Mandatory contracting remedies in the american and european microsoft cases

Antitrust Law Journal

Volumn 75, Issue 3, 2009, Pages 787-809

  Page, William H ^a  

^a UNIVERSITY OF FLORIDA   (United States)

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EID: 67649185605     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (159)

1. See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985);
2. Otter Tail Power Co. v. United States, 410 U.S. 366 (1973).
3. See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143 (1951).
4. See, e.g., Gregory J. Werden, Identifying Exclusionary Conduct Under Section 2: The "No Economic Sense" Test, 73 ANTITRUST L.J. 413 (2006);
5. Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J. 311 (2006);
6. Einer Elhauge, Defining Better Monopolization Standards, 56 STAN. L. REV. 253, 330 (2003);
7. Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power over Price, 96 YALE L.J. 209 (1986);
8. Frank H. Easterbrook, Workable Antitrust Policy, 84 MICH. L. REV. 1696 (1986).
9. John E. Lopatka & William H. Page, Bargaining and Monopolization: In Search of the "Boundary of Section 2 Liability" Between Aspen and Trinko, 73 ANTITRUST LJ. 115, 124-126 (2005).
10. United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
11. NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998).
12. Id. at 137.
13. Id. (observing that "the freedom of the individual right to contract when not unduly or improperly exercised [is] the most efficient means for the prevention of monopoly" (quoting Standard Oil Co. v. United States, 221 U.S. 1, 62 (1911))).
14. Verizon Commc'ns v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).
15. Id. at 408.
16. Id. at 407-408
17. Id. at 408.
18. United States v. AT&T, 552 F. Supp. 131, 167-168 (D.D.C. 1982).
19. See, e.g-., Joseph D. Kearney, From the Fall of the Bell System to the Telecommunications Act: Regulation of Telecommunications Under Judge Greene, 50 HASTINGS L.J. 1395, 1465-1466 (1999) ("By rejecting various regulatory decrees (such as Quagmire I and Quagmire II) in favor of a structural decree, the parties enabled the district court to limit its continuing jurisdiction largely to matters at the margin of the RBOCs' operations that were permitted under the MFJ or to RBOC efforts simply to go beyond those operations.").
20. Whether the decree succeeded in this respect is subject to dispute. For criticism of the structural remedy, see RICHARD A. EPSTEIN, ANTITRUST CONSENT DECREES IN THEORY AND PRACTICE: WHY LESS IS MORE ch. 3 (2007).
21. United States v. Microsoft Corp., 97 F. Supp. 2d 59, 62 (D.D.C. 2000).
22. United States v. Microsoft Corp., 253 F.3d 34, 102-03 (D.C. Cir. 2001) (D.C. Circuit 2001).
23. Plaintiffs Memorandum in Support of Proposed Final Judgment at 14-15, 36, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed Apr. 28, 2000) (arguing that if the Windows business were separated from the applications business, the separated firms "will seek to maximize its own profits and will have incentives to ensure that its products interoperate with operating systems and applications produced by odiers"), available at http://www.usdoj.gov/atr/cases/f219100/219107.pdf.
24. WILLIAM H. PAGE & JOHN E. LOPATKA, THE MICROSOFT CASE: ANTITRUST, HIGH TECHNOLOGY, AND CONSUMER WELFARE 4-19 (2007).
25. United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 348 (D. Mass. 1953) (observing that "[i]t takes no Solomon to see that this organism cannot be cut into three equal and viable parts"),
26. aff'd per curiam, 347 U.S. 521 (1954).
27. D.C. Circuit 2001, 253 F.3d at 106-06;
28. New York v. Microsoft Corp., 224 F. Supp. 2d 76, 236-45 (D.D.C. 2002),
29. affd sub nom Massachusetts v. Microsoft Corp., 373 F.3d 1199, 1210 (D.C. Cir. 2004).
30. United States v. Microsoft Corp., 84 F. Supp. 2d 9, 19-24 (D.D.C. 1999) (D.D.C. Findings 1999).
31. For discussion of issues of market definition in the case, see PAGE & LOPATKA, supra note 18, ch. 3.
32. An application programming interface (API) is an interface that permits developers to provide convenient access to standard, low-level system functions.
