Thursday, September 20, 2007
Posted by D. Daniel Sokol
The Economic Analysis Group of the DOJ's Antitrust Division has announced its fall seminar schedule, which you can download below.
Here are links to some of the papers:
October 9, Ciliberto
October 17, Asker
October 23, Yang
November 1, Kuhn
November 6, Harrington
December 4, Campbell
Posted by D. Daniel Sokol
With all the discussion this week about Microsoft, I thought it would be worthwhile to mention that there is an excellent new edited volume out by Cambridge University Press edited by Steven D. Anderman of the University of Essex titled The Interface Between Intellectual Property Rights and Competition Policy. The table of contents is as follows:
|1||The competition law/IP ‘interface’: an introductory note 1|
STEVEN D. ANDERMAN
|PART I Intellectual property rights and competition law in the major trading blocks 35|
|2||EC competition policy and IPRs 37|
STEVEN D. ANDERMAN AND HEDVIG SCHMIDT
|3||Competition policy and its implications for intellectual property rights in the United States 125|
RUDOLPH J. R. PERITZ
|4||The interface between competition law and intellectual property in Japan 250|
|PART II Intellectual property rights and competition law in smaller and medium sized open economies 313|
|5||Intellectual property rights and competition in Australia 315|
|6||Irish competition law and IP rights 348|
|7||The interface between intellectual property law and competition law in Singapore 375|
|PART III Issues related to the interface between intellectual property rights and competition law 427|
|8||Parallel imports 429|
MIRANDA FORSYTH AND WARWICK A. ROTHNIE
|9||Technology transfer 466|
|10||The relationship between intellectual property law and competition law: an economic approach 505|
PIERRE RÉGIBEAU AND KATHARINE ROCKETT
Wednesday, September 19, 2007
Posted by Bill Page and John Lopatka
I’ve had something to say about the CFI decision, but I should post something more directly about our new book, The Microsoft Case: Antitrust, High Technology, and Consumer Welfare. Much of the analysis in the book is relevant to the issues raised in the European case. Chapter 4 of our book, for example, addresses the problem of integration in the U.S. case, particularly how the D.C. Circuit approached the question of integration of the browser and the Windows operating system (the OS). We first examine the court’s analysis of the short-run effects of three levels of integration on consumers. We then examine its treatment of the long-term effects of integration—that is, whether Microsoft’s integration of the browser and the OS actually caused a reduction in competition by preventing Netscape’s browser (with or without Java) from developing into a rival platform that might have reduced the network effects (the “applications barrier to entry”) that protect the Windows monopoly.
1. Short-Run Effects on Consumers
The three levels of integration we discuss are (1) simple bundling of the browser and the OS; (2) preventing computer manufacturers (OEMs) or users from removing visible means of access to browsing functionality (icons, etc.); and (3) commingling browser and OS code. We suggest that none of these forms of integration harms consumers so long as all browsers are free and OEMs and end users are able to install rival browsers. (Both of those conditions are necessary for the analysis.) Microsoft may gain an advantage over rivals by bundling its browser with the OS, but only to the extent consumers benefit by receiving a free browser pre-installed. We see no reason to think allowing OEMs to delete access to the pre-installed browser would benefit consumers significantly; the greater consumer benefit would be for the OEM to pre-install a rival browser and allow the user to choose between them. (The notion that consumers would be confused by the sight of two browser icons is not plausible.) Indeed, OEMs might delete Microsoft’s browser as part of an exclusive deal with a rival browser producer, not to benefit consumers. One might argue that consumers will benefit if the rival outbids Microsoft for exclusivity on the desktop; the rival can pay more than Microsoft only if consumers prefer the rival’s product. But Microsoft was not allowed to participate in such an auction – it could not obtain exclusive placement. All of that said, we so no real harm in the eventual remedy of allowing end users flexibility to delete visible means of access the browser or to set their own preferred defaults, unless there are good technical reasons to override those choices.
