Microsoft Tunney Act Comment : Relpromax Antitrust Inc.

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VIA FACSIMILE ONLY TO 202-307-1545

To:

Renata B. Hesse, Esq.
U.S. Department of Justice
Antitrust Division
601 D Street, N.W.
Suite 1200
Washington, D.C. 20530
Telecopier: 202-307-1545/202-616-9937
Telephone: 202-514-8276

From:

Peter Peckarsky, Esquire
1615 L Street, N.W.
Suite 850
Washington, DC 20036
Telecopier: 202-408-5200
Telephone: 202-785-0100

Re: U.S. v. Microsoft, Civil Action No. 98-1232
Date: January 28, 2002

No. of pages (including this sheet): 26


January 28, 2002

Renata Hesse, Esq.
Trial Attorney
Antitrust Division
U.S. Department of Justice
Suite 1200
601 D Street N.W.
Washington, D.C. 20530
Facsimile: 202-616-9937 or 202-307-1545
E-mail: microsoft.atr@usdoc.gov

The Honorable John Ashcroft
Attorney General of the United States
U.S. Department of Justice
Room 4400
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530 (without exhibits or attachments)

The Honorable Charles A. James
Assistant Attorney General
Antitrust Division
U.S. Department of Justice
901 Pennsylvania Avenue, N.W.
Washington, D.C. 20530 (without exhibits or attachments)

Mary Braden, Director
Departmental Ethics Office
U.S. Department of Justice
Room 6642
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530 (without exhibits or attachments)

Re:   Comments of Relpromax Antitrust Inc. with respect to the Revised Proposed Final Judgment dated November 6, 2001, and filed in U.S. v. Microsoft,
Civil Action No. 98-1232, United States District Court for the District of Columbia

Dear Ms. Hesse:

Defendant Microsoft has been found liable for multiple violations of Section 2 of the Sherman Act, 15 U.S.C. § 2. A proposal for a consent judgment (in the form of a Revised Proposed Final Judgment ("RPFJ") dated November 6, 2001, and signed for the United States by Charles A. James, Assistant Attorney General, Antitrust Division, United States Department of Justice) has been submitted in the captioned civil action. As will be made clear below and has been made clear by others who have submitted comments, the RPFJ does not meet the requirements of law and makes a mockery of the judicial power.(1)

Assistant Attorney General James freely concedes that one of the products at issue is one of the necessaries of modern life. As Mr. James recently wrote:

[The case] involves the signature product of the digital age, the Windows operating system, through which the vast majority of computer users worldwide interact with what has become a basic appliance in human life.(2)

The Act was named for Senator John Sherman (R. - Ohio). The following is what Senator Sherman told the Senate about concentrated economic power controlling the necessaries of life during the debate that led to the passage of the Sherman Act:

If the concentered [concentrated] powers of [a trust] are intrusted to a single man, it is a kingly prerogative, inconsistent with our form of government, and should be subject to the strong resistance of the State and national authorities. If anything is wrong this is wrong. If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade, with power to prevent competition and to fix the price of any commodity.(3)

INTRODUCTION

I am the President of Relpromax Antitrust Inc. I am an economist by education and experience. I received a Ph.D. in economics from Princeton University and an A.B. in economics from the University of California at Davis. I taught economics at Cleveland State University, Central Michigan University, and Kansas State University. I was a post-doctoral research fellow at Wayne State University. At Kansas State University, I was a Visiting Assistant Professor and taught a course in industrial organization economics. I have worked as an economic analyst at the Illinois Commerce Commission which regulates public utilities.

EXECUTIVE SUMMARY

1. My analysis of the competitive impact of the RPFJ using a computerized model demonstrates that the law requires a structural remedy splitting Microsoft into at least two (2) competing companies if the compensation for the executives of these companies is based on relative profit maximization (RPM). A re-structuring into at least three (3) competing companies if the compensation for the executives of these firms is based on absolute profit maximization (APM).

2. The conduct of the United States Department of Justice and Microsoft with respect to the RPFJ since about September, 2001, has demonstrated contempt for the Court and the statutory rights of all Americans.

3. The RPFJ affirmatively declares that it creates no rights for Original Equipment Manufacturers (OEMs), Covered OEMs, Internet Access Providers (IAPs), Internet Content Providers (ICPs), Independent Hardware Vendors (IHVs), or Independent Software Vendors (ISVs).

