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Slide 1

Predictability

David A. Heiner
Vice President, Deputy General Counsel (Antitrust)
Microsoft Corporation

January 30, 2007

Presented at DOJ/FTC Hearings on Single Firm Conduct


Slide 2

Business Perspective

  • Microsoft: Considerable experience under Section 2
    • Product design, packaging, pricing, licensing
  • Predictability of utmost concern
    • Firms really want to know the rules of the road
    • Yet application of law increasingly difficult to predict
    • Consequences to business and consumers greaterthan ever
  • Rule of Reason
    • Hard to apply when experts fundamentally disagreeas to whether particular effects are procompetitive or anticompetitive
    • Windows integration examples


Slide 3

Predictability
Various Factors Combine to Make Predictions Increasingly Uncertain

New
Business
Models
  • Development of compatible "ecosystems"
  • Very low marginal cost products or services
  • Complex relationships among firms
New
Technologies
  • IP based
  • Increasing antitrust focus on product design
  • Tim lag between design, assertion of antitrust claims


Slide 4

Predictability
Various Factors Combine to Make Predictions Increasingly Uncertain

Multiple
Constituencies
  • Rise of multi-sided markets
  • Differing business interests (and thus varying potential antitrust claims)
    even of similarly situated firms
  • Web search example
Multiple
Enforcers
  • DOJ, FTC, State, competitors, consumers
  • With globalization, increasing assertiveness and number of foreign agencies: EU, Asia
  • Broad scope of prosecutorial discretion
  • Interation among enforcers


Slide 5

Stakes Higher than Ever

Product Design Timeline
Design Development Production
Release
Claim
Assesment
Year 1 Year 2 Year 3 Year 4

Design decisions

  • Often must be made years before product release
  • Often difficult or impossible to "undo" later
  • Relied upon by third parties, other parts of theproduct
  • Windows 95 example


Slide 6

Stakes Higher than Ever

IP Licensing

  • Decisions often irreversible: Once propietarytechnology licensed, typically can't get it back
    • Trade secrets revealed
    • Firms rely upon licensed IP
  • Global antitrust enforcement
    • Agency demand for licensing on a worldwide basis
    • Agency imposing greatest licensing obligations de facto determines rules (likely not to be U.S.)
  • Risk that value of IP is diminished
    • Royalties not established by market forces


Slide 7

Consequences

Risk of overdeterrence arises from combo of

  • Difficulty in predicting outcomes, changing course later
  • Variety and number of possible claims
  • Desire to avoid controversy

Consumer welfare effects

  • Limitations on product improvement
    • Windows, Office examples
  • Antitrust advice to (gulp) raise prices
    • Lower package prices would be efficient absent any effect on competitors (demand aggregation)
  • Increased R&D costs
    • Slowed decision-making; use of senior exec time
    • Work with questionable commercial value


Slide 8

Suggestions

Clarity

  • Stronger presumption that conduct widely practiced by firms with and w/o market power is efficient
Convergence
  • Redoubled effort by U.S. agencies to evangelize U.S. approach
    • Provides greater predictability than other approaches

Comity

  • Increasingly important to allocate responsibility among multiple agencies
  • Greater deference to rules of defendant's home jurisdiction


Slide 9

Microsoft®