Commingling browser and OS code does not harm consumers in a
relevant way for all the same reasons, and with the same qualifications. Requiring deletion of browser-only code, on
the other had, could potentially harm consumers by fragmenting the Windows API
set, as the courts found in the
2. Long-Run Effects on Consumers
The court of appeals held that the government did not have to prove Netscape’s browser would really have become a rival platform and eroded the applications barrier to entry. It was enough that the browser was a “nascent” rival and was viewed as such by Microsoft. We argue, however, that the government should have at least been required to offer a coherent theory showing how Microsoft’s actions in the browser market could have reduced competition in the OS market, where Netscape did not compete. We further argue that the government’s failure to prove there was a browser market doomed the most plausible scenarios under which the browser might have become a rival platform. Finally, we argue that the fact (and it was a fact) that Microsoft viewed Netscape as nascent competitor should not have been sufficient to condemn the actions it took against Netscape. Just as the plaintiff in a predatory pricing case must prove that the defendant will likely recoup its losses after the predatory campaign (that is, that competition will really be reduced) the government in Microsoft should have been required to show that the middleware threat was more than a mirage.
Posted by D. Daniel Sokol
Just as I feared. One impact of the Microsoft judgment has been to strain the relations across the Atlantic. According to the story, "It is totally unacceptable that a representative of the U.S. administration criticized an independent court of law outside its jurisdiction," Kroes told reporters referring to DOJ comments on the Microsoft case.
Posted by D. Daniel Sokol
In the latest issue of the American Economic Review, Volker Nocke of the Department of Economics at Oxford University and Lucy White of Harvard Business School ask Do Vertical Mergers Facilitate Upstream Collusion?
ABSTRACT: We investigate the impact of vertical mergers on upstream firms' ability to collude when selling to downstream firms in a repeated game. We show that vertical mergers give rise to an outlets effect: the deviation profits of cheating unintegrated firms are reduced as these firms can no longer profitably sell to the downstream affiliates of their integrated rivals. Vertical mergers also result in an opposing punishment effect: integrated firms typically make more profit in the punishment phase than unintegrated upstream firms. The net result of these effects in an unintegrated industry is to facilitate upstream collusion. We provide conditions under which further vertical integration also facilitates collusion.
Is the Difference Between US and European Monopolization One Based on Chicago/Post Chicago Economics?
Posted by D. Daniel Sokol
With apologies to Einer Elhague (the US approach is Harvard ), Herb Hovenkamp (the US approach is new Harvard), and Bill Kovacic (the US approach is a Chicago-Harvard Double Helix), Commissioner Tom Rosch suggests that the US approach is Chicago School and the EU approach is post-Chicago School, at least as it relates to monopolization/abuse of dominance. See Commissioner Rosch's speech I say Monopoly, You say Dominance: The Continuing Divide on the Treatment of Dominant Firms, is it the Economics? Hat tip to antitrust guru and all around nice guy David Balto for brining this to my attention.
Posted by D. Daniel Sokol
The British Institute of International and Comparative Law has one of the first post-judgment conference and therefore, it is definately worth attending (see also the first comment to this post which includes another must attend conference).
The Microsoft Judgment
Tuesday 25 September 2007 10:00 to 17:00
British Institute of International and Comparative Law, Council Chamber, Charles Clore House, 17 Russell Square, London, WC1B 5JP
A conference in the immediate aftermath of the Microsoft judgment of the Court of First Instance: leading experts and representatives of the parties will gather in the days following the decision to review it, and its ramifications.
Convenor: Dr Philip Marsden, Competition Law Forum
James Flynn QC, Brick Court Chambers
Jean-Francois Bellis, Van Bael & Bellis
Dr Helen Jenkins, OXERA
Bill Bishop, CRA International
James Killick, White & Case LLP
Thomas Vinje, Clifford Chance LLP
Jean-Yves Art, Microsoft
Dieter Paemen, Clifford Chance LLP
Frances Murphy, Mayer, Brown, Rowe & Maw LLP
Stephen Kinsella, Sidley Austin LLP
David Hull, Covington & Burling
Professor David Evans, LECG and UCL
Antonio Bavasso, Allen & Overy LLP and UCL
Nicholas Banasevic, DG Comp, European Commission
Per Hellstrom, DG Comp, European Commission
- Ramifications for Intellectual Property Rights and Innovation
- Ramifications for Antitrust Law and Policy
- the bundling of fines; periodic penalty payments; remedial powers
- other Microsoft cases; other abuse cases
- possible improvements to the enforcement of EU competition law (role of the Commission and the European courts; length of proceedings)
- the enforcement of competition law in the international context (comity).
