I submit this Tunney Act comment as a professor of antitrust law and because of my
interest in the proper development of antitrust law. I have not been paid by anyone
else to work on the Microsoft case, and do not submit this comment on behalf of any
other party. I am instead submitting this filing pro bono, on behalf of the public
interest. I am a Professor of Law at Harvard Law School, where I teach antitrust law,
but submit these comments in my personal capacity, and the views expressed here are
not offered on behalf of, nor intended to express the views of, Harvard University.
system performance, the removal of Internet Explorer by the prototype
program slightly improves the overall speed of Windows 98. Given
Microsoft's special knowledge of its own products, the company is readily able
to produce an improved implementation of the concept illustrated by Felten's
prototype removal program. In particular, Microsoft can easily identify
browsing-specific code that could be removed from shared files, thereby
reducing the operating system's memory and hard disk requirements and
obtaining performance improvements even beyond those achieved by Felten.”
[FN 4]
Nor was this reduction in speed compensated for by increased stability or security.
To the contrary, the district court found that Microsoft's technological bundling made
its operating system both more prone to crashing and more susceptible to virus
infections.
“Microsoft has harmed even those consumers who desire to use Internet
Explorer, and no other browser, with Windows 98. To the extent that
browsing-specific routines have been commingled with operating system
routines to a greater degree than is necessary to provide any consumer benefit,
Microsoft has unjustifiably jeopardized the stability and security of the
operating system. Specifically, it has increased the likelihood that a browser
crash will cause the entire system to crash and made it easier for malicious
viruses that penetrate the system via Internet Explorer to infect non-browsing
parts of the system.”
[FN 5]
A fortiori, the district court found that those who did not want Internet Explorer
suffered worsened technological performance from Microsoft's bundling because
they were saddled with “an operating system that runs more slowly than if Microsoft
had not interspersed browsing-specific routines throughout various files containing
routines relied upon by the operating system” and that meant “performance
degradation, increased risk of incompatibilities, and the introduction of bugs.”
[FN 6]
The district court also found that, in addition to conferring no technological benefit
on its own products, Microsoft's bundling degraded the technological performance
of rival products. The court concluded that Microsoft's:
“actions forced OEMs either to ignore consumer preferences for Navigator or
to give them a Hobson's choice of both browser products at the cost of
increased confusion, degraded system performance, and restricted memory. .
. . Microsoft forced those consumers who otherwise would have elected
Navigator as their browser to either pay a substantial price (in the forms of
downloading, installation, confusion, degraded system performance, and
diminished memory capacity) or content themselves with Internet Explorer.
. . . . None of these actions had pro-competitive justifications.”
[FN 7]
Microsoft was further found guilty of other technological manipulation that inflicted
technological degradation on other products.
“Microsoft went beyond encouraging ICPs [Internet Content Providers] to take
advantage of innovations in Microsoft's technology, explicitly requiring them
to ensure that their content appeared degraded when viewed with Navigator
rather than Internet Explorer.”
[FN 8]
Indeed, the district court even found that Microsoft engaged in efforts that resulted
in technological degradation for software users generally.
“Finally, by pressuring Intel to drop the development of platform-level NSP
software, and otherwise to cut back on its software development efforts,
Microsoft deprived consumers of software innovation that they very well may
have found valuable, had the innovation been allowed to reach the
marketplace. None of these actions had pro-competitive justifications.”
[FN 9]
The findings that, to foreclose rivals, Microsoft engaged in technological integration
that had no procompetitive or technological justification were fully vindicated by the
Court of Appeals. That Court concluded:
“Microsoft proffers no justification for two of the three challenged actions that
it took in integrating IE into Windows--excluding IE from the Add/Remove
Programs utility and commingling browser and operating system code.
