 ("[L]arge companies already in the market have an advantage in future standards competitions because consumers will expect them to prevail."); Prentice, supra note 41, at 1226 ("[I]f consumers expect a seller [such as Microsoft] to be dominant, then consumers will be willing to pay more for the firm's product, and it will, in fact, be dominant."). Economists refer to this tendency of consumers to favor the established standard as the "tipping effect." See, e.g., Joseph Farrell & Garth Saloner, Competition, Compatibility and Standards: The Economics of Horses, Penguins, and Lemmings, in PRODUCT STANDARDIZATION AND COMPETITIVE STRATEGY 1 (H. Landis Gabel ed., 1987).
113. See Jay Dratler, Jr., Microsoft as an Antitrust Target: IBM in Software? 25 SW. U. L. REV. 671, 706 (1996): This investment in time and energy and training and development has locked me into WordPerfect 5.1 as surely as if I had signed a pledge in blood to be its loyal user forevermore. I would no more think of converting to Microsoft Word or some other new word processing program, and thereby losing all of my investment in macros and training, than I would consider doing all of my professional writing henceforth in Swahili. Id. Economists refer to such effects as "path dependency," which is "a tendency to make decisions about future behavior which are constrained by past choices." Lemley, supra note 3, at 1050.
114. In Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 476 (1992), the Supreme Court recognized such an effect in the photocopier market, when it noted that locked-in customers "will tolerate some level of service-price increases before changing equipment brands." Wired Magazine, which has described Microsoft as "the lord of lock-in," John Browning & Spencer Reiss, Encyclopedia of the New Economy, Part II, WIRED, April 1998, at 93, 101, has defined lock-in as occurring when [t]he cost of converting to new technologies and retraining workers outweighs the benefits - or seems to. That extra cost, multiplied by thousands of companies and millions of users, is called lock-in. Or Windows 98. Lock-in can happen with many kinds of standardized products -railroad gauges and VHS video are classic examples. Information technology is especially vulnerable because it typically involves integrated systems, in which it is hard to change only a few things. Id. at 100.
115. Some Marketeers argue, however, that the pace of innovation in high-technology markets is so rapid that monopolies will be swept away rather easily by the natural workings of the marketplace. Thus aggressive antitrust regulation is unnecessary. The dominance of IBM in the computer market, for example, was eliminated not by antitrust enforcement - the government dropped its thirteen year-old suit against the company in the 1970s - but by "market forces . . . that finally brought IBM back to the pack." Murray, The Outlook, supra note 10, at A1; see also Prentice, supra note 41, at 1220 ("Many believe that it was new technology, not government antitrust enforcement, that broke IBM's stranglehold on the computer world and that rapid technological change will ultimately undo Microsoft's stranglehold as well.").
116. Lemley, supra note 3, at 1058.
117. See Stanley M. Besen & Joseph Farrell, Choosing How to Compete: Strategies & Tactics in Standardization, 8 J. ECON. PERSP. 117, 118 (1994) ("[An] inferior product may be able to defeat a superior one if it is widely expected to do so."); see also Cassidy, supra note 14, at 35 ("An inferior technology that gets in first and is supported by network externalities may be able to hold its place even against superior technologies that come later.") (quoting Garth Saloner, an economist at Stanford University).
118. See Prentice, supra note 41, at 1185. Digital Research's DR-DOS system, developed in the mid-1980s, was "in some ways more advanced than Microsoft's MS-DOS." Cassidy, supra note 14, at 35. "During the early nineties, IBM spent about two billion dollars developing and marketing OS/2, but it, too, flopped, despite laudatory reviews from independent experts." Id.
119. Similarly, in the video tape market, the VHS videocassette format overcame what was regarded by many as the technically superior Betamax format in the early 1980s, see Lemley, supra note 3, at 1059, and, in the word processing market, typists continue to use the "QWERTY" typewriter keyboard instead of other easier-to-use systems. The QWERTY keyboard was allegedly designed to be inefficiently slow, so that fast typists could not cause the hammers on the old manual typewriters to stick. See Paul A. David, Clio and the Economics of QWERTY, 75 AM. ECON. REV. 332 (1985); see also Bhaskar Chakravorti, Why Microsoft Should be Left Alone, N.Y. TIMES, May 24, 1998, § 3, at 11.
120. Similarly, in the video tape market, the VHS videocassette format overcame what was regarded by many as the technically superior Betamax format in the early 1980s, see Lemley, supra note 3, at 1059, and, in the word processing market, typists continue to use the "QWERTY" typewriter keyboard instead of other easier-to-use systems. The QWERTY keyboard was allegedly designed to be inefficiently slow, so that fast typists could not cause the hammers on the old manual typewriters to stick. See Paul A. David, Clio and the Economics of QWERTY, 75 AM. ECON. REV. 332 (1985); see also Bhaskar Chakravorti, Why Microsoft Should be Left Alone, N.Y. TIMES, May 24, 1998, § 3, at 11.
121. See Lemley, supra note 3, at 1047.
122. See Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999, 1057 (pointing out that the VISA and MasterCard networks "are still the leaders of the credit card industry").
123. 356 U.S. 1 (1958).
124. Id. at 6; accord United States v. Loew's Inc., 371 U.S. 38, 44-5 (1962); Smith Mach. Co. v Hesston Corp., 1987-1 Trade Cas. (CCH) ¶ 67,563, at 60,383 (D.N.M. 1987), aff'd, 878 F.2d 1290 (10th Cir. 1989).
125. See Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 486 (1992).
126. Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 6 (1958).
127. See Times-Picayune Publ'g Co. v. United States, 345 U.S. 594 (1953).
128. See Jefferson Parish Hosp. Dist. Number 2 v. Hyde, 466 U.S. 2 (1984).
129. See United States v. Loew's Inc., 371 U.S. 38 (1962).
130. Jefferson Parish Hosp., 466 U.S. at 21.
131. The company conceded at oral argument in Microsoft II that its Word and Excel software were separate products from its operating system. See United States v. Microsoft, 980 F. Supp. 537, 543 (D.D.C. 1997).
132. 250 U.S. 300 (1919).
133. Id. at 307.
134. See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).
135. 148 F.2d 416 (2d Cir. 1945).
136. Id. at 430. One commentator has pointed out that the framers of the Sherman Act did not wish to condemn someone "who merely by superior skill and intelligence . . . got the whole business because nobody could do it as well as he could." 21 CONG. REC. 3151-53 (1890), quoted in HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY, § 6.3, at 246 (1994).
137. Id. at 430. One commentator has pointed out that the framers of the Sherman Act did not wish to condemn someone "who merely by superior skill and intelligence . . . got the whole business because nobody could do it as well as he could." 21 CONG. REC. 3151-53 (1890), quoted in HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY, § 6.3, at 246 (1994).
138. 273 U.S. 359 (1927).
139. See id. at 375.
140. 342 U.S. 143 (1951).
141. See id. at 152-54.
142. See id. at 145.
143. 410 U.S. 366 (1973).
