CONDUCT REMEDIES IN THE MICROSOFT MONOPOLIZATION LITIGATION:An AAI Press Briefing
In a press briefing at the National Press Club on October 5, 2001, The American Antitrust Institute presented a white paper and panel discussion on conduct relief in the Microsoft case.
Expressing disappointment in the Department of Justice's announcement that it will not seek a structural remedy in the Microsoft case, AAI President and panel moderator Albert A. Foer said, "With a structural remedy no longer under consideration, it now becomes imperative that the District Court adopt a tough conduct remedy. Since Microsoft is a convicted monopolist, the law requires that the remedy must achieve three goals: restore competition to the PC operating system market, prevent Microsoft from engaging in similar conduct in the future, and deprive Microsoft of the fruits of its illegal conduct. As the Court of Appeals said, we must ‘terminate the illegal monopoly.’"
In order to assist the public in evaluating conduct remedies that will likely be considered as the case goes forward, the AAI’s Norman Hawker and Robert Lande presented a discussion of the components of effective conduct relief. They were joined for additional commentary by two AAI Advisory Board members, law professors Jonathan Baker of American University and Andrew Gavil of Howard University.
The white paper focused on ten aspects of a comprehensive remedy package: OEM Bootup Rights; Licensing the Source Code; "Must Carry" JAVA; No More Embrace and Extend; "Must Carry" Middleware; Open Source the Middleware; Porting Applications to Competing Platforms; Ending Price Discrimination; Source Codes for Software Developers; and Enforcement of the Remedy.
THE PAPER FOLLOWS.
Albert A. Foer, President, American Antitrust Institute, 202-244-9800, email@example.com
Robert H. Lande, Senior Research Fellow, American Antitrust Institute, and Venable Professor of Law, University of Baltimore Law School, (410) 837-4538 firstname.lastname@example.org
Norman Hawker, Research Fellow, American Antitrust Institute, and Associate Professor, Haworth College of Business, Western Michigan University, (616) 387-6118 email@example.com
American Antitrust Institute Proposes Tough Conduct Remedies Against Microsoft
The American Antitrust Institute, an independent non-profit education, research, and advocacy organization that supports a vigorous role for antitrust in the nation's economy, is extremely disappointed by the Department of Justice's announcement that it will not seek a structural remedy in the Microsoft case. A structural remedy would have been by far the most effective and least intrusive way to restore competition to the market that Microsoft has been found illegally to have monopolized, the PC operating system market.
It now becomes imperative for the Department of Justice and the State Attorneys General who are parties to this case to design and vigorously urge the Court to adopt a tough conduct remedy. Since Microsoft is a convicted monopolist, the law requires that the remedy must achieve three goals: restore competition to the PC operating system market, prevent Microsoft from engaging in similar conduct in the future, and deprive Microsoft of the fruits of its illegal conduct.
SOME GENERAL CONSIDERATIONS
We believe, in agreement with the plaintiffs, that the starting point should be the interim conduct relief prescribed by Judge Jackson. These terms were reportedly agreed to by Microsoft in its negotiations with the government prior to the judicial finding of liability. This starting point must be adjusted in three ways: (1) The remedy must recognize that there is no longer any question that Microsoft has broken the law. During the previous negotiations this issue was on appeal, but on June 28, 2001 the D.C. Court of Appeals unanimously ruled that Microsoft had illegally maintained its monopoly power in the OS market. (2) Because the remedy must be forward-looking, it will have to take into account changes in the marketplace that have occurred since the trial, most importantly, the launching of XP. (3) Finally, the relief will have to reflect the opinion of the Court of Appeals insofar as elements of the case where liability was not found cannot be the basis of a remedial component.
Only a carefully drafted, far reaching, and comprehensive conduct order will be able to achieve the three mandatory goals. This task will be especially difficult because Microsoft has a history of "interpreting" court orders and consent decrees in ways that render them meaningless.