Although Microsoft does make some general claims regarding the benefits of
integrating the browser and the operating system, it neither specifies nor
substantiates those claims. Nor does it argue that either excluding IE from the
Add/Remove Programs utility or commingling code achieves any integrative
benefit. . . . Microsoft failed to meet its burden of showing that its conduct
serves a purpose other than protecting its operating system monopoly. ”
[FN 10]
Further, the Court of Appeals also repeatedly found that Microsoft engaged in a series
of other anticompetitive acts that foreclosed the freedom to choose the best
technology and had no procompetitive justification or technological benefit
whatsoever. The Court of Appeals found that Microsoft's primary justification for its
exclusive contracts with Original Equipment Manufacturers “borders upon the
frivolous,” and that with one narrow exception, “all the OEM license restrictions at
issue represent uses of Microsoft's market power to protect its monopoly, unredeemed
by any legitimate justification.”
[FN 11]
The Court of Appeals similarly found that
Microsoft's exclusive contracts with Internet Access Providers had no procompetitive
justification,
[FN 12]
that “Microsoft . . . offered no procompetitive justification for its
exclusive dealing arrangements with the ISVs [Independent Software Vendors],”
[FN 13]
that “Microsoft offers no procompetitive justification for the exclusive dealing
arrangement” with Apple,
[FN 14]
and that “Microsoft offered no procompetitive
justification for the default clause that made the First Wave Agreements exclusive as
a practical matter.”
[FN 15]
The Court of Appeals also found that: “Microsoft's conduct
related to its Java developer tools served to protect its monopoly of the operating
system in a manner not attributable either to the superiority of the operating system
or to the acumen of its makers, and . . . Microsoft offers no procompetitive
explanation for its campaign to deceive developers.”
[FN 16]
Finally, the Court of Appeals
found: “Microsoft does not . . . offer any procompetitive justification for pressuring
Intel not to support cross-platform Java.”
[FN 17]
True, the Court of Appeals did not specifically pass on the district court's findings that in fact Microsoft's efforts at technological and nontechnological foreclosure had
adverse technological effects on the performance of its own products. But the Court
of Appeals statements repeatedly sustaining the district court findings that
Microsoft's bundling and actions had no procompetitive or technological justification
whatsoever imply approval of those more specific findings as well. In any event,
none of the district court findings that Microsoft's efforts at technological and
nontechnological foreclosure had adverse technological effects was reversed as
clearly erroneous by the Court of Appeals, and thus each of them remains the binding
law of the case.
[FN 18]
These prior findings cannot be second-guessed at this stage, and frame the Tunney
Act question. The Court of Appeals decision is authoritative on lower courts, and all
prior district court findings of fact that were not reversed by the Court of Appeals are
also binding under the law of the case. Nor would a Tunney Act proceeding be an
appropriate forum for second-guessing the accuracy of the findings in prior opinions
since such a proceeding does not purport to redo the fact finding process. To be sure,
neither the Court of Appeals nor the prior district court judge ever reviewed the
proposed settlement or made any Tunney Act ruling about whether it was in the
public interest. But my point is not that these prior findings settle the Tunney Act
question. My point is rather that any Tunney Act ruling must assume the correctness
of these findings.
Further, this is not a typical case of settlement proposed before trial or appeal, where
the court conducting a Tunney Act proceeding has reason to defer to government
authorities on the uncertainties and costs of securing and defending a judgment of
liability. Here, the trial and appeal are already over, and the findings and judgments
have already been secured and successfully defended. Nor is this anything like an
earlier Microsoft Tunney Act proceeding, where the judge that disapproved a
proposed settlement was reversed for relying on facts he read in a book but the
government's complaint never alleged and were never tested by the adversary process
and appeal.
[FN 19]
Here the relevant facts were alleged by the Department of Justice,
found true in an adversary proceeding, and sustained by an en banc court of appeals.
Thus the Tunney Act question before this court should properly be framed as follows.
Given an antitrust defendant that has been found repeatedly willing to engage in
anticompetitive technological and nontechnological conduct that had no
procompetitive justification at all, but indeed degraded technological performance,
is it in the public interest to approve a settlement that preserves the discretion of that
defendant to engage in technological bundling and design that excludes rivals and
lacks any demonstrable technological benefit?