144. See id. at 368, 371.
145. See id. at 377.
146. 472 U.S. 585 (1985).
147. Id. at 601.
148. Id. at 603.
149. See id. at 610-11.
150. 504 U.S. 451 (1992).
151. Id. at 479.
152. See Image Technical Servs., Inc. v. Eastman Kodak, 125 F.3d 1195, 1201 (9th Cir. 1997), cert. denied, 118 S. Ct. 1560 (1998).
153. Some commentators have criticized the essential facilities approach. Professor Areeda, for example, has called it "an epithet in search of a defining principle." PHILLIP AREEDA, ANTITRUST ANALYSIS 381 (2d ed. 1974). Another commentator has pointed out that "[c]ompulsory access is highly regulatory; the antitrust court is required to act as if it were a public utility commission setting the precise terms for membership or particular access charges. Yet the court lacks any special expertise or staff to do this kind of job." Baker, supra note 109, at 1076.
154. 708 F.2d 1081 (7th Cir. 1983).
155. See id. at 1133.
156. Id. at 1132.
157. 807 F.2d 520 (7th Cir. 1986).
158. See id. at 540. The Court reasoned that: The point of the essential facilities doctrine is that a potential market entrant should not be forced simultaneously to enter a second market, with its own large capital requirements. Such a requirement would allow the owner of an essential facility to monopolize the market as to which his facility is the "bottleneck." Id.
159. 719 F. Supp. 1551 (S.D. Fla. 1988), aff'd, 933 F.2d 952 (11th Cir. 1991).
160. Id. at 1565.
161. Id. at 1566. The courts and enforcement agencies have, however, declined to extend the essential facilities doctrine to require the compulsory licensing of intellectual property. They have pointed out that "imposition of a duty to license might serve to chill the very kind of innovative process that led to" a firm's legitimate efficiency advantage. E.I. duPont de Nemours & Co., 96 F.T.C. 653, 748 (1980), aff'd, 698 F.2d 1377 (9th Cir. 1983) (holding by FTC that, in the absence of wrongdoing by Dupont in acquiring know-how for production of titanium dioxide, there was no § 2 violation in Dupont's refusal to license such know-how); see also Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 284-85 (2d Cir. 1979) (monopolist in camera market under no obligation to predisclose interface specifications of its new cameras to film makers); United States Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (1995) (possession of market power does not impose an antitrust obligation to license intellectual property).
162. 224 U.S. 383 (1912).
163. Id. at 411-12.
164. 373 U.S. 341 (1963).
165. Id. at 348.
166. Id. at 347.
167. 364 U.S. 656 (1961).
168. Id. at 658.
169. See id. at 659-60.
170. 326 U.S. 1 (1945).
171. See id. at 3-4.
172. See id. at 4.
173. See id. at 21.
174. See Pratt et al., supra note 2, at 546.
175. See id. at 547.
176. 3 F. Supp. 2d 1255 (N.D. Ala. 1998).
177. See id. at 1276.
178. Id. at 1278.
179. Id. at 1263.
180. See id. at 1291-93.
181. See Complaint, United States v. AT&T, No. 74-1698 (D.D.C. 1974).
182. See JOHN R. BITTNER, LAW AND REGULATION OF ELECTRONIC MEDIA 304 (2d ed. 1994).
183. See supra notes 140-142 and accompanying text.
184. United States v. American Tel. & Tel., 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983).
185. The seven original Baby Bells included Pacific Telesis Group (covering California and the lower western states), US West (covering the northwestern states and some of the lower Southwest), Southwestern Bell (now called SBC Communications, Inc. and covering Texas and the lower Midwest), Ameritech (covering the upper Midwest), BellSouth (covering the Southeast), Bell Atlantic (covering the Middle Atlantic), and NYNEX (covering New England). See Bittner, supra note 168, at 305. NYNEX and Bell Atlantic, as well as SBC Communications and Pacific Telesis, have since merged, leaving five Baby Bells. See Steven Lipin, How Long Can Merger Boom Continue?, WALL ST. J., July 11, 1996, at C1. In May, 1998, SBC Communications entered into a merger agreement with Ameritech, a transaction that, when completed, would leave only four Baby Bells. See Growing Up: SBC Communications To Acquire Ameritech In a $55 Billion Deal, WALL ST. J., May 11, 1998, at A1. One observer has concluded that, as a result of these mergers, "[i]t appears as though the Bells are trying to put back together the old AT&T monopoly they once constituted." Id.
186. The seven original Baby Bells included Pacific Telesis Group (covering California and the lower western states), US West (covering the northwestern states and some of the lower Southwest), Southwestern Bell (now called SBC Communications, Inc. and covering Texas and the lower Midwest), Ameritech (covering the upper Midwest), BellSouth (covering the Southeast), Bell Atlantic (covering the Middle Atlantic), and NYNEX (covering New England). See Bittner, supra note 168, at 305. NYNEX and Bell Atlantic, as well as SBC Communications and Pacific Telesis, have since merged, leaving five Baby Bells. See Steven Lipin, How Long Can Merger Boom Continue?, WALL ST. J., July 11, 1996, at C1. In May, 1998, SBC Communications entered into a merger agreement with Ameritech, a transaction that, when completed, would leave only four Baby Bells. See Growing Up: SBC Communications To Acquire Ameritech In a $55 Billion Deal, WALL ST. J., May 11, 1998, at A1. One observer has concluded that, as a result of these mergers, "[i]t appears as though the Bells are trying to put back together the old AT&T monopoly they once constituted." Id.
187. Robert Bork sees an "exact" parallel between the monopoly leveraging condemned in Lorain Journal and the attempt by Microsoft to extend its monopoly power from the operating system market to other applications markets. See John R. Wilke & David Bank, Bork Calls for Sherman Antitrust Case Against Microsoft, Will Advise Netscape, WALL ST. J., Apr. 21, 1998, at B10.
188. Thus, commentators have pointed out that network "joint ventures sometimes can reduce competition by becoming overly inclusive." DENNIS W. CARLTON & STEVEN C. SALOP, YOU KEEP ON KNOCKING BUT YOU CAN'T COME IN: EVALUATING RESTRICTIONS ON ACCESS TO INPUT JOINT VENTURES 34 (University of Chicago Ctr. for the Study of the Econ. and the State Working Paper No. 111, 1995); see also David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861, 882-83 (1995) ("Compulsory access increases the size of the joint venture, and if market power can be measured by aggregate market share, thereby increases its market power.").
189. Thus, commentators have pointed out that network "joint ventures sometimes can reduce competition by becoming overly inclusive." DENNIS W. CARLTON & STEVEN C. SALOP, YOU KEEP ON KNOCKING BUT YOU CAN'T COME IN: EVALUATING RESTRICTIONS ON ACCESS TO INPUT JOINT VENTURES 34 (University of Chicago Ctr. for the Study of the Econ. and the State Working Paper No. 111, 1995); see also David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861, 882-83 (1995) ("Compulsory access increases the size of the joint venture, and if market power can be measured by aggregate market share, thereby increases its market power.").
