becombined as successfully by the consumer as by the defendant, but rather whether they could be de-

signed to be. For while software is plastic, as the evidence in this case suggests, it is too simple to assume

(as the treatise does) that any combination is possible. It might be that an update to a program is so sig-

nificant, and the range of different installations of a program so vast, that it would be more efficient to

perform the update at the factory, so to speak, rather than permitting the consumer the choice. One can’t

know in the abstract. So to evaluate whether this is true, a court would have to investigate the character of

the two products — to examine, as this Court has, the nature of the interaction between the two prod-

ucts, and the character of the process that combines, or might combine, the two products. But to require

courts to engage in that inquiry would defeat the rule as a “screening” device. To apply ¶1746b would re-

quire an extensive factual inquiry into what “could be” done, contrary to the purpose of ¶1746b and con-

sideration (3) above that the inquiry be relatively simple.

These considerations suggest that at least the second disjunct of the “New Product Rationale” is

not usefully applied in the context of software products. To the extent that it turns on the technology of

bundling, it either requires a judicial review that is too extensive, or it creates an incentive for designers to

architect their software to fit an antitrust rule. Both results counsel against embracing this “special reason”

for treating two products as a “single product.”

The second “special reason” outlined by ¶1746 of the Areeda Treatise for treating two items as a

“single product” under the “New Product Rationale” (¶1746a) does not turn upon how the two products

are or could be bundled. Here the question is whether “no relevant analogue of bundling or unbundling

exists because the defendant’s bundle causes the items to operate together in a way that had not been tried

before.” AREEDA

TREATISE, ¶1746a, at 224. The case animating this test is United Statesv. Jerrold Elec-

IMAGE abd9.doc07.gif

not a “single product” but was instead an impermissible tie of MS-DOS and Windows 3.x. 1999 SUPPLEMENT,
¶1746.1, at 489. The same claim was recently made against Microsoft in the Calderalitigation. Caldera, supra. In
that case, because there was a dispute about whether in fact there was technological integration between the then
current versions of Windows and MS-DOS, the District Court permitted the issue to go to trial. According to
deposition testimony, and contrary to the assumption of the Court of Appeals in Microsoft II, in fact there was no
“shared code” between the two products. But in both that case, and under the consent decree case, this analysis
misses the first step of the Areeda test — whether it was a competitive market practice to bundle a GUI interface
with the operating system. Under that test, it would seem the dominant and emerging practice of other OS firms
was to bundle the GUI interface (Macintosh, and OS/2), and that the same bundle by Microsoft should be consid-
ered a “single product” — again, whether or not technologically the package shared code or was “truly integrated.”


tronics, 187 F. Supp. 545 (E.D. Pa 1960), relied upon by the Supreme Court in Jefferson Parish, where

Judge Van Dusen concluded that in a nascent market, the alleged bundling was justified, but at an un-

specified point later in the course of the case, it was no longer justified. Id. at 560. The aim of the test is

to protect this innovative new design, at least so long as it is new.32

The applicability of this test to the facts of this case might be questioned, because obviously,

browsers and operating systems have been functioning together for almost a decade. But as Microsoft

claims, Microsoft has bundled its browser technology in a way that has not been tried before — for

browsers, at least. Specifically, by choosing to componentize its browser functionality, and thereby expose

a larger range of APIs to other applications, Microsoft has caused its browser product to operate with its

operating system product in a “new way.” Thus to the extent there is a relevant “New Product Rationale”

for software products, it would appear that the analysis of ¶1746a is the better aspect of that rationale to

consider Windows 95/98 under.

But in the context of software products, this disjunct suffers from a flaw that is analogous to the

flaw with ¶1746b as applied to software. For again, because of the character of software, it is always pos-

sible to bundle software such that it operates in a “new way.” AREEDA

TREATISE, ¶1746a; 1999

SUPPLEMENT, at 494. This consideration led the Court of Appeals to look to other factors that might

limit the scope of its interpretation of “integrated products” — ways, that is, of distinguishing integrated

products that would reflect genuine improvements from new products that were merely pretextual. The

exclusion of mere “bolting” and the embrace of designs that bring “some good” are two ways to filter new

product designs to assure that the test does not immunize bundles too broadly.

But these limitations just lead the court down a path that has no obvious stopping point. Critics

of the Court of Appeals’ standard believe it is not extensive enough to capture strategic bundling behavior.

Other Courts have therefore suggested a more extensive inquiry into the character of the “integration.”