There is no single remedy provision that will achieve all of these necessary goals. For example, competition cannot be restored simply by prohibiting Microsoft from engaging in a particular type of conduct. Furthermore, the Court needs to recognize that the conduct remedy imposed by Judge Jackson was intended as a bridge to a structural remedy, not a comprehensive solution in its own right. While its provisions may have been sufficient to prevent the competitive situation from worsening, Judge Jackson's conduct remedy is too limited to substitute for a structural remedy. The enforcers should assemble, and the Court should order, a comprehensive package of provisions.
The remedies must recognize that Microsoft has often chosen to enjoy the fruits of its illegally maintained monopoly in a variety of ways, such as giving its software universal distribution by including the software with Windows and prohibiting distribution of competing products. Microsoft has also enjoyed its illegally maintained monopoly by denying its competitors equal access to the inner workings of the operating system. Microsoft's ability to leverage its monopoly into other markets is itself a fruit of illegal monopoly maintenance.
Microsoft's conduct goes beyond simple leveraging to create monopolies in new markets. By virtue of its operating system monopoly, Microsoft controls a channel through which all personal computer information must travel. Competitive middleware products such as Netscape's browser and RealNetworks constitute competitive threats because they offer alternative channels for the distribution of computer information, i.e., distribution channels that do not necessarily flow through Windows. By systematically adding such products to Windows, Microsoft is not so much seeking to monopolize adjacent software markets as it is maintaining its monopoly position for Windows.
Whether one considers Microsoft's bundling of its products with Windows as the fruits of an illegally maintained monopoly or as predatory conduct designed to illegally maintain its monopoly position, an effective remedy must prevent Microsoft from having exclusive access to Windows for the distribution of middleware products.
None of the remedies that we propose here will in any way inhibit Microsoft's ability to innovate or to sell any new products that it develops. Microsoft is free to develop any new software that it chooses, or to make improvements in MediaPlayer, Passport, etc. These remedies would only prevent Microsoft from forcing unwilling consumers to use these products, and will prevent Microsoft from using or marketing these products in a manner that will prevent other firms from innovating in these same areas. The overall effect of these remedies will be to significantly increase the total amount and quality of innovation in the PC industry, to the benefit of consumers, businesses, and the economy as a whole.
TEN PROPOSED REQUIREMENTS FOR RELIEF
1. REQUIREMENT: OEM BOOTUP RIGHTS.
Require Microsoft to give computer manufacturers (OEMs) the virtually unrestricted right to control the initial bootup sequence of their products, subject only to the limitation in the Court of Appeals opinion that alteration of the boot up sequence cannot add applications that would completely obscure the presence of the Windows operating system. This includes the right to choose what applications will appear in the desktop and start menus, the right to control what internet service providers and software will be offered to users as part of any set up sequence. This also includes the right to enable dual booting (this would, for example, allow users to choose between Windows and Linux when they turn on the computer). OEMs should be permitted to install any "shell" or tutorial program that they choose.
EXPLANATION: It is important to remember that fruits of Microsoft's operating system monopolization extend beyond the direct profits earned from the sales of Windows.
As a result of its operating system monopoly, Microsoft controls what the computer user sees the first time she turns on her PC. Microsoft enjoys this particular fruit from its illegally maintained monopoly in several ways.
First, Microsoft can charge software developers and service providers for access to the desktop. As the trial record shows, these charges do not always take the form of cash payments. Sometimes Microsoft demands payment in the form of favors, such as using Microsoft technology or refraining from using a competitor's technology. These actions by Microsoft retard innovation in the PC industry.
Second, Microsoft uses its control of the initial booting and set up of the PC to ensure universal distribution of Microsoft's software and services. This is a competitive advantage that Microsoft would not have but for its illegally maintained operating system monopoly.
The universal distribution of Microsoft's products is not only a forbidden fruit of its operating system monopoly, it also threatens to create new monopolies in other markets characterized by network effects. Thus, this remedy also serves the goal of preventing future similar acts of monopolization.