190. See Evans & Schmalensee, supra note 173, at 882 ("If firms can demand access to a successful joint venture, the incentive to enter the market independently will be materially diminished, thereby limiting intersystem competition."). "Free-riding" has been defined as "the acceptance of the benefits from work performed, innovations made, or risks taken by other firms without paying for those benefits." Pratt et al., supra note 2, at 543; see also Chicago Prof'l Sports Ltd. Partnership v. National Basketball Ass'n, 961 F.2d 667, 675 (7th Cir. 1992) ("Free-riding is the diversion of value from a business rival's efforts without payment."); Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 212 (D.C. Cir. 1986) (Bork, J.) ("A free ride occurs when one party to an arrangement reaps benefits for which another party pays.").
191. As Donald Baker points out: Are we sure that successful network founders would do it again - or so aggressively - if they knew that their "differentiated" product would end up being "universal?" . . . Is differentiation not the type of incentive . . . which is likely to be blunted if the would-be innovators believe that, upon the success of the venture, the advantage can be usurped by late-comers? Baker, supra note 109, at 1073.
192. See id. at 1010.
193. Id. at 1015.
194. Many local cable networks have a "reputation for poor customer service." Mark Landler, The Dishes Are Coming: Satellites Go Suburban, N.Y. TIMES, May 29, 1995, at 37. Direct-broadcast satellite television ("DBS") allows televisions to receive multichannel broadcasts directly from satellites and thus bypass cable systems. DBS became nationally available in the fall of 1994. With such a viable competitor in the secondary market, the cable networks may be forced to improve their customer service. See id.
195. See CARLTON & SALOP, supra note 173, at 28. [S]uppose the joint venture had admitted the new, low cost members and those new members caused market output to expand. If these new members increase total output in the market, that increase in output would lower output prices and benefit consumers. Even though the collective market share of the joint venture would rise, it would be erroneous to condemn this procompetitive admission of new members. Id.
196. As the Fifth Circuit stated in United States v. Realty Multi-List, 629 F.2d 1351 (5th Cir. 1980), [by virtue of access restrictions,] the public is denied the incentive to competition that new entry may bring . . . . A new entrant into the market might, for example, be more aggressive and willing to accept a lower commission rate. Exclusion of such a [new entrant] would tend to reduce the amount of price competition in the market. Id. at 1371.
197. Dennis Carlton and Alan Frankel, for example, "investigated the possibility that Dean Witter's admission to Visa would make the venture overinclusive and diminish competition between Discover Card and Visa . . . . [They] concluded that the intrasystem competition effect would offset any possible adverse intersystem effect so that price would fall if Dean Witter entered." Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans & Schmalensee, 63 ANTITRUST L.J. 903, 911 (1995).
198. See supra notes 90-95 and accompanying text.
199. See infra note 245 and accompanying text.
200. In ordering the interconnection with AT&T's local telephone lines in MCI, the Seventh Circuit pointed out that it would "not be economically feasible" for MCI to duplicate the Bell companies' "millions of miles of cable and line to individual homes and businesses." MCI Communications Corp. v. American Tel. & Tel., 708 F.2d 1081, 1133 (7th Cir. 1983). Similarly, in Fishman v. Estate of Wirtz, 807 F.2d 520 (7th Cir. 1986), the Seventh Circuit concluded that it would not have been reasonable for the plaintiff to have to incur the $19 million expense of constructing a new arena in order to obtain the Chicago Bulls franchise. Fishman, 807 F.2d at 540.
201. 629 F.2d 1351 (5th Cir. 1980).
202. Id. at 1373.
203. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985).
204. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986) (To survive antitrust scrutiny, a membership restriction "must be related to the efficiency sought to be achieved. If it is so broad that part of the restraint suppresses competition without creating efficiency, the restraint is, to that extent, not ancillary."); see also, Realty Multi-List, 629 F.2d at 1374 (finding that legality of membership rules of real estate multiple listing service depends upon their relationship to the "legitimate competitive needs" of the service).
205. Pratt et al.,supra note 2, at 545.
206. See Baker, supra note 109, at 1081 n.312, 1097.
207. Cf. Oahu Gas Serv. v. Pacific Resources, Inc., 838 F.2d 360 (9th Cir. 1988) (holding that a propane manufacturer was not under any obligation to modify its facilities to increase the supply of propane for the benefit of one of its competitors). In any event, few courts have the expertise to dictate the specific technical standards and tolerances that a network must follow in order to maintain open access. See Baker, supra note 109, at 1118.
208. In order to be upheld, however, technical qualifications for use of a network should contain objective standards that can be applied equally to all potential users. Vague and subjective standards that leave a wide latitude for interpretation should not be acceptable. In Realty Multi-List, for example, the Fifth Circuit voided a real estate multiple listing service's requirement that a member have a "favorable credit report and business reputation." Realty Multi-List, 629 F.2d at 1381.
209. But see Pratt et al., supra note 2, at 552 (arguing that, because networks become more valuable as they add members, higher fees for latecomers need "to be looked at critically").
210. Realty Multi-List, 629 F.2d at 1387. The courts have also made it clear, however, that networks are not required to charge fees that are less than their operating costs. See Laurel Sand & Gravel, Inc. v. CSX Transp., Inc., 924 F.2d 539, 544-45 (4th Cir. 1991).
211. See supra notes 93-95 and accompanying text.
212. But see Evans & Schmalensee, supra note 173, at 878 (arguing that "[n]ew industries present many serious free-riding problems").
213. Courts have voided rules that expressly prohibit the admission of competitors or grant current members the right to veto the admission of new members. In Associated Press v. United States, 326 U.S. 1 (1945), the Supreme Court voided a bylaw giving newspapers a veto right over the admission of competitors. See id. at 21-23. In SCFC ILC, Inc. v. VISA U.S.A., Inc., 819 F. Supp. 956, 986 (D. Utah 1993), rev'd, 36 F.3d 958 (10th Cir. 1994), the district court held that the VISA credit card system could not adopt a bylaw prohibiting the owner of a competing proprietary credit card from joining the system.
214. Some commentators argue, however, that network exclusivity rules actually promote competition between networks. They point out that, in the absence of such provisions, networks will have overlapping memberships and thus will be more likely to enjoy a cooperative rather than a competitive relationship. See David S. Evans & Richard L. Schmalensee, The Economics of the Payment Card Industry, NATIONAL ECON. RES. ASSOCS., INC. (1993); David A. Balto, Antitrust and Credit Card Joint Ventures, 47 CONSUMER FIN. L.Q. REP. 266 (1993).
215. Some commentators argue, however, that network exclusivity rules actually promote competition between networks. They point out that, in the absence of such provisions, networks will have overlapping memberships and thus will be more likely to enjoy a cooperative rather than a competitive relationship. See David S. Evans & Richard L. Schmalensee, The Economics of the Payment Card Industry, NATIONAL ECON. RES. ASSOCS., INC. (1993); David A. Balto, Antitrust and Credit Card Joint Ventures, 47 CONSUMER FIN. L.Q. REP. 266 (1993).