4. The RPFJ will not stop Microsoft's violations of the antitrust laws, prevent a recurrence, restore competition to the market, or deny Microsoft the fruits of its illegal conduct..

5. To avoid a conflict of interest or the appearance of impropriety, the Attorney General, the Assistant Attorney General in charge of the Antitrust Division, and all other political nominees or appointees of the current Administration should recuse themselves from any further involvement in matters related to Microsoft; the authority to continue to represent the United States should be delegated to a non-political career trial attorney of the Antitrust Division of the Justice Department pursuant to 28 U.S.C. § 510 by a career employee of the Justice Department acting as the delegatee of the Attorney General.

DISCUSSION

A. The Violations of Law and What The Remedy Must Do By Law

The Antitrust Procedures and Penalties Act (Tunney Act) governs this court's consideration of the RPFJ.

The Tunney Act was signed on December 21, 1974, to remedy one of the many abuses of power which led to the adoption of the second of three Articles of Impeachment of the President by the Committee on the Judiciary of the United States House of Representatives on July 27, 1974, and to the only Presidential resignation in the history of our nation on August 9, 1974. The Tunney Act is not merely some procedural nicety.

The Tunney Act was intended to protect all Americans against an abuse of the antitrust settlement power. See Exhibit 10 hereto, pages 13-22.

In a unanimous 7-0 decision, the United States Court of Appeals for the District of Columbia Circuit found Microsoft liable for multiple violations of 15 U.S.C. § 2 due to unlawful maintenance of a monopoly. U.S. v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001).

The violations of law related to anti-competitive restrictions on OEMs, the integration of Internet Explorer with Windows, exclusionary agreements with IAPs, anti-competitive agreements with ISVs, dealings with Apple Computer, First Wave agreements with ISVs, the fraudulent deception of software developers using Java, and threats to Intel.

By law, the remedy must stop the violations, prevent a recurrence, restore competitive conditions in the market, and deny to Microsoft the fruits of its statutory violation.

Given that the United States won a judgment sufficient to support these remedies, it is not in the public interest for this Court to rubber stamp its approval on a sweetheart deal to protect a campaign contributor to both the Attorney General and the President who put the Attorney General and Assistant Attorney General in charge of the Antitrust Division in their current offices. See Exhibit 10 hereto, pages 16-18, 21, and 25, and Attachments 1 and 9-43 to the Dautch Declaration which is Exhibit A to Exhibit 10 of this letter.

The Court of Appeals suggests, U.S. v. Microsoft, 253 F.3d 34, 107 (D.C. Cir. 2001) that:

If the Court on remand is unconvinced of the causal connection between Microsoft's exclusionary conduct and the company's position in the OS market, it may well conclude that divestiture is not an appropriate remedy.

It follows that if the Court is convinced of the causal connection, the Court may conclude that divestiture is an appropriate remedy.

Pursuant to 15 U.S.C. § 16(e), this Court must make a determination that entry of the RPFJ is in the public interest. The statute provides, in pertinent part, that for the purpose of making a decision on whether entry of the RPFJ is in the public interest, the court may consider:

  1. the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration or relief sought, anticipated effects of alternative remedies actually considered, and any other considerations bearing upon the adequacy of such judgment;
  2. the impact of entry of such judgment upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

The Court may consider other issues it deems relevant also and is not limited to the considerations set forth in the statute. Some of these issues are discussed below.

  1. The Model

After the United States failed to comply with its legal obligation sunder the Tunney Act to provide an analysis of the competitive impact of the RPFJ, I prepared a computerized model for the analysis of the competitive impact of the RPFJ. The model is described in detail in Exhibit A hereto.

This economic model considers and calculates the effects on competition of both conduct-only remedies and structural remedies. The model calculates, in dollar terms, the competitive impact of alternative remedies under various sets of assumptions. The model calculates the dollar value of such important economic quantities as consumer surplus, profits of Microsoft and competitors, and total surplus. The main conclusions are 1) only a structural remedy can fully repair the economic damage which Microsoft has caused, and 2) most structural remedies require additional measures to reduce or eliminate the "fruits" of Microsoft's unlawful "victories."