Tuesday, September 18, 2007
Posted by Bill Page
The CFI decision requiring Microsoft to disclose interoperability information for workgroup servers requires what amounts to a transfer of Microsoft’s intellectual property to its rivals in ways that the American Microsoft decisions have generally rejected. This post focuses on three features of the CFI decision that make this implication clear: its definition of interoperability, its treatment of Microsoft’s Active Directory, and its treatment of so-called “pure” server/server protocols. In each instance, the CFI claims not to require Microsoft to allow cloning of its software, but in practical terms, it does. In this post, I have relied heavily on analysis by my student and co-author, Seldon Childers, who was a software developer and management consultant for many years. (I apologize for the length of the post, but then it’s a very long opinion.)
In interpreting the CFI decision’s requirements, it is helpful to keep in mind what is meant by “disclosure” of communications protocols. One might think that a protocol is simply some lines of code that can be revealed along with a few pages of technical information. But the obligation of disclosure extends to assuring that rivals can achieve full interoperability. No disclosure is adequate until others (regulators and rivals) can use the disclosure to achieve interoperability. In practice, even in the implementation of the relatively limited U.S. communications protocol licensing requirement, this obligation entails extensive technical support, individual account managers, and one-on-one tutorials for licensees in how to implement the technology. Far more protocols are covered by the EC order. In implementing that order, a great deal of Microsoft’s expertise will be transferred to the licensees, including rivals. The net effect will be to facilitate cloning, in the sense of replicating (at much reduced expense) the proprietary functionality that Microsoft achieved through its R&D expenditures.
1. The Definition of Interoperability
This is the CFI’s description of the “range” of interoperability required (emphasis ours):
139. The Commission also recognises that there is a whole range of possible degrees of interoperability between PCs running Windows and work group server operating systems and that ‘some interoperability’ with the Windows domain architecture is already possible. It did not fix a priori a given level of interoperability which is indispensable to the maintenance of effective competition on the market but, following its investigation, it established that the degree of interoperability that competitors could achieve using the available methods was too low to enable them to remain viably on the market. . . .
140. In the rejoinder, the Commission contends that, in the contested decision, it does not conclude that it is indispensable that Microsoft's competitors be allowed to reproduce its 'interoperability solutions'. What matters is that they are able to achieve an equivalent degree of interoperability by their own innovative efforts.
In practice, however, the test is whether the rival can achieve the requisite degree of interoperability regardless of how much it has to innovate. The test is “functional equivalence”:
140. [T]he Commission stated at the hearing that it was necessary to distinguish the concept of 'functional equivalent' from that of 'functional clone'. A 'functional equivalent' is not a system operating identically to the Windows work group server operating system which it replaces but rather a system that can provide the appropriate response to a specific request under the same conditions as that Windows operating system and can make a Windows client PC or server react to its messages in the same way as if they came from that Windows operating system.
This is apparently also what the commission and the CFI mean by “two-way” interoperability (¶ 226)—the disclosure must be sufficient to allow the licensee’s product not only to do what it was designed to do within a network, but everything that Microsoft’s products do. In later passages, the CFI describes and endorses the commission’s distinction between “specifications” and “implementations.” (¶¶ 199-200). Thus, Microsoft need only disclose the specifications of the functionality that the protocol permits, not its own implementation of that functionality. The licensee, then, must use the specifications to “innovate” and create its own implementation.