216. Although the VISA system does not prohibit membership in the MasterCard network, it does preclude its members from developing their own proprietary cards. See VISA, 819 F. Supp. at 977. The district court in VISA pointed out that, because a VISA membership is highly profitable, a bank is not likely to risk losing that membership by developing its own proprietary card. See id. at 977, 986; see also North Am. Soccer League v. National Football League, 670 F.2d 1249, 1261 (2d Cir. 1982) (striking down NFL rule that prohibited its members from obtaining ownership in competing leagues on grounds that the rule restricted ability of league members to engage in competition in the sports market).
217. In VISA, for example, VISA'S largest member, Citibank, issued its own proprietary cards, and VISA had never complained about Citibank's free-riding. See VISA, 819 F. Supp. at 966. VISA only adopted an exclusionary rule when Sears applied for admission to the network. See id. at 963-64.
218. See. e.g., Baker, supra note 109, at 1076; Lohr, supra note 92, at E16 (citing antitrust specialists who oppose excessive government intervention in high-technology markets).
219. See Guerin-Calvert, supra note 90 ("In many cases where natural monopoly characteristics have led to a single provider of services in a network industry, some form of price or entry regulation has been adopted at the state or federal level.").
220. Moreover, administrative agencies are often reluctant to let competition take the place of regulation. As one commentator has pointed out, "[t]he politics of regulation make it very difficult for any agency to release its wards to the mercies of the market. There is always some constituent interest to be served . . . . Regulators are generally hostage to political forces that make it difficult to open markets." Robert W. Crandall, Judicial Activism May Lower Your Phone Bill, WALL ST. J., Jan. 7, 1997, at A22.
221. See United States v. MCI Communications Corp., 1994-2 Trade Cas. (CCH) ¶ 70,730 (D.D.C. 1994) (permitting a joint venture between MCI and British Telecommunications); Eli Lilly & Co., 61 Fed. Reg. 31, 117 (F.T.C. 1996) (permitting acquisition of pharmacy benefit manager by pharmacy company); United States v. Tele-Communications, Inc., 59 Fed. Reg. 24,723 (D.O.J. 1994) (permitting merger of companies controlling cable television and programming operations); United States v. AT&T Corp., 59 Fed. Reg. 44,158 (D.O.J. 1994) (permitting merger between AT&T and McCaw Cellular Communications).
222. See cases cited supra note 204.
223. See supra note 204.
224. See supra note 204.
225. Professional sports leagues, for example, constitute a type of joint venture that possesses all the characteristics of an essential network. The leagues establish not only the rules of play but also the standards of interchange necessary to maintain competitive balance among teams, such as revenue sharing, team salary caps, and the drafting of players. See Joseph P. Bauer, Antitrust and Sports: Must Competition on the Field Displace Competition in the Marketplace?, 60 TENN. L. REV. 263, 276 (1993). Each of the professional sports leagues constitutes a monopoly within the relevant sport. No team can compete in Major League Baseball, the NFL, the NBA, or the NHL without being admitted to one of the leagues, and today it is nearly impossible for prospective owners to form an effective rival league. Therefore, under the precedent of the essential facilities cases, the leagues should not be permitted to refuse to admit qualified applicants. For a discussion of the rationale of applying the essential facilities doctrine to sports leagues, see Thomas A. Piraino, Jr., The Antitrust Rationale for the Expansion of Professional Sports Leagues, 57 OHIO ST. L.J. 1677 (1996).
226. Professional sports leagues, for example, constitute a type of joint venture that possesses all the characteristics of an essential network. The leagues establish not only the rules of play but also the standards of interchange necessary to maintain competitive balance among teams, such as revenue sharing, team salary caps, and the drafting of players. See Joseph P. Bauer, Antitrust and Sports: Must Competition on the Field Displace Competition in the Marketplace?, 60 TENN. L. REV. 263, 276 (1993). Each of the professional sports leagues constitutes a monopoly within the relevant sport. No team can compete in Major League Baseball, the NFL, the NBA, or the NHL without being admitted to one of the leagues, and today it is nearly impossible for prospective owners to form an effective rival league. Therefore, under the precedent of the essential facilities cases, the leagues should not be permitted to refuse to admit qualified applicants. For a discussion of the rationale of applying the essential facilities doctrine to sports leagues, see Thomas A. Piraino, Jr., The Antitrust Rationale for the Expansion of Professional Sports Leagues, 57 OHIO ST. L.J. 1677 (1996).
227. MCI Communications Corp. v. American Tel. & Tel., 708 F.2d 1081, 1146 (7th Cir. 1983).
228. Id. at 1132-33.
229. 47 U.S.C. §§ 251-252 (West Supp. 1996).
230. See id. at § 251 (a).
231. The Baby Bells must, among other things, implement the specific interconnection requirements set forth in a fourteen-point "competitive checklist." 47 U.S.C. § 271 (West Supp. 1996). The 1996 Act requires the FCC to consult with the Department of Justice and give "substantial weight" to its views on whether the Baby Bells have met the requirements for eliminating barriers to entry in local markets. Id. at § 271(d)(2). The FCC and the Department of Justice have not yet been convinced that local telephone markets have been opened up to competition, and thus the Baby Bells have not received approval to offer long-distance services. See Stephanie N. Mehta, Baby Bells See Threat, New Leverage in AT&T's Bid to Enter Local Markets, WALL ST. J., Jan. 12, 1998, at B10. The Fifth Circuit recently found that the provisions of the 1996 Act that preclude the Baby Bells from entering the long-distance market until they meet such requirements for opening up their local markets do not violate the Bill of Attainder Clause. See SBC Communications, Inc. v. Federal Communications Comm'n, No. 98-10140, 1998 WL 568362 (5th Cir. Sept. 4, 1998).
232. 47 U.S.C. § 251(c)(2)(D) (West Supp. 1996). In August 1996, the FCC issued its rules on the specific terms under which the local telephone companies must provide access to their local networks. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 61 Fed. Reg. 45,476 (1996) (to be codified at 47 C.F.R. pts. 1, 20, 51, & 90). In July, 1997, however, the Eighth Circuit vacated the FCC's rules on the grounds that the FCC exceeded its jurisdiction in establishing the prices which local telephone companies could charge new entrants. See Iowa Utils. Bd. v. Federal Communications Comm'n, 120 F.3d 753, 793-800 (8th Cir. 1997), cert. granted, 118 S.Ct. 879 (Jan. 26 1998).
233. See 47 U.S.C. § 541(b)(3)(A) (West Supp. 1996).
234. See John J. Keller, AT&T and MCI Explore Local Alliances, WALL ST. J., Feb. 12, 1996, at A3.
235. GTE, which had 1996 revenues of more than $21 billion, is larger than any of the Baby Bells and operates the largest telephone network in the United States. See John J. Keller, BT-MCI Merger Reshapes Telecom Industry, WALL ST. J., Nov. 5, 1996, at B1; The Fortune 500, FORTUNE, Apr. 28, 1998, at F1.