33. DDC. Findings 1999, 84 F. Supp. 2d at 28-30.
34. D.C. Circuit 2001, 253 F.3d at 60-74.
35. See, e.g., Competitive Impact Statement at 3, United States v. Microsoft Corp., No. 98-1232 (D.D.C. Nov. 15, 2001) (stating that the judgments will benefit consumers by, among other things, "[e]nsuring that computer manufacturers have contractual and economic freedom to make decisions about distributing and supporting non-Microsoft middleware products widiout fear of coercion or retaliation by Microsoft, by broadly prohibiting retaliation against a computer manufacturer that supports or distributes alternative middleware or operating systems"), available at http://www.usdoj.gOv/atr//f222900/222994. pdf.
36. Id. (stating that the remedies would "restore the competitive threat that middleware products posed prior to Microsoft's unlawful undertakings").
37. Case COMP/C-3/37.792-Microsoft Corp., Comm'n Decision, 2007 OJ. (L 32) 23, 11 978-84 (Mar. 24, 2004) (Commission Decision 2004), available in full at http://www.europa.eu.int/comm/competition/antitrust/cases/decisions/37792/en. pdf,
38. affd, Case T-201/04, Microsoft Corp. v. Comm'n, 2007 E.C.R. 11-3601 (Ct First Instance).
39. Commission Decision 2004, supra note 27, ¶¶ 779-784.
40. Id. ¶ 1011.
41. Id. ¶ 999.
42. Case T-201/04, Microsoft Corp. v. Comm'n, 2007 E.C.R. 11-3601 (Ct First Instance) (CFI Decision 2007), available at http://eurex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:62004A0201:EN:HTML.
43. Steve Lohr & Kevin J. O'Brien, Microsoft is Yielding in European Antitrust Fight, N.Y. TIMES, Oct. 23, 2007, available at http://www.nytimes.com/ 2007/10/23/technology/23 soft.html?-r=l&oref=slogin.
44. See United States v. Microsoft Corp., 2006 WL 2882808, §IV.A (D.D.C. 2006) (D.D.C. Consent Decree 2006) (amending the United States and settling states' Final Judgment entered Nov. 12, 2002);
45. New York v. Microsoft Corp., 2006 WL 3949168, §IV.B (D.D.C. 2006) (D.D. C. Modified Final Judgment 2006) (amending the nonsettling states' Final Judgment entered Nov. 1, 2002).
46. D.D. C. Consent Decree 2006, 2006 WL 2882808, at *8 §IV.B. Although the nonsettling states' final judgment did not rely on the TC, the plaintiffs in that case have appointed a technical consultant, who had performed a similar role.
47. CFI Decision 2007, supra note 31, ¶¶ 1278-1279.
48. In the competitive impact statement's description of the benefits of the proposed consent decree, the government repeatedly emphasized that the decree would give OEMs (and Microsoft's other trading partners) "freedom" to distribute, develop, or promote rival middleware. Competitive Impact Statement at 3-4, United States v. Microsoft Corp., Div. No. 98-1232 (D.D.C. Nov. 15, 2001), available at http://www.usdoj.gov/atr/cases/f222900/222994.pdf.
49. Id at 24.
50. The court of appeals held that Microsoft monopolized by agreeing with Internet access providers, software developers, and Apple to disadvantage Netscape in a variety of ways. United States v. Microsoft Corp., 253 F.3d 34, 72-74 (D.C. Cir. 2001) (D.C. Circuit 2001).
51. D.D.C. Consent Decree 2006, 2006 WL 2882808, at *1 §III.A.
52. Id. at *3 § III.F.
53. Id. at *4 § III.G.
54. D.C. Circuit 2001, 253 F.3d at 60-62.
55. Id. at 62 ("The anticompetitive effect of the license restrictions is . . . that OEMs are not able to promote rival browsers, which keeps developers focused upon the APIs in Windows.").
56. D.D.C. Consent Decree 2006, 2006 WL 2882808, at *2 §III.C.1 (except that Microsoft may restrict including icons and entries in lists it legitimately specifies as providing "particular types of functionality").
57. Id. at *2 §III.C.2 (except where the shortcut would impair the functionality of the Windows interface).
58. Id. at *2 § III.C.3.
59. Id. at *3 § III.C.4.
60. Id. at *3 §III.C.5.
61. New York v. Microsoft Corp., 224 F. Supp. 2d 76, 267, §III.A (D.D.C. 2002),
62. affd sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004).
63. Id. at 267-268, § III.B (except that it may charge different royalties for different language versions, and may offer reasonable volume discounts, and "market development... discounts" based on legitimate criteria).
64. Joint Status Report on Microsoft's Compliance with the Final Judgments, at 19-20, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed July 17, 2003), available at http://www.usdoj.gov/atr/cases/f201100/201135.pdf.