Third, Microsoft uses its control of the desktop to inhibit distribution of competing applications and services. In other words, not only does Microsoft make sure that its products and services are prominently displayed before consumers, it also makes sure that competing products are not easily available to consumers.
Although alternative ways to install software exist, this does not detract from the fact that Microsoft's competitors are denied equal access to the most efficient distribution channel simply because Microsoft has an illegally maintained monopoly in the operating system market. The ability to create such competitive disadvantages for other software and service providers is every bit as much a fruit of Microsoft's monopoly as is its unique ability to create competitive advantages for products.
Giving OEMs virtually unrestricted control of the bootup process will not only deprive Microsoft of some of the fruits of its monopoly and help prevent the creation of Microsoft monopolies in markets, it will also provide opportunities to restore competition in the operating system market.
First, Microsoft will no longer be able to prevent or hinder the installation of competing cross-platform middleware such as web browsers, JAVA, media players, etc. As the courts have already found, cross-platform middleware has the potential to break down the applications barrier to entry that has protected Microsoft operating system monopoly.
Second, Microsoft will no longer be able to prevent OEMs from installing Windows alongside other operating systems on a PC. The dual boot technology exists and is easily implemented at the OEM level to allow users to switch between Windows and another operating system such as Linux without physically switching computers.
For example, an OEM could partition the hard drive and install a different OS on each partition. This would allow the user to choose which OS to use each time the user starts the computer. If the user wanted to use an application designed for Windows, she would simply choose to boot up from Windows. If she later wanted to use an application designed for Linux, she would simply restart the computer in Linux.
Be, a company whose assets were recently acquired by Palm, even developed a way to launch its operating system, BeOS, from within Windows simply by clicking on an icon. If the user wanted to use an application designed for the BeOS, he clicked on the Be icon which switched his computer from Windows to BeOS. If he later wanted to run a Windows application, he would exit BeOS and return to the Windows operating system.
Dual booting means that users can take advantage of competing operating systems without giving up Windows applications. This weakens the applications barrier to entry in the OS market, and it brings the benefits of competition among OS vendors directly to consumers.
Given the intense competition at the OEM level of the computer industry, there is every reason to believe that some OEMs would attempt to gain a competitive advantage for their product lines by giving consumers the choice to use both Windows and a different OS. Currently, Microsoft licenses enable OEMs to offer consumers only Windows or a different OS.
2. REQUIREMENT: LICENSING THE SOURCE CODE.
Microsoft must license the source code for its DOS based operating systems, including all versions and all components of MS-DOS, Windows 3, Windows 95, Windows 98 and Windows Me. This will allow independent software developers to modify and sell these products in competition with Microsoft. OEMs will also be able to tailor the operating system to take advantage of their specific hardware configurations, including less expensive hardware configurations that could not run Windows XP. Microsoft must also provide licensees with sufficient training and support to make it possible for them to produce competitive products as part of the license and licenses to any changes to or improvements on technologies included in both any of the licensed operating systems and Windows XP or future operating systems sold by Microsoft during the term of the remedy. The price for the licenses should be established by auction, with licenses being awarded to at least the top three bidders.
Microsoft must also be forced to waive any provisions in Microsoft's employment contracts that would prevent any of its personnel from working for a competitor or disclosing trade secrets relating to any operating system source code. In addition, Microsoft must be prevented from changing the compensation or any other term of employment in response to offers made to a Microsoft employee by an Independent Software Vendor ("ISV") with a license to the source code for a discontinued operating system.
EXPLANATION: This provision would quickly restore competition to the operating system market since the applications barrier to entry would be particularly low for any operating system based on Microsoft's source code. Windows XP no longer supports the many DOS based applications already in use, so ISV and OEM versions of these OS's will have a ready market. Since these operating systems share the Win32 APIs with Windows XP, a substantial number of applications that run under Windows XP will also run under these operating systems too. This approach strikes a middle ground between not licensing the source code at all and requiring Microsoft to license the source code for Windows XP.