236. GTE, which had 1996 revenues of more than $21 billion, is larger than any of the Baby Bells and operates the largest telephone network in the United States. See John J. Keller, BT-MCI Merger Reshapes Telecom Industry, WALL ST. J., Nov. 5, 1996, at B1; The Fortune 500, FORTUNE, Apr. 28, 1998, at F1.
237. See The Fortune 500, supra note 217, at F7. The largest of these firms, AT&T, had annual revenues of almost $75 billion, assets of almost $55 billion, and profits of almost $6 billion during 1996, ranking it number seven on the Fortune 500. See id. at F1.
238. Many telephone systems today lack the capacity to deliver signals fast enough to keep up with the speed of the Internet. See Chuck Melvin, Modem Speed is Taking Off, CLEVELAND PLAIN DEALER, Aug. 19, 1996, at 5D. Local telephone systems, in fact, may face periodic interruptions of service in the future as thousands of customers dial into the Internet for extended periods. See Jon Van, Internet Use Straining Phone Lines, CHI. TRIB., Aug. 24, 1996, at 1.
239. Many telephone systems today lack the capacity to deliver signals fast enough to keep up with the speed of the Internet. See Chuck Melvin, Modem Speed is Taking Off, CLEVELAND PLAIN DEALER, Aug. 19, 1996, at 5D. Local telephone systems, in fact, may face periodic interruptions of service in the future as thousands of customers dial into the Internet for extended periods. See Jon Van, Internet Use Straining Phone Lines, CHI. TRIB., Aug. 24, 1996, at 1.
240. See SCFC ILC, Inc. v. VISA U.S.A., Inc., 819 F. Supp. 956, 994 (D. Utah 1993).
241. See id. at 962-64.
242. See Baker, supra note 109, at 1061-62.
243. United States v. Microsoft Corp., 980 F. Supp. 537, 543-44 (D.D.C. 1997).
244. See United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998).
245. See Where Attorney Generals Fear to Tread, supra note 33 ("In the next version of Windows, expected to ship early next year as Windows 98, Internet Explorer will blend with the operating system in a tightly integrated format."); The Next Windows, ZD Net (visited Aug. 1, 1997) 〈http: //xlink.zdnet.com/cgi-bin/texis/xlink/xlink?config=advanced&Utype=D〉 ("The interface is dramatically changed over Windows 95, with the Web browser tightly integrated into the desktop."); Jesse Berst, Three Hidden Dangers Dog Microsoft, ZD Net (visited Dec. 17, 1997) 〈http://www.zdnet.com/anchordesk/story/story_1560.html〉 ("There could be no Windows 98 without Internet Explorer, because they are essentially the same thing."). The web-browsing function is used for many of the basic features of the operating system. Among other things, Windows 98 will allow users to access the Internet directly while using various applications programs. See Walter S. Mossberg, Personal Technology: Windows 98 Offers Users Some Useful, But Not Vital, Features, WALL ST. J., May 14, 1998, at B1.
246. See Where Attorney Generals Fear to Tread, supra note 33 ("In the next version of Windows, expected to ship early next year as Windows 98, Internet Explorer will blend with the operating system in a tightly integrated format."); The Next Windows, ZD Net (visited Aug. 1, 1997) 〈http: //xlink.zdnet.com/cgi-bin/texis/xlink/xlink?config=advanced&Utype=D〉 ("The interface is dramatically changed over Windows 95, with the Web browser tightly integrated into the desktop."); Jesse Berst, Three Hidden Dangers Dog Microsoft, ZD Net (visited Dec. 17, 1997) 〈http://www.zdnet.com/anchordesk/story/story_1560.html〉 ("There could be no Windows 98 without Internet Explorer, because they are essentially the same thing."). The web-browsing function is used for many of the basic features of the operating system. Among other things, Windows 98 will allow users to access the Internet directly while using various applications programs. See Walter S. Mossberg, Personal Technology: Windows 98 Offers Users Some Useful, But Not Vital, Features, WALL ST. J., May 14, 1998, at B1.
247. See Where Attorney Generals Fear to Tread, supra note 33 ("In the next version of Windows, expected to ship early next year as Windows 98, Internet Explorer will blend with the operating system in a tightly integrated format."); The Next Windows, ZD Net (visited Aug. 1, 1997) 〈http: //xlink.zdnet.com/cgi-bin/texis/xlink/xlink?config=advanced&Utype=D〉 ("The interface is dramatically changed over Windows 95, with the Web browser tightly integrated into the desktop."); Jesse Berst, Three Hidden Dangers Dog Microsoft, ZD Net (visited Dec. 17, 1997) 〈http://www.zdnet.com/anchordesk/story/story_1560.html〉 ("There could be no Windows 98 without Internet Explorer, because they are essentially the same thing."). The web-browsing function is used for many of the basic features of the operating system. Among other things, Windows 98 will allow users to access the Internet directly while using various applications programs. See Walter S. Mossberg, Personal Technology: Windows 98 Offers Users Some Useful, But Not Vital, Features, WALL ST. J., May 14, 1998, at B1.
248. See Where Attorney Generals Fear to Tread, supra note 33 ("In the next version of Windows, expected to ship early next year as Windows 98, Internet Explorer will blend with the operating system in a tightly integrated format."); The Next Windows, ZD Net (visited Aug. 1, 1997) 〈http: //xlink.zdnet.com/cgi-bin/texis/xlink/xlink?config=advanced&Utype=D〉 ("The interface is dramatically changed over Windows 95, with the Web browser tightly integrated into the desktop."); Jesse Berst, Three Hidden Dangers Dog Microsoft, ZD Net (visited Dec. 17, 1997) 〈http://www.zdnet.com/anchordesk/story/story_1560.html〉 ("There could be no Windows 98 without Internet Explorer, because they are essentially the same thing."). The web-browsing function is used for many of the basic features of the operating system. Among other things, Windows 98 will allow users to access the Internet directly while using various applications programs. See Walter S. Mossberg, Personal Technology: Windows 98 Offers Users Some Useful, But Not Vital, Features, WALL ST. J., May 14, 1998, at B1.
249. See supra notes 80-87 and accompanying text.
250. See Wilke, supra note 65, at B6. As one observer of the district court's decision in Microsoft recently pointed out, So now, if you're in Bill Gates' typically ultra-aggressive shoes, does this slow you down? No, it could speed you up. You simply come out with your fully integrated operating system, where the features of the browser are built-in essentials. You dissipate demand for the browser as a separate product. Tom Steinert-Threlkeld, Commentary: DOJ Decision Won't Slow Down Microsoft, ZD Net (visited Dec. 12, 1997) 〈http://xlink.zdnet.com/cgi-bin/texis/xlink/xlink?config= advanced&Utype=D〉. The court concluded that [w]hatever the United States' chances of winning permanent injunctive relief with respect to Windows 95 in the proceeding currently in the district court, they appear very weak with respect to Windows 98. The United States presented no evidence suggesting that Windows 98 was not an 'integrated product' and thus exempt from the prohibitions of [the consent decree]. United States v. Microsoft Corp., No. 97-5343, 1998 U.S. App. LEXIS 9492, at *2 (D.C. Cir. May 12, 1998).
