|
To Renata Hesse
The following six (6) pages of this facsimile are a comment on the
Microsoft Settlement in the Microsoft antitrust case. This comment has
been simultaneously submitted by email.
Mason Thomas
(805) 530-1502
As a professional working in the technology sector,
I often have occasion to use Microsoft software and competing products.
I am therefore concerned that the Revised Proposed Final Judgment in
the Microsoft antitrust case has a number of deficiencies that prevent
the Judgment from providing certain and effective relief for Microsoft's
violations of the Sherman Act. Unless these flaws are corrected, the
Revised Proposed Final Judgment is clearly against the public interest
and will positively harm third parties.
This Comment addresses five serious deficiencies of the Revised Proposed
Final Judgment, The deficiencies are discussed in the order they appear
in the Judgment, not necessarily in their relative order of impact on
injunctive relief. The deficiencies are:
- The Judgment provides no remedies for past unlawful conduct.
- Allowing volume discounts anticompetitively maintains Microsoft's
monopoly (Section III.A. and III.B.).
- Restrictions on disclosure of communications protocols maintains
a barrier to competition (Section III.E.).
- Arbitrary five year term of Judgment harms the public interest
(Section V.).
- The definition of "Non-Microsoft Middleware Product"
maintains a barrier to competition (Section VI.N.).
Although it is unreasonable to expect a truly optimal Judgment that
best serves the public interest, the existence of any one of the above
deficiencies--and certainly the coexistence of several of them--will
not end Microsoft's unlawful conduct nor avoid a recurrence of violations
of the Sherman Act, and is thus outside the reaches of the public interest.
1. Judgment provides no remedies for past unlawful conduct
Although the Revised Proposed Final Judgment provides limited remedies
"to halt continuance and prevent recurrence of the violations of
the Sherman Act by Microsoft" (Competitive Impact Statement, Section
I.), it does not in any way "undo its anticompetitive consequences"
(Competitive Impact Statement Section IV.B.) , There is no provision
in the Judgment to remedy any past anticompetitive actions by Microsoft:
all provisions in the Judgment attempt to alter the current and future
behavior of Microsoft. As such, the Judgment does not effectively restore
the competitive conditions experienced by Microsoft prior to its violations
of the Sherman Act.
An effective remedy for Microsoft's past illegal actions requires a
careful balance to empower injured competitors while not unduly damaging
Microsoft. A simple but fair remedy would create a pool of Microsoft's
money based on a percentage of sales of Microsoft Operating System Products
since the filing of the antitrust complaint till the time of the Final
Judgment entered by the Court. The parties damaged by Microsoft's anticompetitive
behavior (e.g., Sun Microsystems, Netscape Communications Corp., etc.)
would be payed from this pool. The size of the pool and the relative
payment terms to competitors are details that require careful consideration.
2. Allowing volume discounts anticompetitively maintains Microsoft's
monopoly
Allowing volume discounts serves no procompetitive interest and is
in fact very much against the public interest as it serves to illegally
maintain Microsoft's monopoly. Section III.A. of the revised proposed
final judgment stipulates that "Nothing in this provision shall
prohibit Microsoft from providing Consideration...commensurate with
the absolute level or amount of that OEM's development, distribution,
promotion, or licensing of that Microsoft product or service."
Section III.B.2 provides for a licensing fee schedule that "may
specify reasonable volume discounts based upon the actual volume of
licenses of any Windows Operating System Product..." These provisions
allow Microsoft to continue to leverage its monopoly position to illegally
maintain that monopoly. The Competitive Impact Statement entirely ignores
the anticompetitive ramifications of these terms.
Unlike traditional manufacturing, where the production or distribution
of a large quantity of a product can generate "economies of scale"
and thereby procompetitively justify non-uniform pricing (e.g., volume
discounts), the licensing of software has no significant economies of
scale. A comparison with traditional manufacturing is useful. For a
car dealership selling hundreds of cars per month, there is economic
justification for the car manufacturer to provide a volume discount
to the dealership: the distribution costs (shipping) per car are lower
than for a dealership selling only ten cars per month, with software
however, the only economy of scale obtained is slightly cheaper production
materials: compact disks for distribution and paper for documentation
and product boxes. OEMs typically only include a compact disk with a
new computer purchase, for which the volume production cost is under
one dollar (US$1.00). Hence the economies of scale afforded by large
scale OEMs to Microsoft are less than one percent (1%) of the retail
value of typical Windows Operating System Products. Hence there is no
significant procompetitive reason to allow volume discounts to large
OEMs.