IMAGE abd9.doc02.gif

32Microsoft argues that “[n]o court has ever sustained such a challenge to a single integrated product.” Df. CL., at 2.
That is not completely correct. In Jerrold Electronics, while the court held that a television transmission system was
properly considered a “single-product” during its initial period of operation, it did sustain a challenge of that same
“single-product” after the introductory period passed. 187 F. Supp., at 560.


Caldera, supra, at 1319. And to the extent that the inquiry becomes more invasive, the less the test looks

like a “screening” test, and the more it looks like a full blown analysis into the merits of the design.

As I described above, these considerations have led the author of the most recent supplement to

the Areeda Treatise to recommend the finding of a “single product” “in all cases in which the code for the

two programs is interspersed such that the purchaser cannot readily separate them.” 1999 SUPPLEMENT,

¶1746.1b, at 494. As I said, if the Court embraced this view, then the Court would conclude that Win-

dows 95/98 is a “single product” for purposes of Section 1 tying, and Microsoft would prevail.

In my view, however, the evidence as this Court has found it suggests a more straightforward ap-

proach to the question of new software products — one that does not lose “most of the advantages of i n-

tegration” or create the incentive for software producers to “comply with” the rule “by interspersing code.”

Id. But one that does account for the special factors about software that Microsoft advances.

Under this approach, two software products combined in a “new way” would be considered a

“single product” for purposes of antitrust tying law — regardless of how they were linked (whether by

code or by contract) — but this conclusion would be presumptive only. The presumption could be de-

feated if the plaintiff can show that the particular bundle at stake raises the risk of a particular anticom-

petitive harm. If, in other words, it is a bundle of the kind of products likely to cause an anticompetitive

harm, then the presumption finding a “single product” would be rebutted.

What the risks that would defeat this presumption are I will describe in the next section. But I

want first to highlight the reasons why a test different from the current version of the Areeda test seems

especially appropriate in light of the facts that this Court has found.

As the treatise acknowledges, the effect of the “New Product Rationale” will be to create an in-

centive for software producers to modify their code to fit within the terms of the rule. Id.This, in my

view, is a significant weakness of the rule. So long as there is a risk of strategic bundling, the law should

not create an incentive for the bundler to hide that bundle in code. As this Court has found, such pretex-

tual bundling is both inefficient and costly. ¶173, 174. The law has no reason to create the incentive for

that inefficiency.


Instead, the “New Product Rationale” should be neutral between “new combinations” that are ef-

fected by contract or effected by code. If there are two software products that could be combined to oper-

ate together “in a new way,” then so long as there is no risk of strategic bundling, the law should allow the

innovator to decide how the two products are more efficiently combined. The aim of any antitrust inquiry

should be whether the particular bundle is a strategic bundle, aiming at anticompetitive ends, not whether

the bundle achieves it interlinkage through contract or software.

The better solution is to keep the court’s focus above the hood, so to speak, and probe the risk of

anticompetitive bundling of software through different techniques. That is the aim of the modification to

the “New Product Rationale” that I believe this Court could adopt. Under this modification, software

manufacturers who show that they have bundled two software products together in a “new way” should

get the benefit of this “New Product Rationale” whether their bundle achieves this benefit through “tec h-

nological integration” or not. But the benefit of this rule — treating two products as one — should be

presumptive only, subject to being defeated by the other considerations that I describe below.

The consequence of this rule would be that software bundling generally would constitute a single

product, so long as the defendant can establish that the bundling operates together in a “new way.” This

would mean that in the general case, a software producer would be free to add functionality to its software

products, whether or not that inclusion meant other software producers would be disadvantaged. As the

history of this case shows, there are many examples of improvements to the operating system that have

eliminated the demand for other products in the software industry.

But this Court has implicitly accepted this consequence by dismissing the States’ Section 2 claim

of “monopoly leveraging” against Microsoft. United Statesv. Microsoft Corp., 1998 WL 614485 (D.D.C.

1998), at *27. As the Court said there, in the ordinary case, antitrust law has little reason to fear this form

of bundling, even if the consequence is that competitors are driven out of business. The general rule

should be a lenient one, to encourage innovation in the design of software products; the exception should

be where there is good reason to fear that the bundle will create anticompetitive harm.


Under this approach to the “New Product Rationale,” then, Microsoft’s operating system and

browser functionality should be treated presumptively as a “single product” for purposes of antitrust tying

law, unless an independent reason exists why this type of bundle raises special anticompetitive concerns. I

consider one such concern in the next section.


