The Case For Structural Relief: Breaking Up Is Hard To Do

1
The Case For Structural ReliefBreaking Up Is
Hard To Do?
Which Remedies? Appraising Microsoft II April
1999 Washington, DC

• Glenn B. Manishin, Esq.
• Blumenfeld CohenTechnology Law Group
• 1615 M Street, N.W., Suite 700
• Washington, DC 20036
• 202.955.6300
• ltglenn_at_technologylaw.comgt

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

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

4
An Historical Anecdote

• The 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.
• Ordinarily 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)

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

6
Rating The Options (I)

• Horizontal OS/Apps./Content Divestiture
• Eliminates ability of divested OS entity to
  leverage monopoly power
• Reduces long-term govt 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

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 govt and judicial oversight
  role to ensure source code disclosures
• Long-term impact on OS innovation unclear

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

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 govt oversight
• Vertical divestiture is preferable in view of
  efficiency and govt regulation impacts