  1. The Conduct of the United States and Microsoft Has Been Contumacious

As discussed in Exhibits 10 and 11 hereto, both the United States and Microsoft have defied the court and denied the public the information they are statutorily entitled to have to assess the RPFJ.

  1. The RPFJ Explicitly Denies Any Protection To Third Parties

After purporting to create rights and protections for OEMs, ISVs, IHVs, ISPs, and ICPs, among others, the RPFJ takes it all away in the last section (section VIII) which states:

Nothing in this Final Judgment is intended to confer upon any other persons any rights or remedies of any nature whatsoever hereunder or by reason of this Final Judgment.

Entry of the RPFJ would make a mockery of the judicial power.

There are a host of other problems with the RPFJ, some of which are due to a lack of economic analysis.

For example, paragraph 2 of the Revised Proposed Final Judgment says, "[T]his Final Judgment does not constitute any admission by any party regarding any issue of fact or law." This provision is not in the public interest, and is partial evidence that this consent agreement is a sweetheart deal. Microsoft has been duly convicted of serious antitrust violations, and many of these convictions were upheld by the Appeals Court. The Appeals Court for the District of Columbia is widely perceived to be more conservative on antitrust issues than the Supreme Court. There is virtually no chance that the Supreme Court will overturn those convictions which the Appeals Court has upheld.

The failure to obtain an admission of guilt, under these circumstances, is really quite remarkable. It requires some explanation for why it is in the public interest to accept an agreement with no admission of guilt. The Competitive Impact Statement provides no such explanation. Also no estoppel against Microsoft for private parties.

Another example is the proposed set-up is that the work of the TC is completely secret. Section IV.B.9. requires that the TC's work be kept secret. Section IV.B.10. prohibits the TC members from making public statements. Section IV.D.4.d. requires that everything the TC does must be kept secret, and that TC members may not testify about their work. Section IV.B.8.g. does allow TC members to communicate to third parties "how their complaints or inquiries might be resolved," but requires confidentiality of all information obtained from Microsoft. The work of the TC, whether good or bad, is not subject to any public check or verification. Such secrecy allows a corrupt DOJ to hide the fact that no enforcement actions against violations by Microsoft are being undertaken. All this secrecy gives no confidence to the public, or to potential complainants, that their complaints will be resolved fairly or expeditiously. This is especially so, given the widespread perception among Microsoft's would-be competitors that this agreement is essentially a sweetheart deal.

By way of further example of lack of economic analysis in the Competitive Impact Statement, consider the following.

A thorough reading of both the Stipulation and the Competitive Impact Statement indicates that neither document contains any substantive economic analysis of any kind whatsoever. Nor is there any reference to any document which does contain any substantive economic analysis. This is a very serious omission, which is not permitted with respect to other types of proposed government regulation. This omission prevents both the Court and the public from having any genuine basis by which to declare this agreement to be in the public interest. Accordingly, for this reason alone, review of the proposed agreement should be postponed, at least until such time as the Department of Justice revises its Competitive Impact Statement to provide such analyses.

The very words, "Competitive Impact Statement," suggest an attention to the economic impacts of competition or lack of competition. The nature of these possible impacts is well known. There can be competitive impacts on prices, sales quantities, costs, quality of products or service, number of competitors, market shares of competitors, the number and variety of products, and other impacts of competition, imperfect competition, or no competition. There is a whole field of economics, "industrial organization," which is specifically devoted to analyzing these impacts. Many of the economists who are employed by the Antitrust Division of the Department of Justice have studied industrial organization. The Department of Justice has access to numerous consulting economists. It is therefore quite surprising, indeed quite incongruous, that the DOJ would issue a "Competitive Impact Statement" in the very major case before us, which is so completely devoid of any substantive economic analysis.

In accordance with well-established practice, the Court should require prior publication of a substantive economic analysis as part of the government's "Competitive Impact Statement" and allow 60 days for public comments thereafter.

Certainly, there needs to be a quantitative assessment of the likely competitive impacts of the various remedy alternatives. Whether this quantitative assessment should be called "cost-benefit analysis" or something else is not the primary issue. The primary issue is whether the quantitative analysis of potential remedies illuminates the equity criteria enunciated by the Supreme Court for the resolution of antitrust cases. One important equity criterion is whether a proposed remedy eliminates the "public injury" from unlawful conduct. This requires a quantitative assessment of past and prospective injuries, and a quantitative assessment of how particular remedies reduce or eliminate that injury. Another important equity criterion is whether the monopolist has been deprived of the fruits of an unlawful victory. This requires a quantitative measure of how large those "fruits" are and how effective each remedy would be in reducing or eliminating such fruits.