Allowing Microsoft to offer volume discounts will further entrench
its monopoly position. With volume discounts, Microsoft would retain
the ability to price its Windows Operating System Product licenses at
an artificially low cost to the largest OEM vendors. These vendors would
thus have a strong incentive to continue to offer exclusively or predominantly
the Microsoft Operating System Product on new Personal Computers, The
largest OEM Personal Computer suppliers would have a free market incentive
to choose alternate Operating System Products if Microsoft's Operating
System Product were instead priced at an open market value. Avoiding
volume discounts increases competition while preventing Microsoft from
leveraging its monopoly to stifle competition.
This deficiency of the revised proposed final judgment is remedied
by deleting the words "distribution" and "licensing"
from the last paragraph of Section III.A. and by modifying Section III.B.2
to read "the schedule may not specify volume discounts based upon
the actual volume of licenses of any Windows operating System Product
or any group of such products." These modifications will still
allow Microsoft to compete in the marketplace based on the merits of
the windows Operating System Products, but prevent Microsoft from anticompetitively
erecting barriers to competitive products.
3. Restrictions on disclosure of communications protocols maintains
barrier to competition
The Revised Proposed Final Judgment maintains a significant barrier
to competing Non-Microsoft Middleware Products by restricting the disclosure
of Communications Protocols. Section III.E. of the Judgment provides
that Microsoft shall disclose Communications Protocols "on reasonable
and non-discriminatory terms." Such terms, however, prevent a large
number of established and nascent competitors from obtaining the Communication
Protocols. "Reasonable and non-discriminatory" license terms
act as an anticompetitive barrier to potential Microsoft competitors,
while providing no procompetitive advantage for Microsoft.
"Shareware" software developers typically provide software
products (including middleware) free of charge for end users to evaluate,
and only demand payment if the end user decides to continue using the
software product. Such developers would be unable to comply with "reasonable
and non-discriminatory" licensing terms unless a very large percentage
of end users payed for the software product. similarly, the entire "open
source" class of software would be unable to meet "reasonable
and non-discriminatory" terms as the "open source" licenses
allow virtually unlimited duplication and derivation rights. Several
important Non-Microsoft Middleware Products are "open source",
notably the Samba program (http://www.samba.org), that provides file
transfer and print Services through the Microsoft SMB Communications
Protocol. The Samba program is a well-established and widely used alternative
to Microsoft Middleware Products, but it would be effectively prevented
from competing with Microsoft through the adoption of "reasonable
and non-discriminatory" licensing terms for future changes in the
SMB protocol.
This deficiency of the Revised Proposed Final Judgment can be remedied
by a simple wording change. The phrase "reasonable and non-discriminatory"
in Section III.E. of the Judgment should be changed to "royalty
free". Since Microsoft's ability to hide Communication Protocols
serves only to prevent competitors from effectively interoperating with
Microsoft products and does not in any way increase competition, a mandatory
royalty free license would serve to allow both large and small competitors
to interoperate with Microsoft products.
4. Arbitrary five year term of Judgment harms the public interest
The Competitive Impact Statement in Section IV.C. claims that a five
year time frame for the Judgment "provides sufficient time for
the conduct remedies contained in the Proposed Final Judgment to take
effect...and to restore competitive conditions to the greatest extent
possible." The Competitive Impact Statement provides neither evidence,
nor precedence, nor logic to support this claim.
In fact, a five year term may well be too long. The provisions of the
Revised Proposed Final Judgment may turn out to be so effective at restoring
competition that Microsoft loses its dominance in less than two years
in the Operating System market for Personal Computers and becomes unnecessarily
hobbled by the restrictions of the Judgment. In such a case, Microsoft
would be unfairly restricted from competing in the market for another
three years, possibly causing great economic damage to Microsoft and
depriving consumers of the fruits of a vibrant competition in the Operating
System market.