For this provision to work, Microsoft must give the licensees not only the source code but also sufficient training, etc., so that they can understand how the source code really works. Not all of that information resides in written form. Nor could one expect Microsoft employees freely to give competitors the benefit of their experience in developing these operating systems. Furthermore, the licensees will need personnel with the skills necessary to modify the operating systems so that they can run on new versions of hardware, e.g., use Pentium IV chips.
To resolve these problems, the licensees must be able to hire away Microsoft employees who have worked on these operating systems. For this to succeed, not only must Microsoft waive any restrictions in its employment contracts with employees who wish to accept employment with licensees, but Microsoft must also be prevented from bidding against the licensees for the employees. Otherwise, Microsoft could thwart the use of this provision to restore competition to the operating system. For companies to be interested in bidding on licenses, they must be assured that appropriate personnel can be lured away from Microsoft.
3.REQUIREMENT: "MUST CARRY" JAVA.
Require Microsoft to include Sun's JAVA "virtual machine" as a mandatory component of Microsoft's operating system.
EXPLANATION: This provision is designed to break down the applications barrier to entry by making sure that the most significant cross-platform middleware product is available on every PC that ships with a Microsoft operating system. This enhances the probability that ISV's will write cross-platform applications. Since Sun has every incentive to make sure that JAVA runs equally well on all platforms and Microsoft has shown its willingness to develop "polluted" versions of JAVA to protect its operating system monopoly, the "must carry" provision requires installation of Sun's JAVA.
4. REQUIREMENT: NO MORE EMBRACE AND EXTEND.
Prohibit Microsoft from adding any proprietary extensions (i.e., technology owned by Microsoft that Microsoft does not license to its competitors and the public on an open source basis) to any product, standard or feature currently available in the public domain or pursuant to open source license, such as kerebos or xml.
EXPLANATION: This will prevent Microsoft from maintaining its operating system monopoly through an "embrace and extend" strategy of adding proprietary extensions to technologies that have been previously available and open across platforms. Note that this will not inhibit Microsoft from adding new features to the operating system, but it will encourage greater interoperability between Microsoft's products and competing platforms.
5. REQUIREMENT: "MUST CARRY" MIDDLEWARE.
Require Microsoft to include the middleware products of its competitors in the operating system including, but not limited to, Netscape's web browser, RealPlayer's and Apple's multimedia and streaming software. The Court will need to make determinations as to which competitive middleware products must be included with the operating system whenever it is not feasible to include all such products. Microsoft must give OEMs and consumers the right and the easy ability to delete Microsoft's middleware products such as Internet Explorer and Windows Media Player from the operating system.
EXPLANATION: Microsoft's bundling of its own products is one of the most blatant examples of Microsoft's enjoyment of the fruits of its illegally maintained OS monopoly. The Court of Appeals has also specifically found that forcing OEMs to install Microsoft's middleware to the exclusion of its competitors' products has helped Microsoft illegally maintain its OS monopoly. By creating a ready distribution channel for competitors' products, this "must carry" provision will encourage innovation by middleware developers outside Microsoft. This provision is broad enough to require Microsoft to carry Netscape's web browser, RealNetwork's and Apple's media players, etc., in the operating system. No doubt problems will arise as to which products constitute middleware, etc., and the Court will have to make these decisions. But Court involvement in such questions became necessary once the government decided not to pursue a structural remedy against Microsoft.
The remedy of a "must carry" provision for rival products has been a part of antitrust law since United States v. Terminal R.R. Ass'n of St. Louis, 224 U.S. 383 (1912). In Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), for example, the Supreme Court required a public utility to carry competitors' electricity across its transmission lines. Similarly, AT&T was required to carry telephone calls from rival long distance companies. MCI Communications Corp. v. AT&T, 708 F.2d 1081 (7th Cir. 1983).