The government provides no economic analysis at all. There are no facts, figures, statements, tables, or economic models concerning Microsoft's costs, prices, revenues, or profits. There is no projection of costs, prices, revenues, profits, or consumer surplus under various alternative scenarios or remedies. Nor is there any economic analysis of any other competitive impacts, real or imagined, which might flow from this proposed remedy or alternative remedies. There is, in short, no genuinely substantive "Competitive Impact Statement" which the public may either approve or critique.

Without an economic analysis, there can be no substantive statement of competitive impacts. 15 U.S.C. § 16(b) requires filing a competitive impact statement. Clause (3) requires "an explanation of the proposal, includingthe anticipated effects on competition of such relief."

There are areas 1) where an economic analysis would have been useful, but was not provided, and 2) where weakness in the agreement suggests that the whole agreement is, and was perhaps intended to be, essentially a sweetheart deal.

Fo example, Microsoft's predatory acts were undertaken for the purpose of maintaining its highly profitable monopoly. Microsoft's profit from these acts may be counted in the billions of dollars. Only multi-billion dollar fines on Microsoft for failure to obey the terms of the consent agreement can fully deter rational disobedience. The Competitive Impact Statement provides no indication that the settling Plaintiffs contemplate fines of this magnitude, nor is there any economic analysis in the CIS which shows that fines of this size are not needed. If fines in the billions of dollars are contemplated, the DOJ ought to say so. We may presume that Microsoft will gladly pay its attorneys even as much as $100 million to avoid a multi-billion dollar fine. Continued litigation by Microsoft is virtually assured. If fines of this magnitude are not contemplated, how does the DOJ intend to enforce this agreement?

By way of further example, the only "penalty" specified in the consent agreement for disobedience to the agreement is to extend the term of the agreement for an additional two years (Section V.B.). However, it would seem to be common-sense economics that if five years of an ineffective regime is insufficient to deter unlawful behavior, then an additional two years of the same ineffective regime is unlikely to deter the unlawful behavior. A more sensible "penalty" would be a five-year extension, renewable indefinitely, not just once. In addition, real penalties for disobedience should be instituted. For example, a fine equal to triple the value of expected profits from uncaught disobedience might be imposed. The proposed "penalties" of this agreement also constitute partial evidence that, in reality, this is a "sweetheart" agreement which the political leadership of the DOJ has no intention of seriously enforcing.

By way of yet further example, section III.B. requires Microsoft to post and publicize uniform licensing terms. This affirmative obligation is all well and good. However, there are some puzzles here, which the Competitive Impact Statement does little to elucidate.

First, Section III.B.2. allows the schedule to "specify reasonable volume discounts." However, neither the agreement nor the Competitive Impact Statement specifies what constitutes a "reasonable" volume discount. Can there exist any set of volume discounts which is "unreasonable"? If the answer is yes, presumably the DOJ can provide examples of "unreasonable" volume discounts, and a methodology (presumably based on economics) for determining whether volume discounts are either "reasonable" or "unreasonable." However, the Competitive Impact Statement (pages 27-29) provides neither examples nor methodology. If the answer is no, what is the purpose of this term "reasonable"? This is one place where an economic analysis is indicated, if only to clarify the meaning of this agreement.

Second, Section III.B.3.a. makes a distinction between the top ten Covered OEMs, and the second ten Covered OEMs, and allows two different uniform schedules. Since the uniform schedules already permit "reasonable volume discounts," what is the purpose of further distinguishing the size of the OEMs? This additional and unneeded flexibility simply gives Microsoft further opportunities for discrimination and retaliation. If Microsoft is especially interested in punishing one particular firm, Microsoft may punish ten firms, while falsely claiming to be nondiscriminatory. While this opportunity to discriminate may not be especially valuable, why offer this opportunity in the first place? Uniform schedules for everyone is the better approach.

