Microsoft Decisions Breed Further Uncertainty in Assessing Unilateral Conduct in the Global Market

On October 22, 2007 we came to the end of another chapter in the Microsoft book on how governments treat unregulated power in the global marketplace. The chapter ended uncomfortably, and several of the characters are hanging in limbo.

As is usual in the technology world, the facts may be somewhat ponderous to the non-technology reader.  So, what happened on October 22nd? Microsoft announced that it would not continue to appeal European government decisions related to certain Microsoft royalty charges and practices. The decisions mandate that Microsoft’s competitors must be able to interoperate with Microsoft’s Windows server operating system on “equal footing” and reduce certain Microsoft royalty charges from 5.95% to 0.4%. The decision emphasizes that interoperability must entail the ability for competitors to “remain viably on the market,” sounding much like the pre-Chicago school US view.1

Unfortunately, years earlier, the US Department of Justice had reached a consent decree with Microsoft that reached what appeared to be a different conclusion on interoperability. The consent decree dictated that Microsoft would make sufficient disclosures to create a basic link for interoperability, seemingly an easier standard for Microsoft to meet. The D.C. Circuit affirmed the proposed remedy after a challenge from a number of parties and a rejection of proposals subsequently embraced by the EU this year.2

There are many possible explanations for the differences in the US and European conclusions, but the fact of the differences creates issues of predictability for business conduct. Unsurprisingly, US antitrust officials have emphatically reemphasized the need for coordination and attempts for consistency.3 In the meantime, though, all global business must address these questions:

Going forward, how should dominant firms, and firms dealing with dominant firms, conduct themselves in a global market? What are the rules?

The short answer is that the rules are not clear today. What can be gleaned from the similarity of the two approaches is that both the United States and Europe seem to have accepted that Microsoft holds an essential facility, much in the way of the single railroad terminal in St. Louis in 1912. What competitors got in United States v. Terminal Railroad Association4 was access to the railroad terminal on reasonable terms. But what is sufficient access to the terminal? What are reasonable terms? When, how often, and how much? With a computer terminal, it apparently depends on where you get your coffee in the morning.

There are also some clear trends in the United States and in Europe with respect to unilateral conduct. Certainly, even though the theories under which to challenge anticompetitive conduct under US law are virtually limitless, the Supreme Court has expressed deep skepticism in recent years to most plaintiffs’ theories. At the same time, the European Union and European Commission have continued to challenge mergers and Microsoft well beyond US enforcement agencies. So, while it will continue to be difficult to predict with any certainty whether conduct by a global firm with market power would be found to be illegal, or indeed what the remedy would be for misconduct, at least one antitrust expert has suggested that Europe is more interested in protecting competitors’ access to markets, while the United States is focused on protecting firms’ incentive to innovate.5 Precedent over the last 10 years suggests that application of these foci trends toward more aggressive enforcement in Europe.

Since the advent of antitrust and competition rules in the late 1800s, the search for clarity has been challenging. Decades ago the Attorney General’s National Committee to Study the Antitrust Laws found that “[m]odern business patterns are so complex that market effects of proposed conduct are only imprecisely predictable. Thus, it may be difficult for today’s businessman to tell in advance whether projected actions will run afoul of the Sherman Act’s criminal strictures.” This observation remains equally applicable today to global firms, unilateral conduct, and multiple competition and antitrust regimes.

One prediction, however, seems easy to make: now that governments on both sides of the Atlantic have determined to set different rules for access to the terminal, they will not find it easy to get out of the business. The courts and the government will write more chapters in this book. Keep your eyes on your browser.

1 See, e.g., Aspen Skiing Co v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).

2 Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004).

3 See, e.g., Chairman Deborah Platt Majoras, Federal Trade Commission, Convergence, Conflict, and Comity: The Search for Coherence in International Competition Policy, 34th Annual Conference on International Antitrust Law & Policy, Fordham Law School (Sept. 27, 2007).

4 224 U.S. 383 (1912)

5 Commissioner J. Thomas Rosch, Federal Trade Commission, I Say Monopoly, You Say Dominance: The Continuing Divide on the Treatment of Dominant firms, is it the Economics?, delivered at the International Bar Association Antitrust Section Conference (Sept. 8, 2007).

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