This proposed test was repeatedly cited with approval and largely adopted in an earlier Court of Appeals decision that reviewed a claim that Microsoft's conduct violated a consent decree. [FN 22] However, the en banc Court of Appeals decision in this
case has interpreted antitrust liability more expansively. It decided that, for purposes
of both monopolization and tying claims, a positive technological benefit from
technological integration or design is not a sufficient defense, but rather must be
balanced against any anticompetitive effect.
[FN 23]
This test a fortiori condemns the cases
without any technological benefit that would be condemned under my test, but also
condemns some technological integration or design that does confer a positive
technological benefit. Such a test, if adopted in a consent decree, might raise serious
questions as to whether in practice enforcement would be either unfeasible or unduly
deter technological progress.
But it is an entirely different matter where, as here, a firm technologically bundles or
designs its products in a way that anticompetitively forecloses its rivals without any
procompetitive or technological justification whatsoever, and indeed retards
technological progress. Such behavior lacks any plausible justification, or even the
patina of one, and must be strongly condemned and rooted out of a competitive
economy. Thus, the minimum requirement that any settlement must meet before it
can be said to have provided the remedies necessary to protect the public interest
from the continued threat of Microsoft's antitrust violations would be to at least
restrict Microsoft from continuing to technologically bundle or design products in
ways that foreclose its rivals but do not improve technological performance at all.
This proposed settlement fails this test. The bottom line is that, while the settlement
provides some restrictions on various nontechnological methods of foreclosing rival
applications, it does nothing effective about technological foreclosure. It does not
even bar efforts to foreclose rivals with technological manipulations that affirmatively
harm the performance of Microsoft products.
Nothing in the proposed settlement prevents Microsoft from anticompetitively
foreclosing rivals by simply selling its operating system with other Microsoft
software included, even if such bundling confers no technological benefit whatsoever
or even harms performance. Nor does the proposed settlement even bar Microsoft
from purposefully designing its operating system in ways that confer no technological
benefit but make rival software work poorly. In both respects, the settlement deletes
restrictions the trial judge had previously ordered as necessary remedies during any
period Microsoft was not broken up.
[FN 24]
Given the judicial findings of a repeated past
willingness to subordinate technological performance to the goal of anticompetitively
foreclosing rivals, it is hard to see how it can be in the public interest to leave
Microsoft unrestricted in these ways.
[FN 25]
The proposed settlement leaves Microsoft free
to harm competition at the cost of technological progress in precisely the ways it was
found to have done so in the past.
Indeed, in both respects the proposed settlement actually worsens this problem. First,
the proposed settlement not only fails to prohibit, but appears to sanctify bundling
despite the lack of any technological justification by providing that
But none of these restrictions matter if Microsoft is free to engage in technological
foreclosure. If the computer makers and consumers who buy the Microsoft operating
system are forced to take a technological bundle that (without any technological
benefit) includes other Microsoft software, those computer makers and consumers
will have little incentive to substitute rival software, even if the rival software is
technologically superior. For example, suppose Microsoft and its rival both offer
software that costs $10 to make, but consumers value the rival software at $15 and
the Microsoft software at $10. Without bundling, computer makers or consumers
would buy the rival's superior software. But with bundling, the Microsoft software
is already included in the price of the operating system. Thus the computer makers
or consumers would not pay $10 to get the rival software when the improved
performance is only worth $5. Computer makers or consumers will have even less
incentive to use rival software that works worse because Microsoft purposefully
designed its operating system in ways that confer no technological benefit but create
interoperability problems for rival software.