Third, Section III.B. only applies to 20 Covered OEMs. Section VI.D. defines these Covered OEMs as those manufacturers of personal computers who had the largest purchases of Windows Operating System Products during the previous fiscal year. However, why are these uniform schedules applicable only to the top 20 OEMs? Why not simply apply the uniform schedules to anybody who wishes to purchase Windows Operating Systems, whether an OEM or not? Also, why should these uniform schedules apply only to OEMs who previously purchased Windows Products? It is the essence of non-discrimination that OEMs should not be penalized for using non-Microsoft products. Yet, if an OEM uses a competitor's product, it may find itself in the group of non-Covered OEMs. This does not aid the professed goal of preventing discrimination and retaliation.

Explanations for these various oddities are required. An economic analysis of these oddities would be even better. What is the past and projected market share of the top ten OEMs? What is the past and projected market share of the second ten OEMs? What is the past and projected market share of all remaining wholesale and retail purchasers of Windows products? What differences in competitive outcomes does the DOJ expect for the various possible rules concerning the uniform schedules? This economic analysis should have been provided as part of the Competitive Impact Statement.

Another example is as follows: Section III.D. requires Microsoft to disclose APIs and related documentation to all its Windows Operating System Products and its Microsoft Middleware. This affirmative obligation is also well and good. Again, however, there are some puzzles, which the Competitive Impact Statement does little to elucidate.

First, there are the timing differences on when these disclosures must be made. In the case of Microsoft Middleware, it is the "last major beta test release," which is not further defined. Presumably, the last beta test release could be a mere few weeks before the commercial sale of the product, which is not much advance notice to developers and competitors. For a new Windows Operating System Product, these disclosures must occur in a "Timely Manner," which is further defined as the first beta test version that is distributed to 150,000 or more beta testers. Is it possible that Microsoft might therefore choose to beta test future versions of its operating systems with fewer that 150,000 beta testers? The Competitive Impact Statement (pages 33-35) provides no explanation for these differences in timing. Nor does it provide any economic analysis concerning whether Microsoft will henceforth have an incentive to "game" these restrictions to avoid the intended competitive impact on its future behavior. Nor has the DOJ provided any economic analysis of how possible changes in the timing of API disclosures would affect the competitive impacts.

Second, there is the timing of disclosures for Windows XP. This disclosure must occur upon release of the first Service Pack, or within twelve months, whichever is earlier. It is not explained whether or why Microsoft needs twelve months to provide its disclosures. If this amount of time is not needed, a lesser time interval should have been provided. However, if several months time is needed, then this necessarily delays Microsoft's issuance of Service Pack 1.

Recent newspaper accounts indicate that Windows XP (and some prior products) has a very serious bug which can allow a malicious hacker to take control of thousands of computers running Windows XP. This circumstance would ordinarily imply that Microsoft is under very serious pressure to issue its first Service Pack on an emergency, expedited basis. However, if the required disclosures take too much time to prepare, then Section III.D. harms both Microsoft and the public. If a proper economic analysis had been performed, this oddity of the agreement likely would have been exposed and corrected before being submitted to the public. In any case, without a published economic analysis, it is difficult to decipher why the DOJ thought this provision made good sense.

Yet another example of missing information arises from section VI.J. which provides a confusing definition for "Microsoft Middleware." In the consent agreement, the four conditions within the definition are combined with the word "and." However, the Competitive Impact Statement (pages 17-19) explains this term in a manner which suggests that these four conditions ought to be combined with the term "or," not "and." The Competitive Impact Statement (pages 18-19) discusses the situation where Microsoft might choose to divide up its redistributables in such manner that the fourth condition is not met, or even not provide a redistributable, yet the Competitive Impact Statement suggests that such non-qualifying software code is included under the definition. Either all four of the conditions must be present to qualify as "Microsoft Middleware" (an "and" requirement) or only some of the four conditions need be present (an "or" requirement). If the Competitive Impact Statement is correct, then the language of the Stipulation requires revision (or vice versa). Very likely, if the Competitive Impact Statement is correct, then the language of the Stipulation needs to be more extensively revised than simply replacing "and" with "or."