65. For example, Microsoft gives discounts to OEMs that promote Windows in advertising by including a "tagline" that the OEM " recommends" a specified version of Windows. See Joint Status Report on Microsoft's Compliance with the Final Judgments, at 6-7, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed Oct. 8, 2004) [hereinafter JSR October 2004], available at http://www.usdoj.gov/atr/cases//205751.pdf.
66. Joint Status Report on Microsoft's Compliance with the Final Judgments, at 12-13, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed Oct. 19, 2005) [hereinafter JSR October 2005], available at http://www.usdoj.gov/atr/ cases/f212100/212195.pdf.
67. Supplemental Joint Status Report on Microsoft's Compliance with the Final Judgments, at 10, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed Nov. 18, 2005), available at http://www.usdoj.gov/atr/cases/f213100/213109.pdf.
68. Id. at 16.
69. Id. at 20.
70. JSR October 2004, supra note 52, at 11 ;
71. Joint Status Report on Microsoft's Compliance with the Final Judgments, at 13, United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed May 12, 2006), available at http://www.usdoj.gov/atr/cases/f216100/216127.pdf.
72. See, e.g., id. at 14-15 (reporting resolution of an OEM's complaint about customization of the initial boot sequence).
73. David S. Evans & Albert L. Nichols, The Behavior of PC OEMs and Growth of Server/Network Computing Five Years After the Final Judgments in U.S. v. Microsoft, Aug. 30, 2007, available at http://www.microsoftcom/presspass/ download/legal/SetdementProceedings/08-30MicrosoftExpertReportExhibitA.pdf.
74. Id. at 6.
75. Id.
76. Report of Ronald S. Alepin, 1 41, Exhibit B to Plaintiff States' Motion to Extend the Final Judgment through November 12, 2012, New York v. Microsoft Corp., No. 98-1233 (D.D.C. filed Oct. 16, 2007).
77. Gregg Keiszer, Firefox Users Urge Dell to Preinstall the Browser, COMPUTERWORLD, Mar. 13, 2007, available at http://www.computerworld.com.au/ index.php/id;257374685.
78. See Dell Ideastorm, available at http://www.ideastorm.com/article/show/ 62245/Have-Firefox-preinstalled-as-default-browser. According to this site, "Firefox advocates at Dell have initiated discussions and driven action around exploring alternative internet browsers and experiences."
79. Id.
80. Expert Report of Marco Iansiti, 113, United States v. Microsoft Corp., No. 98-1232 (D.D.C. Aug. 29, 2007), available at http://www.microsoft.com/ presspass/download/legal/SettlementProceedings/08- 30MicrosoftExpertReportExhibitB.pdf.
81. Browser Stats, The Counter.com, Oct. 18, 2007, available at http://www.thecounter.com/stats/2007/October/browser.php.
82. This figure combines Firefox 2.0 and 1.5. See Global Web Stats, Web Browsers, W3Counter, May 2008, available at http://www.w3counter.com/ globalstats.php.
83. United States v. Microsoft Corp., 253 F.3d 34, 74-78 (D.C. Cir. 2001) (D.C. Circuit 2001).
84. Walter Mossberg, Using Even New PCs Is Ruined by a Tangle of Trial Programs, Ads, WALL ST. J., Apr. 5, 2007, available at http://ptech.allthingsd. com/20070405/pcs-mired-inchores/.
85. D.C. Circuit 2001, 253 F.3d at 60-62.
86. Id. at 65.
87. Id. at 65-66.
88. Id. at 66-67.
89. Id. at 64 (restating Judge Jackson's reasoning that "having the IE software code as an irremovable part of Windows meant that pre-installing a second browser would 'increase an OEM's product testing costs,' because an OEM must test and train its support staff to answer calls related to every software product preinstalled on the machine; moreover, pre-installing a browser in addition to IE would to many OEMs be 'a questionable use of the scarce and valuable space on a PC's hard drive'") (citation omitted).
90. United States v. Microsoft Corp., 2006 WL 2882808, at *4 §III.H.l (D.D.C. 2006) (D.D.C. Consent Decree 2006). The mechanisms must provide separate and unbiased choices in diese actions.
91. The invocation must be in a "separate Top-Level Window" and display either the full interface or the MMP trademark.
92. D.D.C. Consent Decree 2006, 2006 WL 2882808, at *5 §III.H.2. Microsoft must ensure that Windows does not automatically alter an OEM's configuration of desktop icons without providing an unbiased option to the user, at least fourteen days after the initial boot- up, to confirm the change.