Same Product Rationale

The third rationale relevant to this case is the “Same Product Rationale.” AREEDA


¶1747. Like the “New Product Rationale,” this test involves two inquiries, though only one directly sup-

ports the rationale. The core of the rationale recommends that if the defendant is bundling “complete

substitutes,” then the two products should be considered “one product” for purposes of tying law. But the

rationale is quick to make clear that if the defendant is bundling “partial substitutes,” then the “same

product rationale” does not apply. If the products are partial substitutes, then they should be considered

“two products” for purposes of tying law. AREEDA

TREATISE, at 232.

The reason for the difference lies in the differences in competitive harm likely to arise from the

bundle. “[A] tie of partial substitutes might leverage market power and spread inefficiency from one ‘mar-

ket’ to another. [O]nly in the partial substitute case can tying spreadthe inefficiencyto the new market.”


TREATISE, ¶1747, at 232. Thus, while complete substitutes bundled together are typically not

harmful to the competitive process, “bundles of partial substitutes are moredangerous than the typical tie.”


TREATISE, at ¶1747. Bundles of partial substitutes, Professor Hovenkamp notes, can “sabotage

a nascent technology that might compete with the tying product but for its foreclosure from the market.”

1999 SUPPLEMENT, ¶1746.1d, at 495.

This insight into the dangers of “partial substitutes” provides a check on the scope of the “New

Product Rationale.” Based on the facts that this Court has found, in light of the Supreme Court’s injunc-

tion that the “single product” inquiry must be “based on whether there is a possibility that the economic

effect of the arrangement is that condemned by the rule against tying,” Jefferson Parish, 466 U.S., at 21,

this Court could condition the “New Product Rationale” as applied to software products upon whether

the product was a “partial substitute” for the tying product. If it is a “partial substitute” that the plaintiff


can show will likely have an anticompetitive impact, then the bundle should not be considered a “single

product” for purposes of antitrust tying.

This rationale has a direct application to the Court’s findings in this case. The theory of the gov-

ernment’s case, and the core of the findings that this Court has made, is that Microsoft exercised its

power to protect what has been termed the “applications barrier to entry.” ¶31, 36-44. By maintaining

control over the APIs that independent software vendors write to, Microsoft is in a position to maintain

the dependency the market has on its Windows operating system. ¶68.

One aspect of Microsoft’s campaign, this Court has found, has been to assure that the browser

technology that Windows users deploy is a browser technology that it controls. ¶227. In this way, it can

assure that the browser doesn’t become a competitor to the Windows API set, or at least that, to the ex-

tent the browser exposes APIs, they are APIs that Microsoft controls as well. ¶79. By bundling a browser

that itself is a partial substitute for the Windows platform, but which Microsoft nonetheless controls, Mi-

crosoft is able, this Court has found, to avoid losing developers to a foreign API set.

In this way, “browser technology” has the potential to be a partial substitute for the Windows op-

erating system. It is not itself a complete substitute — as this Court has found, browsers do not expose

anywhere close to the number of APIs that an operating system does. ¶77. But to the extent that they

expose any significant set of APIs, sufficient to induce developers to write applications to the browser

APIs, they threaten to reduce the market power of the underlying tying product — Windows.

Applying the rationale of the partial substitutes test to the facts of this case, the Court could

therefore conclude that the presumption of the New Product Rationale — that the browser product and

operating system should be considered a “single product” — has been rebutted, and the two software

products of an operating system and browser functionality should be considered as “two products” for

purposes of antitrust tying.

While application of this test, given the current design of Microsoft’s operating system, should

entail a finding of “separate products,” as a general matter software developers should be able to avoid the

risk of this “partial substitute” rationale simply by designing their software so as to give consumers an op-


tion not to take the partial substitute. Like the free but optional browsers discussed in the CMP test

above, if the product were easily removable there would be no antitrust forcing. This was apparently

IBM’s strategy with software bundling, see Innovation Data Processingv. IBM Corp., 585 F. Supp. 1470,

1476 (D. N.J. 1984) (two software products bundled together not considered tied where customer had the

option to remove one, and cancel the license for that component), though the court in that case did, in

dicta, suggest that that the removability did not matter to the test. Again, however, this case arose before

Jefferson Parish.33

Finally, nothing would require that the presumption in the “New Product Rationale” as applied

to software could be rebutted only in the case of partial substitutes. Obviously, there may be other objec-

tive and significant competitive threats that merit similar treatment.34But this Court need not write a

Treatise. It is enough to apply a reasonable rule in light of the facts that this Court has found.