Since this defined term "triggers Microsoft's obligations" (page 17 of the Competitive Impact Statement), it is important that the public and the Court be provided with a clear conception of what this term means. It is difficult for me, or any other member of the public, to comment on the suitability of an agreement which might mean one thing, or might mean another thing. In view of this apparent error regarding a key matter, I would suggest that the DOJ revise the Stipulation, revise the Competitive Impact Statement, or both, and resubmit to the public for further comment. Section VI.T. provides a definition of "Trademarked" as used in the consent agreement. Pages 22-23 of the Competitive Impact Statement elucidate this definition further. The Competitive Impact Statement makes much of the supposition that Middleware is Trademarked, or if not Trademarked then it is not Middleware. Is this a distinction with a difference, or that will make a difference? Here is one place where an economic analysis would be useful, both to clarify whether this is a substantive part of the agreement, and if it is substantive, the likely competitive impacts of this provision of the agreement.

Obviously, there are many other provisions of this consent agreement for which an economic analysis of competitive impacts would have been useful. Such economic analysis would have been useful, both to clarify the meaning of the agreement, and to help educate the Court and the public on the expected or intended competitive impacts of the agreement. In addition, such economic analyses would have provided a framework upon which the public, in its commentary on the alleged competitive impacts, might accept, modify, or reject. As it is, the public is left with many questions and no answers; the public is given the unfair burden of developing its own economic models for

  1. The RPFJ Does Not Meet The Minimum Requirements Of Law

As many commentators have noted, the RPFJ does not accomplish the four goals of antitrust remedies.

Further, by not entering an admission of guilt, Microsoft is presumably free to engage in the same anti-competitive practices enjoined by the agreement, after the five (or seven) year term is completed. This means that if Microsoft continues these anti-competitive practices after the term of the agreement is finished, the antitrust authorities must prove anew that these are unlawful practices. Since there is no assurance that a competitive market will be restored within five years, and no assurance that Microsoft will no longer be the dominant firm in these markets, renewal of these practices would be detrimental to the public. Also, the expectation that these practices may be renewed at the end of the five-year term puts a damper on competitors' beliefs that Microsoft is truly enjoined from retaliation, since Microsoft can simply wait before retaliating. This consent agreement essentially throws away Microsoft's conviction.

The proposed five-year term is by no means long enough. A Final Judgment was entered in 1995 and expires on February 21, 2002. Exhibits 2, 3, and 4 hereto explain the problems with the prior FJ. From the Declaration of Brain Dautch attached hereto as Exhibit 5, it appears that Microsoft may still be engaging in the banned per processor licensing. In any event, the prior FJ did not restore competition to the market for operating systems.

Microsoft has maintained its dominant monopoly position for a period of over ten years. There is no reason to suppose that Microsoft's dominant position will suddenly evaporate as a result of this consent agreement. So long as Microsoft remains the dominant firm, restrictions on its conduct will continue to be necessary. A far better approach for the conduct remedy is to institute a ten-year term, renewable indefinitely at ten-year intervals. If during the term of the conduct remedy Microsoft no longer has dominance in the industry (e.g., has less than 30% market share), Microsoft may petition the Court for relief from the conduct restrictions.

Further, even assuming that the notion of setting up a Technical Committee to investigate complaints is inherently justifiable, there are obvious problems with this particular proposed set-up. The first problem is that Microsoft is allowed to choose half the investigators (Section IV.B.3.). Microsoft's appointment of an internal Compliance Officer (Section IV.C.), as well as its own regular attorneys, should be sufficient protection for Microsoft; Microsoft does not need to appoint half the investigators. I am unaware of any administrative agency for investigating discrimination and retaliation complaints which is set up in such a manner that the accused discriminator or retaliator is allowed to choose half the investigators. This provision by itself constitutes partial evidence that this is a corrupt, sweetheart deal between DOJ and Microsoft. Microsoft should play no role in the selection of TC members,

Further, with regard to discrimination, the consent agreement appears deficient, because it does not overflow with objectively verifiable, affirmative obligations upon Microsoft. In the whole of Section III, "Prohibited Conduct," only sub-sections III.B. and III.D. require any affirmative obligation by Microsoft. The remaining sub-sections of Section III either do not impose obligations (Sub-section J) or are suffused with anti-discrimination and anti-retaliatory language (Sub-sections A, C, E, F, G, H, and I). In the absence of considerable amounts of trust and goodwill by both Microsoft and its competitors, such provisions may prove either unenforceable or enforceable only after extensive litigation. The delays inherent in a) first having a TC investigation, and b) perhaps followed by litigation, provide cold comfort to any competitor or would-be competitor who may experience or fear discrimination or retaliation by Microsoft.