But, given the definition of interoperability that the commission and the CFI adopt, this requirement amounts to a requirement that Microsoft facilitate cloning. As a practical matter, Microsoft will be required to assure that the user achieves “interoperability” in the sense of duplicate functionality, and this will only be possible by reverse engineering based on the disclosures. The rival may also innovate, but with the advantage of Microsoft’s investment and tutorials. If the rival fails to innovate, the implication will be that the level of disclosure is too low.
2. Active Directory
Under the CFI decision, Microsoft must disclose the interoperability information required to make full use of Microsoft’s “Kerberos” Active Directory services. Active Directory is the security protocol used to verify user access to files and network resources. This function is critical because of the importance of security in general and because of the technical problems posed by larger networks that include multiple servers which have to negotiate with each other while only requiring the user to login a single time. Novell Netware had one solution, and Microsoft (presumably with enormous investment) came up with Active Directory, which is an arguably superior technology. The Active Directory technology represents Microsoft’s main innovation in server technology and what distinguishes its server software from, including the open-source (free) Samba project, which does everything but a full implementation of Active Directory.
Here are a few paragraphs of the opinion on the Directory Services issue. Notice that the CFI dismisses Microsoft’s proprietary interests in its own product.
190. . . . Microsoft itself observes in the reply that on that market 'the directory service is a key competitive feature responsible in large part for the success of particular products' and emphasises, in particular, that 'Active Directory is ... at the heart of Windows server operating systems', after stating that '[f]or both file and print services and user and group administration services, it [is] important to know with precision which user [is] entitled to access which network resources'.
191. Active Directory logs all network object information and allows it to be administered centrally. It fully integrates administration and user authentication and access control functionalities and thus ensures the security of the information. In addition, Active Directory uses the multi-master replication mechanism.
. . .
195. Thus, in Article 1(1) of the contested decision, [the commission] defines 'interoperability information' as 'the complete and accurate specifications for all the protocols [that are] implemented in Windows work group server operating systems and that are used by Windows work group servers to deliver file and print services and group and user administration services, including the Windows domain controller services, Active Directory services and Group Policy services, to Windows work group networks'.
233. In the light of those various factors, the Commission maintains, in particular, that a server running a non-Microsoft work group server operating system must be capable of acting as a domain controller, and not merely as a member server, within a Windows domain using Active Directory and, accordingly, be capable of participating in the multimaster replication mechanism with the other domain controllers.
234. The Court finds that, contrary to Microsoft's claim, it cannot be inferred from the degree of interoperability thus required by the Commission that the Commission intends in reality that non-Microsoft server operating systems must function in every respect like a Windows server operating system and, accordingly, that Microsoft's competitors must be in a position to clone' or 'reproduce' its products or certain features of those products.
But for Microsoft to assure that a rival’s server can act as a domain controller using Active directory, it will be required to assist the rival in cloning that functionality.
Microsoft argued (¶ 262) that “in order for a domain control running under a non-Microsoft work group server operating system to be capable of being placed in a 'blue bubble' composed of domain controllers using a Windows work group server operating system employing Active Directory, those different operating systems must share the same internal logic.” The court responded:
263. First, Microsoft fails to demonstrate that, in order to function together within the 'blue bubble', its work group server operating systems and those of its competitors must necessarily have the same internal logic.
264. Second, the applicant also fails to demonstrate that even if such identity of internal logic were required, this would necessarily mean that Microsoft had to communicate to its competitors information relating to the internal mechanisms of its products and, in particular, to the algorithms. . . .
265. Third, as regards the 'Intersite Topology' algorithm which Microsoft mentioned specifically at the hearing, it is quite possible that, as the Commission also submitted at the hearing, competitors need only be in a position to implement an algorithm giving the same result as that algorithm. In other words, Microsoft would not be required to give any information about the implementation of that algorithm in its work group server operating systems, but could merely give a general description of that algorithm, leaving it to its competitors to develop their own implementation of it.
This is cloning. The CFI’s logic fails to recognize that Microsoft’s disclosures and “descriptions” will be considered inadequate until the competitors have reverse engineered the algorithm.
3. “Pure” Server/Server Protocols
The CFI opinion requires Microsoft to disclose pure server/server protocols.