251. See supra note 199.
252. See supra notes 121-23 and accompanying text.
253. See John Markoff, For Microsoft, Ruling Carries Fateful Tones, N.Y. TIMES, Dec. 13, 1997, at B1 ("Any time you slow down the pace of an industry you are going to undercut investment and that can kill innovation.") (quoting Luke Froeb, Professor at the Owen Graduate School of Management, Vanderbilt University).
254. "For nearly two decades, Microsoft has steadily added more and more to its program, from point-and-click icons to facsimile software. By bringing new features into its operating system, Microsoft has made computers more powerful and easier to use for millions of consumers." Lohr & Markoff, supra note 27, at C1.
255. Gates, supra note 70.
256. United States v. Microsoft Corp., 980 F. Supp. 537, 541 (D.D.C. 1997).
257. See Parloff, supra note 73, at 5, 6.
258. Netscape, for example, is integrating its browser into its Web site by allowing users of the browsers to receive e-mail and by directing such users automatically to the search services at its Web site. See Pollack, supra note 34, at C1.
259. For a discussion of such an open access order, see infra notes 253-61 and accompanying text.
260. See Pollack, supra note 34, at C1.
261. See supra notes 57-63 and accompanying text.
262. Netscape, for example, found it difficult to compete in the browser market when Microsoft was offering its browser for free. There is, in fact, evidence that Microsoft gave away the browser for the purpose of countering Netscape's challenge in the browser market. Paul Maritz, Microsoft's executive in charge of the company's operating systems business, has been quoted as stating a month after Netscape's initial public offering: "We are going to cut off . . . [Netscape's] air supply. Everything they're selling, we're going to give away free." Lohr & Markoff, supra note 27, at C4.
263. In recent years the federal courts have made it clear that the purpose of the antitrust laws is not to give firms a remedy against aggressive competition but to promote consumer welfare by protecting any conduct that increases output and lowers prices. See, e.g., Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (stating that the legislative record "suggest[s] that Congress designed the Sherman Act as a 'consumer welfare prescription.'" (quoting ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 66 (1978)). William Neukom, Microsoft's senior vice-president and general counsel, has pointed out in defending the company's integration of new applications into its operating system: "The fundamental notion of antitrust law is 'What's good for the consumer?' As long as the answer is, they're getting better goods and services and lower and lower prices, then there can't be a violation of antitrust law." Bank & Wilke, supra note 51, at A6.
264. Nevertheless, some commentators argue that structural relief is an appropriate response to monopoly power. See Walter Adams & James W. Brock, Revitalizing a Structural Antitrust Policy, 39 ANTITRUST BULL. 235 (1994) (citing inefficiencies in steel, automobile, and computer industries that could have been addressed by structural antitrust relief); William G. Sheperd, Antitrust Repelled, Inefficiency Endured: Lessons of IBM and General Motors for Future Antitrust Policies, 39 ANTITRUST BULL. 203 (1994) (arguing that IBM and General Motors would have performed more efficiently if they had been broken up in antitrust enforcement actions).
265. Nevertheless, some commentators argue that structural relief is an appropriate response to monopoly power. See Walter Adams & James W. Brock, Revitalizing a Structural Antitrust Policy, 39 ANTITRUST BULL. 235 (1994) (citing inefficiencies in steel, automobile, and computer industries that could have been addressed by structural antitrust relief); William G. Sheperd, Antitrust Repelled, Inefficiency Endured: Lessons of IBM and General Motors for Future Antitrust Policies, 39 ANTITRUST BULL. 203 (1994) (arguing that IBM and General Motors would have performed more efficiently if they had been broken up in antitrust enforcement actions).
266. See Denise Caruso, 'Baby Softs?', Envisioning a Breakup of Microsoft, N.Y. TIMES, May 25, 1998, at D1; see also Michael M. Weinstein, How to Break Up Microsoft, N.Y. TIMES, May 24, 1998, § 4, at 4 (describing another proposal for splitting Microsoft into separate companies for operating systems and applications programs).
267. See Denise Caruso, 'Baby Softs?', Envisioning a Breakup of Microsoft, N.Y. TIMES, May 25, 1998, at D1; see also Michael M. Weinstein, How to Break Up Microsoft, N.Y. TIMES, May 24, 1998, § 4, at 4 (describing another proposal for splitting Microsoft into separate companies for operating systems and applications programs).
268. Wilke, supra note 8, at B6; see also Cassidy, supra note 14, at 37 (arguing that Microsoft, by its actions, is in effect stating that "I command a user base of millions, and I'm just going to lever them over into the next market that I am taking over.") (quoting economist Brian Arthur).
269. As Bill Gates has pointed out, "Microsoft's competitors are busy incorporating basic operating system services such as printing and running applications into their browsers, making them nothing less than . . . an operating system." Gates, supra note 70, at A22; see also supra notes 54-60.
270. See supra note 50 and accompanying text.
271. See supra notes 98-102 and accompanying text.
272. Murray, supra note 10, at A1.
273. Steve Lohr, Microsoft Defends Its On-line Plans, N.Y. TIMES, June 10, 1995, at 3.
274. However, if they are allowed to use the Windows system to compete freely in the market for Internet access, the developers of browsers may be able to challenge Microsoft in the development of the next-generation operating system. See infra notes 237-39 and accompanying text.
275. See Prentice, supra note 41, at 1185.
276. Gates, supra note 70.
277. Such an approach would also preclude Microsoft from using its operating system as a means of monopoly leveraging in other markets. Microsoft is, for example, currently competing with Sun Microsystems to provide the software for the "set-top boxes" that will control various interactive applications for digital television. If Microsoft's Windows operating system achieves a dominant position in the market for the control of digital television, Microsoft could leverage its market power to control applications development for digital television, as it currently does for personal computers. See Cauley & Bank, supra note 60. Under the approach proposed in this Article, however, Microsoft could be required to allow all competing applications for digital television to use its operating system. Such an approach would protect competition in the primary market for digital television applications such as Web browsers, electronic mail, interactive advertising, electronic programming guides, and other new services. For a discussion of such services, see David Bank & Leslie Cauley, TCI Set-Top-Box Pacts Pit Microsoft Against Sun. WALL ST. J., Jan. 12, 1998, at A2.
278. United States v. Microsoft Corp., No. 97-5343, 1998 U.S. App. LEXIS 9429, at *3 (D.D.C. 1998).
279. DOJ Complaint, supra note 24, at *74.
280. There are in fact, currently three other types of browsers on the market - Opera, NeoPlanet and Surf Monkey - that allow consumers to use certain features not available from either Netscape or Microsoft. See Walter S. Mossberg, Personal Technology: Need a Browser? You Have Good Choices Beyond the Big Two, WALL ST. J., May 21, 1998, at B1.
