Monday, September 17, 2007
Posted by Luke Froeb
Every MBA program in every country teaches students to compete using the "four P's" of marketing: price, product, place, and promotion. So when Microsoft began distributing its media player with its operating system, it would seem that it was competing by taking advantage of its low cost distribution channel ("place") and by improving functionality ("product.")
Not so fast. Today, the Court of First Instance ratified the European Commission's case against Microsoft, accusing it of "abusing its dominant position" by bundling its media player with Windows, and by refusing to supply "inter-operability information" to competitors. The Court seemed to be saying that because Microsoft was taking advantage of its advantages, it violated the antitrust laws. (Click here to read more).
Posted by D. Daniel Sokol
The judgment of the European Court of First Instance "CFI" in case T-201/04 Microsoft Corporation v Commission is now out. In what may be a troubling development (more analysis to follow), upon a quick read, it seems as if the CFI upheld the essential elements of the EC's case. Trans-Atlantic trouble may follow.
Sunday, September 16, 2007
Posted by Bill Page and John Lopatka
For the next few days, we’ll be blogging here about Microsoft and antitrust. In part, we’ll write about our new book, The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (University of Chicago Press 2007), which focuses on the 1998 government monopolization case and the follow-on private litigation in the United States. But we’ll also certainly have some things to say about today’s long-delayed decision of the European Court of First Instance in the European Microsoft case, which we are now scrutinizing. In the book, we call the U.S. litigation “the defining antitrust case of our era” and predict that “it will be the focus of scholarly discussion about the proper role of antitrust for years to come.” The differences between the U.S. and European enforcers on “the proper role of antitrust” highlight the continuing importance of the policy issues that Microsoft’s actions raise.
Our starting point is that antitrust should be guided by the consumer interest and should acknowledge the limitations of government in directing market outcomes, particularly in fast-moving markets. We would place a higher burden than some on the government to show that its actions will really improve conditions for consumers more than the forces of rivalry and innovation. As we show in our first chapter, the government’s checkered history in monopolization cases, particularly in its pursuit of structural and highly regulatory remedies, justifies our relatively circumspect approach. Throughout the book, we criticize both enforcers and courts in the Microsoft litigation for their decisions, although we find much to support in the ultimate resolution of the case. We agree, for example, with the D.C. Circuit’s rejection of liability for those aspects of Microsoft’s conduct that most obviously benefited consumers, particularly the provision of new products and services at attractive prices. On the other had, we criticize the court for failing to demand adequate theoretical and evidentiary support for the conclusion that Microsoft actually harmed consumers by integrating the Internet Explorer browser with Windows. We generally support the remedial approach of the final judgments in the case, although we have more recently criticized the protocol licensing requirement, which will remain in effect after the rest of the decree expires in November. See Software Development as an Antitrust Remedy: Lessons from the Enforcement of the Microsoft Communications Protocol Licensing Requirement.
Posted by D. Daniel Sokol
To help us parse out the larger meaning of the Microsoft decision, we have two of the world's leading experts on Microsoft and monopolization/abuse of dominance blogging with us this week- long time collaborators William Page of the University of Florida Levin College of Law and John Lopatka of Penn State Dickinson College of Law. Together they have recently published The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (University of Chicago Press 2007). They also serve (along with Notre Dame's Joe Bauer) as co-authors of the multi-volume treatise, Federal Antitrust Law. These tag team members are among the most prolific and influential antitrust scholars today. We are greatly honored that they are guest blogging with us.
Bill joined the University of Florida's Levin College of Law in 2001 as Marshall M. Criser Eminent Scholar in Electronic Communications and Administrative Law. Previously, he taught at the Mississippi College of Law and at Boston University School of Law. He also served as a DOJ Antitrust Section trial attorney.
John joined Penn State Dickinson School of Law from the University of South Carolina School of Law, where he was the Solomon Blatt Professor of Law. His title at Penn State is the A. Robert Noll Distinguished Professor of Law. He began his full-time teaching career at the University of Illinois College of Law and also served as an Associate in Law and Fellow in the Center for Law and Economic Studies at Columbia University Law School. He served as assistant director for planning for the Bureau of Competition of the Federal Trade Commission and from 2001 until 2004, he was a consultant to the Office of General Counsel of the Federal Trade Commission.
Posted by D. Daniel Sokol
The suspense of the Microsoft decision is killing me. It is difficult to blog about a decision that has yet to be rendered but here goes anyway. The Microsoft decision, which comes out tomorrow has the potential to create trans-Atlantic discord in a way not seen since the GE/Honeywell merger mess of 2001. That is, Microsoft has the potential to create significant problems in terms of exposing some of the differences between the US and EU approaches to antitrust in what has been in an era of increased harmonization across antitrust regimes. I think that what antitrust means by claims of efficiency is still open to debate across both sides of the Atlantic. Particularly on monopolization issues, there remain certain critical differences, as the Antitrust Modernization Commission and Section 2 hearings remind us vis-à-vis the EU Article 82 discussion paper. Perhaps the biggest potential danger from the decision is the possibility on inconsistent remedies across jurisdictions. With a company like Microsoft, this may have global effects and be the first significant test of the International Competition Network’s capacity to improve coordination and harmonization across jurisdictions based upon the creation of “best practices.”
