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The Case For Structural Relief:“Breaking Up Is Hard To Do?”
Glenn B. Manishin, Esq.Blumenfeld & Cohen—Technology Law Group
1615 M Street, N.W., Suite 700Washington, DC 20036
202.955.6300<[email protected]>
Which Remedies? Appraising Microsoft IIApril 1999 — Washington, DC
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 2
Roots of Antitrust Policy
• Government market intervention justified for “market failure”
• Antitrust relief objectives:▼ “Pry open” market to competition▼ Prevent recurrence of exclusionary conduct
• Regulation (administrative, judicial, etc.) is imperfect substitute for competition
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 3
Conduct v. Structural Relief• Ban specific behavior• Dependent on enforce-
ment oversight and resources
• Risks of evasion and enforcement failure (decree “proliferation”)
• Inconsistent with rapid technical change
• Violations can be simple cost of doing business
• Remove anticompetitive power and incentives
• Eliminates risk and costs of “regulation by decree”
• Avoids judicial definitions of technology products and license price-setting
• Maintains complete incentives for innovation
• Violations easily detectable and curable
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 4
An Historical Anecdote
“[T]he very genius for commercial development and organization which was manifested from the beginning soon begot an intent and purpose to exclude others [by] dealings wholly inconsistent with the theory that they were made with the single conception of advancing the development of business power by usual methods.”
“[O]rdinarily [an] adequate measure of relief would result from restraining the doing of such acts in the future. But in a [monop-olization] case like this . . . the duty to enforce the statute requires the application of broader and more controlling remedies.”
Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 5
Structural Relief Alternatives
• Divestiture along business lines▼ Operating systems (OS), applications, and
content businesses in separate entities
• Windows OS as “Open Source Software”
• Divestiture of multiple vertically integrated entities▼ Each “Baby Bill” spin-off competes in all
market segments
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 6
Rating The Options (I)
• “Horizontal” OS/Apps./Content Divestiture▼ Eliminates ability of divested OS entity to leverage
monopoly power▼ Reduces long-term gov’t oversight, but initial line-
drawing required▼ Maintains OS monopoly (pricing) power▼ Prevents realization of any scope economies from
OS product integration ▼ Absent reintegration ban (transitional?), potential risk
of recreating current competitive problems
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 7
Rating The Options (II)
• Windows Family As “OSS” Product▼ Novel application as antitrust remedy, but alters OS
market structure and incentives▼ Avoids “bundling” dilemma, i.e., browser integration,
and judicial line-drawing▼ Potential conflict between IP rights (license
payments) and judicial price-setting▼ Requires continued gov’t and judicial oversight role
to ensure source code disclosures▼ Long-term impact on OS innovation unclear
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 8
Rating The Options (III)
• “Vertical” Divestiture of Integrated Entities▼ Avoids all judicial product definitions and technical
line-drawing▼ Maintains all efficiencies (economies of scale and
scope)▼ Potentially more complex corporate reorganization
issues (employees, stock options, etc.)▼ Risk of OS “fragmentation” largely illusory and offset
by entry of compatibility-enhancing products
April 30, 1999 Glenn B. Manishin <[email protected]>
Page 9
Conclusions
• Conduct remedies present serious risks of decree scope/definition, enforcement and repetitive antitrust litigation
• Structural relief offers clean mechanism for eliminating anticompetitive incentives without intrusive gov’t oversight
• “Vertical” divestiture is preferable in view of efficiency and gov’t regulation impacts