281. The complaint filed by the state AGs in Microsoft III applies to certain applications markets beyond Internet browsers. The state AGs have alleged that Microsoft has improperly bundled its e-mail program with Windows and that the company has charged computer makers a "per-system" license fee that makes it impractical for them to buy applications competitive with those included in Microsoft's Office Suite. See States' Complaint, supra note 24, at 14-15.
282. See States' Complaint, supra note 24, at 12; David Bank, Is Microsoft a New "Public Utility?", WALL ST. J., May 19,1998, at B1.
283. See Joel Brinkley, Microsoft Has a Stronghold in Office Suites, N.Y. TIMES, May 27, 1998, at D1.
284. See DOJ Brief, supra note 45, at *31.
285. Id.
286. See supra note 62 and accompanying text. It has been reported that the DOJ has a 1997 Microsoft document stating to a personal computer manufacturer that, if it chose to load IBM's word processing and spreadsheet programs instead of Microsoft's, that action would "hurt the relationship" between Microsoft and the manufacturer. See Steve Lohr, U.S. and Microsoft to Talk Before Possible Showdown, N.Y. TIMES, Apr. 10, 1998, at D4. Other computer makers, including Compaq Computer Corporation, have reportedly told the DOJ that Microsoft threatened to cut them off from Windows if they refused to install Microsoft's browser. See John R. Wilke, Disk Jockeying: Suit Against Microsoft By Justice Department Now Seems Imminent, WALL ST. J., May 8, 1998, at A1.
287. See supra note 62 and accompanying text. It has been reported that the DOJ has a 1997 Microsoft document stating to a personal computer manufacturer that, if it chose to load IBM's word processing and spreadsheet programs instead of Microsoft's, that action would "hurt the relationship" between Microsoft and the manufacturer. See Steve Lohr, U.S. and Microsoft to Talk Before Possible Showdown, N.Y. TIMES, Apr. 10, 1998, at D4. Other computer makers, including Compaq Computer Corporation, have reportedly told the DOJ that Microsoft threatened to cut them off from Windows if they refused to install Microsoft's browser. See John R. Wilke, Disk Jockeying: Suit Against Microsoft By Justice Department Now Seems Imminent, WALL ST. J., May 8, 1998, at A1.
288. Computer manufacturers have made clear their preference for being able to install the types of applications desired by their customers. Gateway Chairman and Chief Executive Officer Ted Waitt recently stated that "how we integrate . . . [applications] should be up to the customer and up to us." Evan Ramstad, Gateway Offers Choice on Web Software, WALL ST. J., May 28, 1998, at A3. Jon Kies, an executive with NEC Computer Systems, has stated that the company's customers "do not like to have choices forced upon them, but would rather choose themselves which [software] they use." David Lawsky, Another Computer Maker Wants 'Choice' From Microsoft, Excite News, (visited May 29, 1998) 〈http://www.excite.com〉.
289. Computer manufacturers have made clear their preference for being able to install the types of applications desired by their customers. Gateway Chairman and Chief Executive Officer Ted Waitt recently stated that "how we integrate . . . [applications] should be up to the customer and up to us." Evan Ramstad, Gateway Offers Choice on Web Software, WALL ST. J., May 28, 1998, at A3. Jon Kies, an executive with NEC Computer Systems, has stated that the company's customers "do not like to have choices forced upon them, but would rather choose themselves which [software] they use." David Lawsky, Another Computer Maker Wants 'Choice' From Microsoft, Excite News, (visited May 29, 1998) 〈http://www.excite.com〉.
290. See DOJ Complaint, supra note 24, at *74.
291. States' Complaint, supra note 24, at 23.
292. See Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d 210, 228 (D.C. Cir. 1986); Polk Bros. v. Forest City Enters., 776 F.2d 185, 188 (7th Cir. 1985). Microsoft has pointed out that the DOJ's approach in Microsoft III provides a "free ride [that] benefits a particular company." Felicity Barringer, Web Coverage of Microsoft by Microsoft, N.Y. TIMES, May 25, 1998, at D4.
293. There are, for example, currently three Web browsers on the market that could provide consumers with alternatives not currently available from either Microsoft or Netscape. See supra note 256.
294. See Gates, supra note 70.
295. See Walter S. Mossberg, Personal Technology, WALL ST. J., May 14, 1998, at B1.
296. See States' Complaint, supra note 24, at 12; DOJ Complaint, supra note 24, at *13, 31-32; Wilke & Bank, supra note 172, at B10.
297. See DOJ Brief, supra note 45, at *62. Such alternative screens are often called "shell" screens because they constitute a layer of software that covers the main Windows screen. Many computer manufacturers offered shell screens until a few years ago, when Microsoft tightened its contractual prohibitions against such screens. Microsoft allegedly feared that the shell screens could become an alternative interface that would guide consumers to competing word processors, spreadsheets, games, and Internet browsers. See Steve Lohr, Microsoft Gives a Freer Hand to Gateway, N.Y. TIMES, May 28, 1998, at D1.
298. See Parloff, supra note 73, at 7.
299. PC Makers Push Ahead on Windows 98, WALL ST. J., May 19, 1998, at B6 (comments of Brett Bullington). Ken Wasch, president of the Software Publishers Association, has stated that "[t]he boot-up is one of those important issues that goes beyond the browser market. It speaks to the issue of the control of content and of tying software applications and services to the operating system." Lohr, supra note 262, at D4.
300. Microsoft may also argue that the desktop screen, which includes the company's valuable Windows trademark, constitutes a type of intellectual property whose integrity it is entitled to protect through the restrictions in its license agreements. However, the courts have made it clear that companies must demonstrate a legitimate business justification for asserting intellectual property claims that conflict with the antitrust laws. See, e.g., Image Technical Servs., Inc. v. Eastman Kodak, 125 F.3d 1195, 1209 (9th Cir. 1997) (finding that Kodak's refusal to sell patented and copyrighted parts for photocopiers to independent service organizations lacked valid business justification and thus could be illegal under the Sherman Act); Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d 1255, 1270, 1279 (N.D. Ala. 1998) (holding that Intel's refusal to sell patented microprocessors to competitor had "no legitimate business purpose" and that Intel could not "use the pretext of protecting intellectual property in order to violate the antitrust laws"). Because the icons for Microsoft applications can be deleted and the icons for competing applications added without affecting the integrity of the Windows operating system, Microsoft should not be deemed to have a legitimate business justification for enforcing the restrictive provisions in its licenses.