If Microsoft II does not control, then the Court should decide the Section 1 tying claim under the

standards of Jefferson Parish. While case law before Jefferson Parishsuggested that the “separate product”

question may be affected by “integration,” Jefferson Parishmakes the “separate product” analysis turn upon

“separate demand.” Applying the “separate demand” test to the facts as this Court has found them, the

Court should conclude that the government has established “separate products” for purposes of Section 1


It is also appropriate, however, for the Court to suggest in addition a test to apply to software ties

that reflects the experience of this case. Based on the framework of the Areeda Treatise, I have suggested

33 The Areeda Treatise points out the pricing problem with a solution that permits a finding of a “single product” if
the defendant permits opt-out. See AREEDA TREATISE, ¶1743b, at 194-95. Since the product at issue here is zero-
priced, this Court need not resolve that question in this case.

34 For example, if the tied product raises rivals’ costs sufficiently to make competition in the tying market impossible,
then again a court may have reason to find the presumption that these two products are one rebutted. See, e.g., Pl.
CL., at 64; AREEDA TREATISE, ¶1729b; Thomas Krattenmaker & Steven Salop, Anticompetitive Exclusion: Raising
Rivals’ Costs to Achieve Power Over Price,
96 YALE L.J. 209, 230-48 (1986); Meese, Bundling, supra note 13, at 108-


an analysis that reflects the findings this Court has made, and the rightful concerns about innovation that

Microsoft has raised. I have argued:


A “Software Product” should be identified as “functionality separately valued by
consumers.” This Court has therefore found that “browser functionality” can be
considered a “software product.”


The “Competitive Market Practices” test indicates that while it is not improper
to bundle an optional browser with an operating system, there is no precedent
among competitors to validate tilting the operating system towards a particular
browser. Thus, the CMP test would provide no reason to treat this kind of
“browser functionality” combined with operating systems as a single product.


Under a modified “New Product Rationale,” however, there would be a reason to
treat the browser functionality and operating system presumptively as a single


But given the competitive threat posed by the bundling of “partial substitutes,”
that presumption would be rebutted, as the alleged tied product, browser func-
tionality, operates in this market as a partial substitute for an operating system.

“Browser technology” and “operating system” would therefore be considered two products for

purposes of antitrust tying.35

35 I have not addressed whether this modified “New Product Rationale” would entail a “rule of reason” analysis or a
modification of the “per se” rule, but I do not believe the test entails a “rule of reason” analysis. While the “separate
product” inquiry may be more extensive under a rule of reason, AREEDA TREATISE, ¶¶1742b, 1742c, and hence
more in line with the modified “New Product Rationale,” the aim of the modified rule is to narrow the over-
inclusiveness of the rule, and may therefore be an appropriate balance in the context of the per se rule as well. In any
case, the Supreme Court has indicated that the ultimate aim under both standards is the same. See NCAA v. Bd. of
Regents, University of Oklahoma
, 468 U.S. 85, 103-04 n.26 (1984).


For the foregoing reasons, in the manner described, this Court may conclude either that the gov-

ernment has succeeded in establishing a “separate product” for purposes of “tying” under Section 1 of the

Sherman Act, or that it has not.

Respectfully submitted,


Lawrence Lessig, pro hac vice

Harvard Law School
1525 Massachusetts Ave
Cambridge, MA 02138
(617) 495-8399

February 1, 2000

Amicus Curiae


I hereby certify that on this 1st day of February, 2000, I caused a true and correct copy of the
foregoing Brief of Amicus Curiae to be mailed by U.S. First Class Mail to:

A. Douglas Melamed, Esq.
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530

John L. Warden
Sullivan & Cromwell
125 Broad Street
New York, NY 10004

Richard L. Schwartz, Esq.
Deputy Chief, Antitrust Bureau
New York State Attorney General’s Office
120 Broadway, Suite 2601
New York, New York 10271

Kevin J. O’Connor, Esq.
Office of the Attorney General of Wisconsin
P.O. Box 7857
123 West Washington Avenue
Madison, Wisconsin 53703-7957
Fax: (608) 267-2223

Christine Rosso, Esq.
Chief, Antitrust Bureau
Illinois Attorney General’s Office
100 West Randolph Street, 13th Floor
Chicago, Illinois 60601
Fax: (312) 814-2549

- 2 -

Lawrence Lessig

[made with GoClick]