Elsewhere, I have written about what I see as the impressive accomplishments of the ICN and in particular where the ICN has done a much better job that any of the other international antitrust institutions (WTO, OECD, UNCTAD). The Microsoft decision has the potential to significantly reduce the effectiveness of the ICN as it continues into year two of its analysis of unilateral conduct (disclosure: I am an NGA on the ICN unilateral conduct working group). Why does the ICN matter and why has it been so successful? In its form and function, the ICN is distinct from both the OECD and UNCTAD. There are two strengths to the ICN that both OECD and UNCTAD lack. The first is that the ICN allows and encourages non-governmental stakeholder participation. Empirical work suggests input in design by stakeholders leads to better outputs. In the antitrust context, users of antitrust systems help to shape the output of the ICN. These non-governmental stakeholders include academics, the business sector (companies, their outside lawyers and economists), and NGOs. Non-governmental stakeholder participation includes both developed and developing world participants.
The role and impact of non-governmental actors generally has increased across different areas of law. The participation of non-government stakeholders removes the insulation that antitrust agencies would have if they met only amongst themselves. The participation and interaction of different stakeholders shields against insulation by agencies that might ignore important information critical to achieving more effective results. Through their participation, private actors shape the nature and structure of their institutional environment. Such participation provides for important direct feedback loops to make corrections to policies.
The second distinguishing feature of the ICN that is that the ICN is a virtual organization with no permanent bureaucracy. This removes a level of bureaucracy and increases participation by agencies and non-government stakeholders. Without the support of all of these stakeholders, the ICN would cease to function. The advantage of the virtual design of the ICN is that agencies can more easily take ownership of the various work products and outputs. This ownership makes it more likely that the ICN will be able to diffuse its norms to antitrust agencies and to other users of antitrust. Because of an increased number of participants in any given country involved in the ICN, this creates additional nodes for knowledge of the work products. This in turn creates institutional memory and more contact points for norm diffusion. The lack of a permanent bureaucracy limits the potential for a bureaucratic dysfunction based on insulation or universalism. A large bureaucracy can lead to insulation in decision-making from alternative approaches. Bureaucrats may apply generalized knowledge inflexibly when particular circumstances may require a more contextual approach.
The ICN creates regulatory change through its various working groups. The purpose of each working group is three-fold: identify a problem for study; study the problem; and present findings and begin the process of harmonization. Through this process, as working groups build consensus on issues, this increases momentum for increased harmonization on antitrust law and policy. This is not to suggest that there is convergence on a single standard. Rather, the approach identified for consensus positions allows for leeway based on the specific country situation of each agency.
In a number of working groups, the ICN has moved from analysis and norm creation to implementation. The steering group has pushed for early success of issues that it can solve. These issues are ones where some consensus can be established. This is a results oriented agenda. The strength of the ICN has been in fostering procedural convergence, such as in mergers and cartels. The ICN has achieved some substantive results in those areas in which there is not substantive disagreement, such as cartels. In areas where there may be substantive disagreement, ICN findings for best practices have not been tested and the descriptive language of best practices is broad.
My hope is that we will see a Microsoft decision that will be well reasoned, make economic sense and not threaten the work of increased international harmonization across best practices, including on more substantive matters. Since GE/Honeywell I think that it is fair to say that the EU has become more economic based in its reasoning and decision-making. This is not to suggest that every EU decision need look like it would under a US analysis. The underlying systems between the EU and US remain different and we should expect to see certain differences emerge that allow for antitrust to work best under each system. However, at its core, we should hope that at the most basic level, the US and EU have at least similar understandings both of what constitutes anti-competitive harm (with the ICN helping in part to close this gap) and the potential implications of different remedies that may have global effects, particularly in particularly delicate questions in which we are dealing with issues involving innovation and unilateral conduct.
Posted by D. Daniel Sokol
In a departure from much of the literature that suggests that we still may be under-deterring cartels with the existing system of financial and non-financial penalties, Patrick J.G. Van Cayseele of the Department of Economics at the Catholic University of Leuven and P.D.N. Camesasca of Erasumas University School of Law suggest that EU cartel fines may be too high and may lead to over-deterrence in their new working paper The EC Commission's 2006 Fine Guidelines Reviewed from an Economic Perspective: Risking Over-Deterrence.
We test the economic principles that play a role for imposing fines against the intentions put forward by the EC Commission in the new 2006 Fine Guidelines.
Whereas a number of economists in the past adopted the opinion that cartel enforcement policy was too lax in Europe, it is now much stricter.
The 2006 Fine Guidelines only bear a slight link to the economic determinants of the advantages that an infringement produces. As a result, they introduce distortions, in the sense that some offenders are dealt with more severely than others. It is therefore not possible to translate stricter enforcement into
more effective enforcement. While serious offenders may still escape with a relatively favorable fine, there is now a risk that 'overkill' will be created in other cases.