301. See David Bank, Microsoft Confirms June 25 Release of Windows 98, WALL ST. J., Apr. 14, 1998, at B8.
302. United States v. Microsoft Corp., 980 F. Supp. 537, 545 (D.D.C. 1997).
303. See Stephen Labaton, A Few Clicks, and Microsoft Has a Problem, N.Y. TIMES, Dec. 20, 1997, at A1.
304. DOJ Complaint, supra note 24, at *74. The states' complaint requests that Microsoft be ordered to provide computer manufacturers with "the ability to remove the visible and other means by which end-users may readily use . . . bundled browsers." States' Complaint, supra note 24, at 23 (emphasis added).
305. DOJ Brief, supra note 45, at *43.
306. Judge Jackson, in fact, was able to make similar modifications in a matter of minutes during a demonstration conducted at a Microsoft hearing in December 1997. See Labaton, supra note 277. In December 1997, the Government filed a complaint to find Microsoft in contempt for violating Judge Jackson's order in Microsoft. The company had claimed that it could not provide a current version of Windows 95 without the browser software, because deletion of the software would disable the operating system. On January 22, 1998, Microsoft and the Government stipulated to an order settling the issue. The settlement is similar to the approach proposed in this Article. The settlement essentially requires Microsoft to hide rather than to delete the files for its Explorer browser. Microsoft must only remove the Explorer icon, and if the customer requests, those few files that would be deleted by use of the "add/remove programs" function. See Microsoft and Antitrust Division Settle Dispute on Order Compliance, 74 Antitrust & Trade Reg. Rep. (BNA) No. 1844, at 76 (Jan. 22, 1998).
307. DOJ Complaint, supra note 24, at *53.
308. See David Bank, In the Microsoft Endgame, A Puzzle, WALL ST. J., Apr. 24, 1998, at B1.
309. Prior to filing its complaint, the DOJ reportedly considered requiring Microsoft to charge a "commercially reasonable" price for the browser. Id. Such a requirement would have contradicted the primary purpose of the antitrust laws, which is to promote consumer welfare by lowering prices. See supra note 241.
310. Image Technical Servs., Inc. v. Eastman Kodak, 125 F.3d 1195, 1225 (9th Cir. 1997).
311. See DOJ Complaint, supra note 24, at * 10-11; States' Complaint, supra note 24, at 12-13.
312. See DOJ Complaint, supra note 24, at *25-31; States' Complaint, supra note 24, at 12-14.
313. See DOJ Complaint, supra note 24, at *51; States' Complaint, supra note 24, at 23.
314. See DOJ Complaint, supra note 24, at 31; States' Complaint, supra note 24, at 13.
315. A firm without a dominant share of the operating system market would have an opposite incentive to make it easier for applications programmers to use its operating system. In such a way the firm could encourage wider use of its own system. IBM, for example, has established regional centers and 800 numbers to assist programmers in using its OS/2 operating system. See O'Rourke, supra note 99, at 514.
316. See United States v. Microsoft, 159 F.R.D. 318, 334 (D.D.C. 1995) (stating that allegations against Microsoft include charges that Microsoft "manipulates its operating system so competitors' applications software are inoperable or more difficult for the consumers to utilize effectively"); Response of the United States to Public Comment Concerning the Proposed Final Judgment and Notice of Hearing, 59 Fed. Reg. 59,426, at 59,427 (D.O.J. 1994) (stating that the Federal Trade Commission "considered whether Microsoft had deliberately created incompatibilities between its Windows operating system software product and its competitors . . . products in order to disadvantage those competing products"); see also Cassidy, supra note 14, at 35 ("A few years ago, Microsoft told customers that DR-DOS would not work with Windows 3.1, which was then being tested, and those who tried got an error message on their screens."); O'Rourke, supra note 99, at 545 ("[I]f it is true that Microsoft error messages appear in Windows when operating systems other than MS-DOS are used, this may indicate some predatory intent because it discourages customers from buying other operating systems.").
317. See Gates, supra note 70.
318. DOJ Brief, supra note 45, at *18 n.9.
319. Indeed, some commentators have described the Windows API interface itself as an essential facility. See, e.g., O'Rourke, supra note 99, at 546 ("By virtue of the operating system provider's monopoly power, its interface becomes an essential facility because access to it is necessary for others to compete.").
320. For example, Marc Andreesen, an executive vice president of Netscape, has stated that Microsoft threatened Netscape at a 1995 meeting that "you either let us invest in your company or we won't give you access" to the technical information necessary to write software that was on Windows. See John R. Wilke, Microsoft Subject of New Antitrust Probe, WALL ST. J., Apr. 24, 1998, at A2.
321. See Amy C. Page, Note, A Case Study in International Competitiveness. High Technology and the Future of Antitrust Law, 47 FED. COMM. L.J. 99, 104 (1994) (describing allegations that Microsoft gives product information to other applications developers but gives its own developers a more complete version of such information first); see also Jared Sandberg, Infighting Unravels Alliance Seeking Standard to Protect Internet Purchases, WALL ST. J., Sept. 28, 1995, at B10 (reporting that the chairman of Netscape alleged that Microsoft "had demanded a 20% stake [in Netscape] and a seat on [Netscape's] board . . . in return for giving Netscape important technical data on Microsoft's new operating system.").
322. See Amy C. Page, Note, A Case Study in International Competitiveness. High Technology and the Future of Antitrust Law, 47 FED. COMM. L.J. 99, 104 (1994) (describing allegations that Microsoft gives product information to other applications developers but gives its own developers a more complete version of such information first); see also Jared Sandberg, Infighting Unravels Alliance Seeking Standard to Protect Internet Purchases, WALL ST. J., Sept. 28, 1995, at B10 (reporting that the chairman of Netscape alleged that Microsoft "had demanded a 20% stake [in Netscape] and a seat on [Netscape's] board . . . in return for giving Netscape important technical data on Microsoft's new operating system.").
323. See O'Rourke, supra note 99, at 517 n. 165.
324. See id. at 548, n.297 ("Without such an order, the mere right to decompile is likely to be meaningless because competitors would always lag behind the first-to-market software provider who controls the essential facility.").
325. As one commentator recently pointed out, "[t]he idea would be to give all software makers the same information about the codes that make up Microsoft's operating system that its own software developers have, and at the same time." Murray, supra note 10, at A1.
326. In Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d 1255, 1291-93(N.D. Ala. 1998), the court required Intel to disclose to a competitor advance information concerning new technical developments in its microprocessors. The court pointed out that, in light of "the short shelf life" of new computer products, the competitor had a particularly valid justification for receiving such information in advance of its release to the public. Id. at 1274.
327. Indeed, a requirement that Microsoft disclose information concerning its operating system would be similar to the compulsory licensing of intellectual property, a remedy that generally has been rejected by the courts for similar reasons. See supra note 147 and accompanying text.
328. O'Rourke, supra note 99, at 513, n.150.
329. Microsoft had, in fact, originally disclosed the source code for its applications programs to IBM so that IBM could adopt its OS/2 operating system to run Microsoft applications. In September 1993, however, the companies announced that their agreement to exchange such source code would be terminated. See Stuart J. Johnston & Doug Barney, IBM Fights For Visitation Rights to Windows API, INFOWORLD, Sept. 6, 1993, at 1, 22.