The "must carry" provision and "easy delete" provision in no way inhibit Microsoft's ability to engage in innovation and offer new products to consumers. These provisions simply expand the "one stop shopping" nature of bundling new products with the operating system. In short, consumers are given more choices without having any of the existing choices taken away.
We are aware that others have proposed to achieve similar ends by licensing the operating system source code to independent software vendors so that they could sell their own versions of Windows. For example, RealNetworks could integrate its software into the operating system and sell "Windows XP with RealPlayer" in competition with "Windows XP with Media Player." This remedy would certainly be appropriate as an eleventh provision. One of the fruits of Microsoft's illegally maintained monopoly is exclusive access to any efficiencies derived from integration of applications with the operating system. A licensing provision would enable Microsoft's competitors to take advantage of these efficiencies too. Nonetheless, if the Court were to choose between a "must carry" provision and a licensing provision, the "must carry" provision may prove to be the better choice. Among other things, any licensee would always bring its products to market a step behind Microsoft. The "must carry" provision, on the other hand, keeps Microsoft from having a permanent first mover advantage for its products. The "must carry" provision also means that competitive middleware will be installed on every personal computer. Although a consumer might not choose to use Internet Explorer as her web browser, a software developer could still write an application using Netscape's APIs confident in the knowledge that the application will run on her pc. Thus, the "must carry" provision would appear to have a better prospects for eroding the applications barrier to entry that Microsoft sought to prop up as part of its illegal monopoly maintenance.
6. REQUIREMENT: OPEN SOURCE THE MIDDLEWARE.
Require Microsoft to "open source" its middleware products, including Internet Explorer.
EXPLANATION: This will prevent Microsoft from reasserting its operating system monopoly by creating middleware products that contain proprietary extensions. The use of proprietary extensions in middleware products would allow Microsoft to create versions of middleware that only run properly on Microsoft's OS. Microsoft's use of this tactic with respect to JAVA, another example of a middleware product, was found to be one of the illegal activities that maintained Microsoft's monopoly.
This remedy fits into the larger scheme of breaking down the applications barrier to entry. The "must carry" provision seeks to break down the applications barrier to entry by making competitors' middleware products available on Windows. Open source and public domain products tend to break down the applications barrier to entry by making it possible for multiple operating systems to use the same technology. The prohibition on "embrace and extend" seeks to keep Microsoft from mutating open standards into Windows-only technologies. By requiring Microsoft to open source its own middleware, independent software vendors, operating system competitors, and, indeed, anyone who wants to, will be able to generate cross platform versions of Microsoft's technologies. In what could be describe as a "reverse embrace and extend," Microsoft middleware could be used to break down the applications barrier to entry that protects Microsoft's illegally maintained operating system monopoly.
7. REQUIREMENT: PORTING APPLICATIONS TO COMPETING PLATFORMS.
Require Microsoft to develop and market, in good faith, current and future versions of its applications for competing operating systems. The applications would include Microsoft Office as well as middleware products such as Internet Explorer and Windows Media Player. Competing operating systems would include Linux, versions of UNIX, BeOS and Amiga if their current owners, Palm and Gateway, choose to sell them, and any operating system developed by licensees of the Windows source code. In the event that Microsoft fails to do so with respect to any competing operating system, Microsoft must license the source code to independent software developers so that they can port these products to the operating systems. Microsoft would be prohibited from shipping new versions of or adding new features to its applications for its own operating systems until either Microsoft or its licensees had incorporated the changes into their versions of the applications for competing operating systems.
EXPLANATION: This provision will assist in the restoration of competition to the operating systems market by reducing the applications barrier to entry for other operating systems. Porting Microsoft Office to competing platforms will reduce the applications barrier to entry by making the most important suite of business applications available on those platforms. As the court findings regarding Microsoft and Apple show, Microsoft Office is generally seen as the key application in the applications barrier to entry for any operating system.
