Sunday, September 16, 2007

More Microsoft v. EU Pre-decision Thoughts

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.

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