220. In the Windows work group server networks, client/server and server/server interoperability are closely interlinked and, in order that full interoperability can be achieved between a Windows client PC and a non-Microsoft server operating system, Microsoft must give access both to the client/server communication protocols and to the server/server communication protocols (recitals 177 to 182 and 689 to the contested decision), including those which are 'pure' server/server protocols, that is to say, protocols which are not implemented on the client PC which are but 'functionally related to the client PC’ (recitals 277, 567 and 690 to the contested decision).
221. The Commission denies that the contested decision envisages that Microsoft's competitors should develop products functioning in all respects like a Windows server operating system. In fact, the decision is intended to enable 'competing products [to] be created that w[ould] function differently, whilst being able to understand the messages conveyed by Microsoft's relevant products'. Thus, the interoperability information at issue will be used by Microsoft's competitors not to develop exactly the same products as Microsoft's, but to develop improved products, with 'added value'.
It is entirely possible that Microsoft’s competitors will be able to add value. But they will be enabled to do so by disclosures that reveal Microsoft’s innovative efforts. The court adds the following remarkable assurance:
242. Furthermore, as will also be explained in greater detail at paragraph 658 below, when the Court examines the circumstance relating to the new product, Microsoft's competitors would have no interest in developing exactly the same work group server operating systems as Microsoft's.
658. Nor would Microsoft's competitors have any interest in merely reproducing Windows work group server operating systems. Once they are able to use the information communicated to them to develop systems that are sufficiently interoperable with the Windows domain architecture, they will have no other choice, if they wish to take advantage of a competitive advantage over Microsoft and maintain a profitable presence on the market, than to differentiate their products from Microsoft's products with respect to certain parameters and certain features. It must be borne in mind that, as the Commission explains at recitals 719 to 721 to the contested decision, the implementation of specifications is a difficult task which requires significant investment in money and time.
It apparently does not occur to the CFI that competitors, given free access to the fruits of Microsoft’s R&D, would have a very strong incentive to compete with Microsoft on price alone. Because their “significant investment” would not approach Microsoft’s, their cost advantage would be substantial.
September 19 Update:
When I say in this post there is a danger that the remedy will facilitate "cloning," I do not mean an exact, instruction-for-instruction copy of Microsoft's code. I mean the term in the sense Judge Kollar-Kotelly used it in New York v. Microsoft Corp., 224 F. Supp. 2d 76, 175-76 (D.C. Cir. 2002), aff'd sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004):
"By cloning, the Court means the creation of a piece of software which replicates the functions of another piece of software, even if the replication is accomplished by some means other than the literal repetition of the same source code. In most instances, where a clone is created without a copyright violation, the clone emerges from a process of reverse engineering-which consists of the study of functionality in the original product and the attempt to produce a product which accomplishes the same end. The process of cloning the functionality of a competitor's product is usually an expensive and time-consuming undertaking which, if successful, will enable the cloned product to function as a replacement for the original product. To impose a remedy which facilitates the cloning of Microsoft's products-a far simpler task than the creation of a new product-would provide a windfall to Microsoft's competitors."
Posted by D. Daniel Sokol
Law Seminars International will host what looks to be an excellent program on Standards Bodies & Patent Pools on October 11 & 12, 2007, right outside of Washington, DC with top enforcers and practitioners among the seminar faculty.
Posted by D. Daniel Sokol
If you thought it was tough to get class cert in a Sherman Section 1 case, it turns out it is even harder to do so in a Sherman Section 2 case, according to a forthcoming article in the Journal of Competition Law and Economics by John H. Johnson and Gregory K. Leonard of NERA Economic Consulting titled Economics and the Rigorous Analysis of Class Certification in Antitrust Cases.