Porting the middleware applications, Internet Explorer and Windows Media Player, will make them cross-platform, thereby enabling applications written for them to run on competing operating systems. This may result in some redundancy with the "open source" provision for middleware. Nonetheless, given the importance of middleware to breaking down the applications barrier to entry and the uncertainty that enough competitors will have sufficient incentives and expertise to exploit the open sourcing of the middleware, we believe the middleware situation calls for redundant solutions.
This is certainly feasible. Microsoft already makes versions of Office, Internet Explorer and Windows Media Player for the Macintosh, and Microsoft has announced that it will ship these products for Apple's new UNIX based MacOS X operating system.
Note that this remedy works in conjunction with the prohibition on "embrace and extend" and the "must carry" and the "open source" provisions to break down the applications barrier to entry. Unlike the other remedies which attempt to make cross platform middleware technologies available so that applications developers may right software that is platform agnostic, this remedy focuses on making the most important Microsoft applications, such as Office, available for use on competing operating systems.
8. REQUIREMENT: ENDING PRICE DISCRIMINATION.
Require Microsoft to end price discrimination among OEMs and to license its software to all OEMs on the same terms. Microsoft must publish all of its licensing agreements on the Internet so that it can be quickly accessible by the public.
EXPLANATION: For any of the provisions regulating Microsoft's relationships with OEMs to work, Microsoft must be deprived of the means to reward OEMs who adhere to Microsoft's wishes and to punish OEM's who do not. One way Microsoft rewards favored OEMs is by charging them lower prices for Windows. But there are a myriad of other licensing terms on issues like cooperative advertising subsidies that Microsoft could also use to punish and reward. All terms of Microsoft's relationship with OEMs must be uniform.
The requirement of uniformity cannot be limited to the terms of the license for Windows. It must apply to all of Microsoft's products. Otherwise, for example, Microsoft could accomplish through price discrimination on products such as Microsoft Office what it was prohibited from doing through price discrimination on Windows.
So that uniformity may be enforced, Microsoft's dealings with OEMs must also be transparent. Thus, this provision requires Microsoft to publish its licensing agreements on the Internet.
9. REQUIREMENT: SOURCE CODES FOR SOFTWARE DEVELOPERS.
Require Microsoft to give independent software developers the same access to the source code, plans, training, APIs, technical information and communications interfaces for all of Microsoft's operating systems that Microsoft gives its own developers. Furthermore, Microsoft must not delete any existing APIs or communications interfaces used by its competitors' software or to add any new APIs or communications interfaces that conflict with competitors' software without giving the competitors sufficient notice and support to revise their products prior to the addition or deletion of the API or communication interface.
EXPLANATION: Not only does Microsoft's illegally maintained monopoly give Microsoft a privileged distribution channel (see provision 1), the operating system monopoly also gives Microsoft's applications developers unique access to the APIs and other knowledge about the operating system. This unique access to full knowledge regarding the operating system provides Microsoft's applications developer an extraordinary competitive advantage over independent applications developers.
Giving all applications developers full knowledge regarding the OS will not only deprive Microsoft of this particular fruit of its monopoly, but it will also aid in preventing Microsoft from creating new monopolies in applications markets. Without equal access to the APIs and other information relating to the operating system, independent developers cannot hope to compete successfully against Microsoft's products.
Greater access to the internal workings of the operating system will enable independent software vendors to increase innovation in applications software.
This provision will make it easier for developers to write cross-platform middleware. This in turn will help break down the applications barrier to entry and restore competition to the operating systems market.
Just as unique access to knowledge about the operating system is a competitive advantage gained through Microsoft's illegally maintained monopoly, so too is the ability to "break" a competitor's application by changing the inner workings of Windows. If one accepts Microsoft's broad definition of the operating system to include things like the web browser, then Windows XP provides a clear example of such tactics. By deleting JAVA and releasing Windows XP before Sun could ready an alternative JAVA for installation by OEMs, JAVA applications developers were left stranded.