Antitrust law and settlements should not impede genuine product innovation. If
Microsoft bundled software to achieve technological benefits that would not be
available if buyers combined their own software choices, then bundling should be
permitted. But the appeals court concluded that Microsoft failed to show any
technological benefit for its technological bundling, and the proposed settlement
leaves Microsoft free to repeat bundling that lacks any technological merit. Likewise,
if an operating system design decision makes Microsoft software run better,
Microsoft should be free to adopt it even if it hampers rivals until they make
modifications to take similar advantage of the improvement. But the proposed
settlement leaves Microsoft free to make design decisions that actually degrade
operating system performance in order to create problems for rival software.
In another binding ruling, the Court of Appeals held that:
“The Supreme Court has explained that a remedies decree in an antitrust case
must seek to 'unfetter a market from anticompetitive conduct,' to 'terminate the
illegal monopoly, deny to the defendant the fruits of its statutory violation, and
ensure that there remain no practices likely to result in monopolization in the
future.'"
[FN 28]
First, dropping the §1 tying claim did not amount to dropping all claims against
technological bundling because the Court of Appeals specifically found that
Microsoft's technological integration violated Sherman Act §2.
[FN 30]
Thus, at a
minimum, the prior findings require an effective remedy against technological
bundling that forecloses any rival software that could pose a competitive threat to the
operating system itself.
Second, it is well-established law that antitrust remedies may need to prohibit conduct
beyond what would violate antitrust law in order to be effective. Indeed, if all
antitrust remedies did was repeat the legal prohibitions contained in existing law, they
would hardly add anything. In particular, the Supreme Court decision in Loew's held
that, when a defendant has engaged in illegal bundling, “To ensure . . that relief is
effectual, otherwise permissible practices connected with the acts found to be illegal
must sometimes be enjoined.”
[FN 31]
Thus, where a defendant has been found guilty of
illegal technological bundling and design to protect its monopoly power, it would be
appropriate to make the remedy ban all forms of technological bundling and design
that foreclosed rival products but lacked any technological benefit, without
specifically requiring proof that the foreclosed products posed a meaningful threat to
the monopoly power. After all, when a defendant engages in technological
manipulation that has no technological benefit at all, the only rational reason for its
conduct must be to anticompetitively foreclose rivals. Given the absence of any
procompetitive virtue, there is no reason to inflict on the public the additional cost
and uncertainty of proving that the foreclosure had an anticompetitive effect. That
is particularly true where the tying claim was dropped for the strategic reason of
getting more quickly to the imposition of remedies, and not because the tying claim
was ever rejected on the merits.
In any event, even under the most narrow possible reading of the prior holdings in
this case, any proposed remedies must undo the adverse effects of (and deprive
Microsoft of the fruits of) the prior technological and nontechnological misconduct
that the district court and Court of Appeals found specifically foreclosed Netscape
Navigator and Sun Java. This would at a minimum indicate that an appropriate
remedy would include an obligation that Microsoft must carry Netscape Navigator
and Sun's version of Java on its operating system, so that those products would have
the opportunity to serve as a rival platform for applications, just as they could have
had without Microsoft's illegal conduct. Unfortunately, such a remedy is probably
now insufficient, since the foreclosure of these products has prevented a series of
technological developments that otherwise might have occurred had every computer
had a rival applications platform that could access the Internet. But, at least
prospectively, such a remedy would offer a nice market test of the proposition that
consumers might prefer to use these rival products as their applications platform,
because the remedy would afford consumers the market choice of doing so or not.
Finally, the whole proposed settlement would only last five years, leaving Microsoft
free to engage in the full range of its past anticompetitive conduct starting in 2007.
The mere fact that this threat will be looming in 2007 means that, even if the
proposed settlement restrictions were effective, this looming threat would likely
discourage any investments in long term software development, which may take years
before it results in a product and require several years of profitability after
introduction to recoup the investment. Indeed, since some of the proposed settlement
obligations would not kick in for a year, the proposed settlement would leave rivals
with only a four year window to try to profitably recoup investments in rival products
that Microsoft could foreclose. This is probably insufficient even if, contrary to fact,
the restrictions did meaningfully prevent foreclosure.