Labor economists have analyzed discrimination for decades. One economic proposition concerning discrimination is that its effects are likely to be worse in monopoly markets than in competitive markets. If a monopolist discriminates, one must suffer the discrimination, because there is no one else to do business with. However, if one of many competitors discriminates, one may still attempt to do business with the others. Even if half of all employers discriminate, minorities may still find employment on favorable terms with the other half of the employers.(4)

This simple economic proposition has a clear application in this case. If one's primary concern is to prevent discrimination and discriminatory retaliation by Microsoft, the best way to achieve this objective is through a structural remedy: Break up Microsoft into two or more firms. Eliminate the monopoly, and the threat of discrimination and retaliation loses its fearsome power, and also becomes mostly unprofitable. Not performing a structural remedy means that discrimination and retaliation is both profitable for Microsoft and fearsome to Microsoft's would-be competitors. This consent agreement fails to use the most efficacious means to achieve its primary objective. The most likely result of the consent agreement is continued fear, continued discrimination, continued retaliation, continued litigation, and continued monopoly.

Labor economists also know that under a wide variety of economic assumptions and circumstances, discrimination against minority workers is an unprofitable activity for employers. The outlawing of unprofitable activities is easier to enforce than the outlawing of profitable activities. Even though the laws against discriminatory motives are inherently difficult to enforce, their enforcement is aided by the fact that employment discrimination is normally not profitable. This is not the circumstance for discriminatory acts by Microsoft.

  1. Appearance Of A Conflict Of Interest

Microsoft has made an investment of about $23 million in politicians from 1997 to 2001. See Exhibit A (Dautch Dec. and attachments) to Exhibit 10 hereto.

Given an estimated value of AOL's private antitrust suit against Microsoft in the neighborhood of $20 billion, Microsoft may be about to earn close to a 1000 to 1 on just the AOL suit.

The Attorney General and Assistant Attorney General along with the other political nominees or appointees of the current Administration should consider recusing themselves and leaving further consideration of this matter to the career employees of the Antitrust Division.

LIMITED COPYRIGHT LICENSE

For the sole purpose of allowing the United States (including all three branches of the government) to analyze these comments, to publish these comments in the Federal Register and to file a copy of these comments with any courts it deems appropriate (including the United States District Court for the District of Columbia), I hereby grant the United States a time-limited non-transferable royalty free non-exclusive license without the right to sublicense and without the right to enforce limited to the purposes stated herein to make such copies of the copyrighted material as are necessary:

  1. to publish the copyrighted computer programs submitted as part of these comments in the Federal Register;
  2. to make such copies of the computer programs as are necessary to file a copy of these comments with the United States District Court for the District of Columbia; and,
  3. to run and modify only the inputs and source code to the computer programs for the purpose of preparing a response to these comments or for the purpose of analyzing these comments (no license to create a derivative work is granted by this license).

The limited copyright license granted hereby terminates one day after the last possible day to file any appeal in any court from the entry of the RPFJ or termination of consideration of the RPFJ in U.S. v. Microsoft, Civil Action No. 98-1232, presently pending in the U.S. District Court for the District of Columbia.

B. The Public Interest

The Public interest is in seeing that the laws are fairly and fully enforced by impartial law enforces without regard to the political or other connections of the alleged violators of the law. Entry of the RPFJ is not in the public interest for many reasons as discussed above and by many of the other commentators on the RPFJ such as Drs. Litan, Noll, and Nordhaus and the American Antitrust Institute. The RPFJ will not stop the antitrust violations. The RPFJ will not prevent a recurrence of the current violations or very similar violations. The RPFJ will not unfetter the market from predatory anti-competitive conduct. The RPFJ will not deny to Microsoft the fruits of it illegal conduct.

The RPFJ, if entered, will make a mockery of the judicial power. The RPFJ may send a clear message to all Americans that if you violate the law and then contribute enough money to the party in power, you may be able to operate outside the law indefinitely and profitably. The RPFJ may undermine public confidence in the fairness and ability of the Department of Justice. It is not in the public interest to achieve the ends set forth in this paragraph.