10. REQUIREMENT: ENFORCEMENT OF THE REMEDY.
Establish procedures for enforcement of the remedy:
(a) The Court should appoint, at Microsoft's expense, one or more Special Masters with the authority to hire technical experts to take evidence and evaluate information in order to advise the Court in a timely manner regarding Microsoft's compliance and to assist the court in interpreting the relief provisions.
EXPLANATION: It is unfortunate, but the only effective alternative to breaking up Microsoft is to impose ongoing regulation of Microsoft's conduct. However, it is essential that there be a system for dealing with problems that will inevitably arise in a quick, informed way.
(b) Give consumers, OEMs and Microsoft's competitors and suppliers the right, as "Friends of the Court," to bring to the Court's attention actions that are inconsistent with the Court-ordered remedies.
EXPLANATION: The use of so-called "private attorneys general" is well established in antitrust law, though unusual as a component in a remedial order. It increases the probability that violations by Microsoft will be detected and provides an avenue of potentially rapid relief for persons injured by Microsoft's conduct.
(c) Prohibit Microsoft from retaliating in any way against any OEM or competitor for complaining to or assisting the government or exercising any right pursuant to the remedy. This prohibition extends not only to retaliation for exercising rights under the remedy, but also for complaining to, or cooperating with, any governmental or judicial authority regarding Microsoft's compliance with the terms of the conduct remedy or any state or federal antitrust law.
EXPLANATION: To enforce the provisions of the remedy, the government and the courts need to have a free flow of information regarding Microsoft's conduct. This cannot occur if Microsoft is permitted to retaliate against firms who provide that information to the government and the courts.
(d) All of the provisions of the remedy, whether substantive, regulatory or procedural, must be interpreted broadly so as to restore the threat of competition to the operating systems market, deprive Microsoft of the fruits of its illegal monopolizing conduct, and prevent Microsoft from forming a new monopoly using similar tactics.
EXPLANATION: The experience of the first consent decree demonstrates the need to make sure that ambiguity in the remedy be resolved in a manner that prohibits Microsoft from using or maintaining its monopoly power. Because a consent decree can be interpreted as a contract, we prefer to see the remedy set forth as a judgment of the Court, which will assure that future interpretations will be from the Court's own perspective of the purposes of the antitrust laws, and not necessarily that of the litigating parties.
(e) The remedial provisions must automatically apply to later editions of products that are covered by the remedy, unless specifically exempted by the Court.
EXPLANATION: If future versions of today's products are not covered, there will be an incentive to get out from under the remedy by making changes and introducing upgrades and substitutes.
(f) The term of the remedy should be ten years subject to the following limitations:
(i) If after five years the court finds by a preponderance of the evidence that Microsoft has fully complied with all the provisions of the remedy in good faith, that Microsoft has fully cooperated with the court and the government in the enforcement of the remedy as well as the achievement of its goals, that competition has been fully restored to the operating systems market, that competition in operating systems market is vigorous enough to prevent Microsoft from reestablishing its monopoly, that Microsoft no longer has in its possession any of the fruits of its operating system monopoly, and that Microsoft does not present a threat to competition in other software markets, the court may terminate the remedy.
(ii) If after five years the court finds these goals are not being achieved or that Microsoft has failed to comply fully with the remedy in good faith or that Microsoft has failed to cooperate fully in the enforcement of the remedy, the court shall order a structural remedy that is designed to restore competition to the operating systems market, deprive Microsoft of the fruits of illegally maintained monopoly, and prevent Microsoft from creating new monopolies.
(iii) If after five years the court finds that not all of the conditions stated in subsection (i) have been satisfied but that Microsoft has fully complied with the remedy in good faith and that Microsoft has fully cooperated in the enforcement of the remedy, then the remedy shall remain in force for the balance of the ten years.
(iv) At the end of every two years and a half years, or earlier at the request of the government, the court shall hold a hearing to determine whether the remedy needs to be modified in order to restore competition to the operating systems market, deprive Microsoft of the fruits of illegally maintained monopoly, or prevent Microsoft from creating new monopolies in new markets using techniques similar to those found illegal in the operating system market.