The proposed settlement should thus be modified to bar Microsoft from engaging
in technological integration or design that forecloses rival products but lacks any
technological benefit, and to provide more effective remedies against
nontechnological methods of foreclosure by closing the various loopholes in the
proposed settlement that I have described above.
Respectfully Submitted,
Einer Elhauge
TEL: 617-496-0860
January 27, 2002
True, the proposed settlement does impose some restrictions. It would prohibit
Microsoft from using agreements or threats to prevent computer makers or software
developers from dealing with Microsoft's rivals. It would also prohibit Microsoft
from making it impossible for computer makers or buyers to customize their
operating system to add or substitute rival software. And it requires Microsoft to
disclose the interface codes or server protocols necessary to design rival software to
run on its operating system.
The proposed settlement remedies fail this obligation because they do not unfetter the
market from the past anticompetitive technological bundling and product design. The
proposed remedies do not terminate the illegal monopoly. The proposed remedies do
not deny Microsoft the fruits of its statutory violation since Netscape and Java remain
technologically foreclosed with their diminished market shares. Nor do the proposed
remedies do anything to prevent Microsoft in the future from again inflicting the same
anticompetitive product bundling and design that forecloses rivals but lacks any
technological benefit.
Many have apparently been under the misimpression that the government plaintiffs
could no longer pursue remedies against technological bundling because the
government plaintiffs dropped their tying claim. But this decision to drop the tying
claim, which I applauded,
[FN 29]
did not reduce the need or ability to restrict technological
foreclosure as a remedy for the antitrust violations that the Court of Appeals found
Microsoft committed. This is true for two reasons.
Even if one got past the proposed settlement's failure to deal with technological
foreclosure, its efforts to deal with nontechnological foreclosure have problems as
well. In particular, even the weak restrictions that the proposed settlement would
impose have various loopholes that undermine their effectiveness. One troubling
loophole delays Microsoft's obligations to make disclosure and allow removal of
Microsoft middleware for up to twelve months.
[FN 32]
That is a lifetime in computer
software development, and one wonders whether rivals, with that kind of time lag,
will ever overcome it. Further, the proposed settlement permits Microsoft not to
disclose code that would compromise the security of “anti-piracy, anti-virus, software
licensing, digital rights management, encryption or authentication systems.”
[FN 33]
It is
quite possible that some of this code might be vital to the interoperability of rival
software. Further, excluding disclosure of authentication codes may allow Microsoft
to exclude rivals to Passport, its Internet authentication system, and then tie E-
commerce to its authentication monopoly. The proposed settlement also leaves
Microsoft free to use financial inducements to encourage computer makers to favor
Microsoft applications as long as those inducements are “commensurate” with their
sales of the Microsoft application or reflect “market development allowances.”
[FN 34]
Microsoft can also enter into joint ventures or contractual arrangements with software
developers that bar them from dealing with rival applications if that furthers some
bona fide contractual purpose,
[FN 35]
which probably will not be difficult to find.
Given the above, I am reluctantly forced to conclude that approving the proposed
settlement as a final judgment would not be “in the public interest,” as the Tunney
Act requires. 15 U.S.C. §16. It fails to “terminat[e] alleged violations,” the
“duration” and “relief sought” are unsatisfactory, the “anticipated effects of
alternative remedies” that dealt with technological foreclosure and dealt better with
nontechnological foreclosure would more effectively protect the public interest, the
proposed remedies are not “adequa[te]” to correct the violations found by courts, and
“the impact of entry of such judgment upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint” would be
negative. Id.
Professor of Law
Harvard Law School
1575 Massachusetts Ave.
Cambridge, MA 02138
FAX: 617-496-0861
EMAIL:
elhauge@law.harvard.edu
reaches any of the five grounds under which a defendant might prove that two items that meet this threshold test nonetheless constitute a single product. Id. at ¶1744-50 (laying out the five grounds).