Alternatively, the provisions of the Revised Proposed Final Judgment
might not be sufficient to hinder Microsoft's anticompetitive actions,
and Microsoft could continue to violate the Sherman Act through an extended
seven-year Judgment period. Clearly such a situation would severely
harm the public interest, again depriving consumers of the benefits
of a competitive market and stilting the entire Operating System and
Middleware market. The arbitrary five year Judgment term length would
only be beneficial in the most serendipitous of circumstances, and the
arbitrary two-year extension does not mitigate this fault.
The overriding concern of this Judgment is to prevent Microsoft's anticompetitive
actions and to restore competitive conditions to the market, and it
is that principle that should guide the term length of the Judgment.
The most straightforward application of this principle would be to terminate
the Judgment when Microsoft no longer enjoys monopoly status. This could
be achieved with the following replacement for Section V. (Termination)
of the Revised Proposed Final Judgment:
- "This Final Judgment will expire when Microsoft's windows Operating
System Product has less than fifty percent share of the Personal Computer
Operating System market (as determined by a market study provided
by a mutually agreed upon third party)."
With this revised termination clause, the Judgment will stand exactly
as long as necessary for the public interest. An alternate definition
of monopoly status (i.e., instead of "fifty percent market share")
may also be acceptable, provided it is logically and legally defensible,
and maintains the intent of the Judgment.
This new termination clause will ensure the return of healthy competition
to the Operating System market without unduly burdening--or harming--Microsoft.
At the point that Microsoft's windows Operating System Products have
less than fifty percent share of the Personal Computer Operating System
market, there is clearly healthy competition in that market, with at
least one other dominant competitor to Microsoft. There is then no further
reason to impose the conditions of the Judgment. However, Microsoft
is not prevented from maintaining its monopoly on the technical merits
of its products. The ongoing terms of the Judgment would not be onerous
to Microsoft should it maintain a monopoly position without resorting
to anticompetitive actions.
5. Definition of "Non-Microsoft Middleware Product" maintains
barrier to competition
Although the Revised Proposed Final Judgment seeks to "restore
the competitive threat that middleware products posed prior to Microsoft's
unlawful conduct (Competitive Impact Statement, Section IV), the proposed
definition of "Non-Microsoft Middleware Product" serves instead
to maintain barriers to competition. Section VI.N. of the Revised Proposed
Final Judgment stipulates that a software product, among other requirements,
can only be considered a "Non-Microsoft Middleware Product"
if "at least one million copies were distributed in the United
States within the previous year." This requirement is explained
in the Competitive Impact Statement, Section IV.A. as being "intended
to avoid Microsoft's affirmative obligations...being triggered by minor,
or even nonexistent, products that have not established a competitive
potential in the market..." As the Competitive Impact Statement
makes clear, the definition of "Non Microsoft Middleware Product"
intentionally limits the possible competitive impact of nascent middleware
products. Such a limitation is antithetical to the desired goals of
the Judgment.
This deficiency of the Revised Proposed Final Judgment can be easily
remedied by deleting Section VI.N.(ii) and thus removing the restriction
on number of copies distributed. The Competitive Impact Statement in
Section IV.A. states that the restriction on number of copies distributed
"is intended to avoid Microsoft's affirmative obligations--including
the API disclosure required by Section III.D. and the creation of the
mechanisms required by Section III.H.--being triggered by minor, or
even nonexistent, products..." In other words, Microsoft should
not endure an onerous burden in its obligations. However, deleting Section
VI.N.(ii) would not create such a burden. Since Section III.D. already
specifies that APIs and related Documentation shall be disclosed via
the Microsoft Developer Network or similar mechanisms, Microsoft will
not require any further effort to make the APIS and Documentation available
to ISVs or other middleware developers that have not established a competitive
potential in the market--but that nevertheless have the potential to
become competitors with Microsoft, Furthermore, the mechanisms required
in Section III.H. (such as the creation of Add/Remove icons) are sufficiently
generic that they will only need to be created once--and likely already
exist--to accommodate all Microsoft and Non-Microsoft Middleware, and
hence the expansion of the number and kind of possible middleware competitors
to Microsoft again does not create an undue burden on the company.
This Comment has been submitted through both e-mail and facsimile copy.
Respectfully submitted,
Mason Thomas
4333 Wildwest Circle
Moorpark, CA 93021
(805) 530-1502
January 25, 2002
|