93. Id. § III.H.3.
94. JSR October 2005, supra note 53, at 8-11.
95. See also Joint Status Report on Microsoft's Compliance with the Final Judgments, at 19-20, United States v. Microsoft Corp., No. 98- 1232 (D.D.C, filed Mar. 6, 2007) (detailing programs to assure that middleware develop- ers' products would be ready for the changes in Vista), available at http://www.usdoj.gov/atr/cases/f221700/221759.pdf.
96. Massachusetts v. Microsoft Corp., 373 F.3d 1199, 1210 (D.C. Cir. 2004).
97. Id.
98. Id. at 1211-1212
99. Commission Decision 2004, supra note 27, ¶ 1011.
100. Id. ¶ 1013.
101. Id. ¶ 1012.
102. Id. ¶ 959.
103. Paul Thurrott, Microsoft to Begin Selling Windows XP K and KN Editions in South Korea this Week, WindowsITPro, Aug. 23, 2006, available at http://www.windowsitpro.com/Article/ArticleID/93280/93280.html. The Korean case is slighdy different in that even the standard versions of Windows will be required to include links to download rival prod- ucts. Microsoft has also created K versions of Vista for the Korean market.
104. See the Korean Vista site, http://www.microsoft.com/korea/windows/ products/windowsvista/default mspx.
105. Ingrid Marson, Still "No Demand" for Media-Player-Free Windows, ZDNet.co.uk, Nov. 18, 2005, available at http://news.zdnetco.uk/software/0, 1000000121,39237367,00.htm;
106. Paul McDougall, Microsoft Says "EU Version" of Windows Vista a Dud, INFORMATION WK., May 21, 2007, available at http://www.informationweek.com/ story/showArticle.jhtml?articleID=19 970031.
107. Evans & Nichols, supra note 59, at 2.
108. Id.
109. OLIVER WENDELL HOLMES, JR., COLLECTED LEGAL PAPERS 292-293 (Harcourt, Brace & Co. 1920).
110. United States v. Microsoft Corp., 2006 WL 2882808, at *3 §III.D (D.D.C. 2006) (D.D.C. Consent Decree 2006).
111. New York v. Microsoft Corp., 224 F. Supp. 2d 76, 173-77 (D.D.C. 2002) (D.D.C. States Remedy 2002),
112. off d sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004).
113. Massachusetts v. Microsoft Corp., 373 F.3d 1199, 1222 (D.C. Cir. 2004) (D.C. Circuit 2004).
114. D.D.C. States Remedy 2002, 224 F. Supp. 2d at 173.
115. D.D.C. Consent Decree 2006, 2006 WL 2882808, at *3 § III.E.
116. Id. at *5 §III.I.
117. Id. at *6 §III.J. Microsoft is only required to disclose its source code to the plaintiffs' Technical Committee, not to its rivals.
118. Id at *10 §IV.B.8c.
119. Id.
120. United States v. Microsoft Corp., 231 F. Supp. 2d 144, 192 (D.D.C. 2002). The court of appeals affirmed and refused to require more extensive disclosures. D. C. Circuit 2004, 373 F.3d at 1222-1225
121. William H. Page & Seldon J. Childers, Software Development as an Antitrust Remedy: Lessons from the Enforcement of the Microsoft Communications Protocol Licensing Requirement, 14 MICH. TELECOMM. & TECH. L. REV. 77 (2007), available at http://www.mtdr.org/volfourteen/page&childers.pdf.
122. "Plaintiffs informed the Court . . . that Plaintiffs hoped to see progress in terms of additional licensees. The Court agreed, noting that it 'was very, very concerned' about how Section III.E. had been working and wanted to observe the impact of Microsoft's revised license in the marketplace." Interim Joint Status Report on Microsoft's Compliance with the Final Judgments, at 3-4 (citing transcript of July 24, 2003 status meeting), United States v. Microsoft Corp., No. 98-1232 (D.D.C. filed Oct. 17, 2003), available at http://www.usdoj.gov/atr/cases/f201300/201386.pdf.
123. JSR October 2005, supra note 53, at 15-16.
124. Because the plaintiffs' technical experts are still finding flaws in the documentation, the court has extended the judgments for at least two more years. New York v. Microsoft Corp., 531 F. Supp. 2d 141 (D.D.C. 2008).
125. For an argument that the court is applying the wrong standard in evaluating compliance with this mandatory licensing provision, see William H. Page & Seldon J. Childers, Measuring Compliance with Compubory Licensing Remedies in the American Microsoft Case, 76 ANTITRUST L.J. (forthcoming 2009) (manuscript available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id= 1149862).