EXPLANATION: Many of the features of the remedy may take a considerable amount time to implement. For example, it may take a year or more for some applications to be ported to competing operating systems. The development and successful marketing of competing operating systems may take even longer. Nor is it enough to simply have some competitive operating systems made available to consumers. There must be reason to believe that competition is strong enough to prevent Microsoft from reasserting its monopoly once the remedy ends. Thus, the remedy must last long enough for competing products to establish themselves in the market place. We suggest an initial ten year life. Nonetheless, the remedial process needs to be sufficiently flexible to allow modifications necessary to achieve its goals, and so the court should review the remedy success at regular intervals.
This provision is designed to give Microsoft a positive incentive to comply with the provisions of the remedy by giving Microsoft an early release from the restrictions as reward for full compliance and achievement of the remedy. This provision is also designed to ensure that Microsoft cannot profit from any effort to stymie the successful implementation of the remedy. Failure to cooperate fully or to comply in good faith will result in the break up of Microsoft after five years.
RELATIONSHIP TO INTERIM RELIEF
The conduct remedies proposed by the American Antitrust Institute go beyond those imposed by Judge Jackson as interim relief (i.e., interim until the structural remedy would be fully implemented). Whatever merit those remedies may have had as interim relief or as a settlement proposal prior to the finding of liability by both the District Court and the Court of Appeals (see, e.g., Ken Auletta, World War 3.0 350-351, 356-359, 372 (2001)), Judge Jackson's conduct remedies are too limited to achieve the remedial goals identified by the Court of Appeals. Thus, while the AAI's proposal embraces many of Judge Jackson's conduct remedies, it extends them by adding new provisions consistent with both the finding that Microsoft is an abusive monopolist and the fact that the conduct remedies will serve as permanent rather than interim relief.
The AAI proposal includes procedural remedies specifically designed with a recognition that this is a permanent injunction and not interim relief. For example, private parties are given the right to seek relief against Microsoft for any violation of the substantive terms of the remedies. The AAI remedy also explicitly states that its terms are to be interpreted broadly so as to accomplish its remedial goals, thereby keeping Microsoft from using tortured interpretations of the language to create loopholes and render the remedies meaningless as it did with the 1994 consent decree.
Significantly, the AAI proposal adds a "must carry" provision for JAVA and for competitors' products to the interim remedies ordered by Judge Jackson. While Microsoft will remain free to use Windows as a distribution channel for its products and services, Microsoft will no longer be able to exclude its competitors from also using Windows as a distribution channel. Not only does this deprive Microsoft of the fruits of its illegally maintained monopoly, it also inhibits Microsoft's ability to leverage its operating system into markets without raising the issues involved in a prohibition on tying.
To help break down the applications barrier to entry that protects Microsoft's monopoly, the AAI proposal requires Microsoft to port its middleware and applications software to competing operating systems. This provision was unnecessary for interim relief because Judge Jackson's structural remedy would have broken down the applications barrier to entry by spinning off Microsoft's applications development into a separate firm which would have had an economic incentive to port products such as Microsoft Office to Linux and other operating systems.
The AAI proposal extends the disclosure provisions of Judge Jackson's proposal to include not only the APIs, etc., but also the source code for Microsoft's operating systems.
Finally, the AAI proposal requires not only disclosure of the source code for all of Microsoft's operating systems but also the licensing of its source code to DOS based operating systems to ISVs, and the AAI proposal enables Microsoft's competitors to hire away Microsoft employees with the expertise necessary to take advantage of the licensing. This will immediately create competitive operating systems with relatively low applications barriers to entry.
1 This paper, co-authored by Norman Hawker, Robert Lande, and Albert Foer, is the result of on-going and intensive dialogue within the American Antitrust Institute. While many members of the AAI Advisory Board (as well as several non-member experts) participated in its evolution, it should not be assumed that all members would necessarily endorse the document or all of its component proposals and explanations.