How to deter "holding the field"? : LUSENET : MS-DOJ : One Thread

The "holding the field" step discussed last week seems to be the action that Lemley and McGowan (L&M) target when they suggest prohibiting "temporal tying," or the forcible tying of products through contract rather than through technical integration. L&M propose that "the best that any court can do" to approximate the socially optimal outcome is to prohibit tying while permitting both actual integration and the sale of the stand alone product (without a tie) pending integration. According to L&M, this "may provide a window in which new applications can compete on price and functionality." I would argue that it's not clear that L&M's proposed remedy, a prohibition against temporal tying, will effect a competitive window that will approximate the socially optimal outcome.

First, assume that IE may be reasonably considered an "other product" in the language of the consent decree. The argument for this reading, as suggested in class, is that IE is like an operating system competitor because the browser will facilitate the meta-operating system which, if platform independent, will undermine the monopoly power of the Windows OS. Thus, IE plausibly falls into the category of "other product" whose meaning is determined by "Covered Product" and "Operating System Software Product" under the interpretative principles of ejusdem generis. Given these assumptions, the consent decree's prohibition against contractual tying failed to deter MS from partaking in these practices. MS gambled that it could "hold the field" while fighting the courtroom battle. In this case, the injunctive remedy is ineffective in approximating the socially optimal outcome.

Second, consider how MS's monopoly power chills a competitive marketplace. Schulman states that "there is little point to trying to compete with Microsoft." He suggests that the most promising areas for competition are those "where there is a several-year window of opportunity before [Microsoft has] a product." But, then he qualifies this suggestion by noting that the only market MS isn't interested in is "pornographic screen savers an adult media." Schulman's comments indicate that MS's monopoly power deters potential competitors from entering the ring with a potentially superior product. I would agree. For example, when a company decides to compete with MS, it must consider its MS dependencies in other areas of its business. For example, Apple must consider MS's power to cut off applications for Mac OS when it enters the Windows multimedia market (see Bryan's thread above on the WSJ article).

I also would argue that MS's monopoly power deters industry players from seeking redress from the legal system. When Apple testifies regarding MS's potential antitrust violations, Apple must weigh how its testimony will affect MS applications for Mac OS. Apple is likely to provide no more than factually correct testimony and temper any opinion statements so as not to inflame MS. As a result, the DOJ may face difficulties in determining exactly how industry views MS business practices.

So, a remedy that approximates the competitive, socially optimal outcome would have to address MS's underdeterrence and industry's overdeterrence. What about giving teeth to the injunction by imposing punitive damages? According to my Antitrust casebook, the DOJ can impose criminal penalties of up to $10 million on corporate violators. However, $10 million may not adequately deter MS from temporal tying in the future. The damages need to be high enough such that MS's cost-benefit evaluation will prompt it to pursue the competitive, rather than the anticompetitive course. Then, if industry knows the DOJ means business, it will be more willing to enter the ring and compete.

-- Anonymous, October 18, 1998

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