ABSTRACT: Defendants in Sherman Act Section 1 class action cases have historically faced a low likelihood of success in their attempts to defeat class certification, in part because courts often started from a presumption that all class members were harmed by price-fixing. Recent trends in recent judicial decisions, however, have suggested that courts are starting to take a harder look at whether classes should be certified in Section 1 cases. In this paper, we demonstrate that the presumption of harm on all class members is not justified in many cases. Instead, given the economic characteristics of many industries, a rigorous economic analysis will be required to determine whether antitrust impact for each proposed class member can be established using common proof. What is more, determining whether this condition holds in a given situation generally requires that analyses based on individual data be performed—exactly the outcome that the use of the class action mechanism is intended to avoid. This creates a "common proof paradox" in Section 1 cases. We go on to show that the potential hurdles for class certification are even greater in Sherman Act Section 2 cases.
Monday, September 17, 2007
Posted by D. Daniel Sokol
Here is a link (unofficial) to the Neelie Kroes Microsoft related press conference today. Some of the statements, I hope, are merely over-excitement based on a decisive victory and not her general thoughts on how we should think about EU competition policy. The comments speak for themselves.
Posted by Bill Page
So far, there is little to report of interest other than the result—an endorsement of the commission’s position on every substantive issue. The court’s pattern appears to be, on each point, to repeat the Commission’s 2004 decision, describe the position of the parties in great detail, and then to endorse the Commission’s position. The court emphasizes (¶ 260) that it can only evaluate the 2004 decision based on the “the matters of fact and of law existing at the time when the measure was adopted.” Consequently, the court cannot take account of what we have learned during the commission’s implementation of its decision—the fact, for example, that the version of Windows without Media Player that Microsoft created in response to the 2004 decision has found no market at all. The net effect is that, in my reading so far, this decision teaches us little that we did not know after reading the commission’s decision in 2004, other than that the court now agrees with the commission on just about everything, except the requirement of a monitoring trustee. And all thirteen members of the court apparently agree in every detail.
Thus, the lesson is that EC competition law has now adopted a significantly different position than that of US law on tying and on the obligation of a dominant firm to assist rivals. On that subject, I also noticed this in the New York Times coverage of Neelie Kroes's press conference earlier today:
[Kroes] highlighted the fact that Microsoft has 95 percent of the world market for desktop operating systems and said she would like to see this fall.
“You can’t draw a line and say exactly 50 percent is correct, but a significant drop in market share is what we would like to see,” she said. “Microsoft cannot regulate the market by imposing its products and its services on people.”
Update: The EC has issued a "clarification" of Kroes's remarks. It seems she didn't really mean to say that the EC wants Microsoft's market share to fall, only that, if its abusive practices are removed, the "logical consequence" would be that its market share would fall.
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.
Friday, September 14, 2007
Posted by D. Daniel Sokol
This coming week will be a big one for Microsoft. On September 17, the European Union's Court of First Instance rules on the appeal of the European Commission's 2004 decision against Microsoft,Case T-201-04, Microsoft v. Commission. The CFI decision has the potential to be the most important (and perhaps most troubling) antitrust decision in the CFI's history. I will not try to predict the outcome of the case- in part because at the IBA annual antitrust conference in Fiesole, a number of antitrust experts already did so. These experts are: Greg McCurdy of Microsoft, Ian Forrester, QC of White & Case, and Jean Francois Bellis of Van Bael & Bellis. Download McCurdy.pdf Download Forrester.pdf Download Bellis.pdf
As an additional treat, we will have distinguished professors William Page of the University of Florida Levin College of Law and John Lopatka of Penn State Dickinson College of Law guest blogging with us to discuss their new excellent book The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (University of Chicago Press 2007). If you do not yet have this book, order it asap!
Full disclosure: I have in the past received money to pursue scholarship from Microsoft but it has not been on any of the issues discussed in this blog post. Instead, the money has allowed me to continue to pursue work in technical assistance in antitrust. The fruits of that labor will be unveiled at the Canadian Law and Economics Association annual conference later this month at the University of Toronto.
Thursday, September 13, 2007
Posted by D. Daniel Sokol
With all the focus recently on the Chinese AML, an equally important development in India has been under-played. The Indian Parliament has just passed the Competition (Amendment) Bill of 2007. This bill provides statutory teeth to the Competition Commission of India (CCI). Once India's President assents to the Bill, the result will be the operationalization of the CCI. Details are available here.