126. New York v. Microsoft Corp., 224 F. Supp. 2d 76, 122 (D.D.C. 2002),
127. off d sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004).
128. Evans & Nichols, supra note 59, at 15-30.
129. Expert Report of John E. Kwoka, Jr., 1 49, Exhibit A to the Plaintiff States' Motion to Extend the Final Judgments, New York v. Microsoft Corp., No. 98-1233 (D.D.C. filed Oct. 16, 2007).
130. Verizon Commc'ns v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 409 (2004)
131. (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 608, 610-611 (1985)).
132. See MARTY PONIATOWSKI, UNIX USER'S HANDBOOK ch. 29 (2d. ed. 2002). AT&T later licensed the AS/U technology to most major UNIX vendors, who provide what is essentially a "house brand" of the software that integrates with their own UNIX operating system products.
133. CFI Decision 2007, supra note 31, 1 573.
134. Id. ¶ 308.
135. This function is critical because of the importance of security and because of the technical problems posed by larger networks that include multiple servers that have to negotiate with each other while only requiring the user to log in a single time.
136. CFI Decision 2007, supra note 31, ¶¶ 190-191.
137. See generally Steven J. Vaughn Nichols, Samba 4 Moves Closer to Active Directory Server Compatibility, eWeek Linux-Watch, Sept. 6,2007, available at http://www.linux-watch.com/news/NS9104718779.html.
138. See Lohr & O'Brien, supra note 32.
139. CFI Decision 2007, supra note 31, ¶ 140.
140. Id. ¶ 142 This is apparendy also what the Commission and the CFI mean by "two-way" interoperability (1 226)-the disclosure must be sufficient to allow the licensee's product not only to do what it was designed to do widiin a network, but also to do everything that Microsoft's products do.
141. Id. ¶¶ 199-200.
142. Id. ¶ 221.
143. Id. ¶ 658.
144. New York v. Microsoft Corp., 224 F. Supp. 2d 76, 175-76 (D.D.C. 2002),
145. off d sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004).
146. CH Decision 2007, supra note 31, 1 195.
147. Id. ¶ 233.
148. Id. ¶ 262.
149. Case T-201/04, Ct of First Instance of the Eur. Cmtys., Apr. 26, 2006, at 18 ("What we are seeing in the blue bubble here is that they will all be twins. They will have identical logic. Each makes assumptions about the way other servers will work.").
150. On the next day, Andrew D. Tridgell, the founder and lead computer scientist of the Samba project contradicted this claim, stating, "What the blue barrier represents is a bubble of secrecy. The protocols used inside that blue bubble are exacdy the same in nature as the protocols used in odier parts of Microsoft's Active Directory infrastructure." Minutes of Proceedings, Day Four, Microsoft v. Comm'n of the Eur. Cmtys.,
151. Case T-201/04, Ct of First Instance of the Eur. Cmtys., Apr. 27, 2006, at 11-12. He further argued, based on the Samba team's analysis, that these protocols are not "inseparable" or "close-knit."
152. Id at 12. Because Active Directory is on all the "key servers" in corporate networks, the secrecy of its protocols gives Microsoft "a massive amount of leverage over its competitors."
153. Id. Shewchuk responded that similar logic among Active Directory servers allows them to make efficient assumptions about each other, particularly when one drops off the network and the remaining servers must calculate a "spanning tree."
154. Id. at 42-44. A non-Microsoft server, according to Shewchuk, would lack the parity of process with Microsoft servers, and would not be able to perform this function. He testified, "In order for me to have someone work with me inside the service boundary, they would need to have this same algorithm. That would mean I would have to explain to them how to create this map when they saw this information. I would need to disclose the same identical logic, the same internal information, so that they could calculate the map in the same algorithm."
155. Id. at 44-45. He observed that all server vendors (IBM, Sun, etc.) rely on homogeneous networks within their corresponding blue bubbles.
156. Id at 42-43. Dr. Tridgell did not address the specifics of this argument. Who is right in this dispute will depend on what happens in the implementation of the EC order.
157. For further discussion of this issue, see William H. Page & Seldon J. Childers, Bargaining in the Shadow of the European Microsoft Decision: The Microsoft-Samba Protocol License, 102 Nw. U.L. REV. COLLOQUY 332 (2008).
158. CFI Decision 2007, supra note 31, ¶ 265.
159. Steven J. Vaughan Nichols, Who Really Won in Microsoft vs. the EU?, eWeek Linux-Watch, Oct. 25, 2007, available at http://www.linux-watch.com/news/ NS8933238190.html.