CONCLUSION

Entry of the RPFJ is not in the public interest. The court should refuse to approve or enter the RPFJ. In order to avoid a conflict of interest or the appearance of impropriety due to the massive amount of campaign contributions by Microsoft to the current Administration and its leaders, the Attorney General and the other nominees or appointees of the current President or Attorney General should recuse themselves from any further consideration of this matter and delegate further consideration to career lawyers in Antitrust Division all of whom should be protected by this Court in advance (in addition to any statutory rights they may have) against reprisals by the political nominees and appointees.

While many issues are raised by these comments, we hereby specifically request a response to questions and issues including, but not in any way limited to, the following:

1. Does Attorney General Ashcroft intend to recuse himself from any further involvement in matters involving Microsoft and, in particular, U.S. v. Microsoft, Civil Action No. 98-1232, presently pending before the U.S. District Court for the District of Columbia? If so, when? If not, why not?

2. Does Attorney General Ashcroft intend to recuse (or remove) any political appointees serving under him in the Department of Justice from any further involvement in matters involving Microsoft and, in particular, U.S. v. Microsoft, Civil Action No. 98-1232, presently pending before the U.S. District Court for the District of Columbia? If so, which appointee or appointees? If so, when? If not, why not?

3. Does Assistant Attorney General James intend to recuse himself from any further involvement in matters involving Microsoft and, in particular, U.S. v. Microsoft, Civil Action No. 98-1232, presently pending before the U.S. District Court for the District of Columbia? If so, when? If not, why not?

4. If he remains involved in U.S. v. Microsoft, does Assistant Attorney General James who has personal knowledge that a non-counsel of record (e.g. Charles F. Rule, Esq.) engaged in undisclosed written and/or oral communications on behalf of Microsoft with officers and/or employees of the United States (specifically officers and/or employees of the Department of Justice) concerning or relevant to the RPFJ (including negotiations leading to agreement on the terms of, and the signing of, the RPFJ) intend to sign and file with the United States District Court for the District of Columbia a certification of compliance (as ordered by the Court on November 8, 2001) with the requirements of the Antitrust Procedures and Penalties Act (Tunney Act), 15 U.S.C. § 16(b)-(h)? If he remains involved in U.S. v. Microsoft and Microsoft does not amend the Microsoft Description and Assistant Attorney General James does not sign and file a certificate of compliance himself, does he intend to order or allow one of his subordinates to sign and file such a certificate of compliance? Why did Assistant Attorney General James sign the Stipulation and RPFJ (both dated) November 6, 2001, but not the CIS?

5. Does the United States intend to amend and publish in the Federal Register an amended Competitive Impact Statement ("CIS")? If so, when? If not, what is the basis for the United States' position that the current CIS complies with 15 U.S.C. § 16(b)(3), (4), and (6)?

PROTEST AND RESERVATION OF RIGHTS

This letter including the exhibits, attachments, and enclosures to and with this letter all of which are hereby incorporated fully by reference herein constitute the comments by Relpromax Antitrust Inc. ("Relpromax") pursuant to the notice published by the United States at Fed. Reg. 59452, Vol. 66, No. 229 (Nov. 28, 2001) and pursuant to 15 U.S.C. § 16(b) with respect to the Revised Proposed Final Judgment dated November 6, 2001, and filed in U.S. v. Microsoft, Civil Action No. 98-1232, presently pending before the United States District Court for the District of Columbia.

Relpromax has filed with the United States District Court for the District of Columbia two motions related to these comments, certain statutory deadlines, and a court Order related to these comments. The first motion seeks, among other things, an order to compel Microsoft to meet its disclosure obligations under 15 U.S.C. § 16(g). A copy of the brief (including exhibits and attachments) in support of the first motion ("Memorandum Of Points And Authorities In Support Of The Motion Of Relpromax Antitrust Inc. For Limited Participation As An Amicus Curiae And For An Extension Of Time") is attached hereto as Exhibit 10 and incorporated herein fully by reference. The second motion seeks, among other things, an order to compel the United States of America ("United States") to meet its obligations with respect to a Competitive Impact Statement ("CIS") under 15 U.S.C. § 16(b). A copy of the brief in support of the second motion ("Memorandum Of Points And Authorities In Support Of The Motion Of Relpromax Antitrust Inc. For Limited Participation As An Amicus Curiae And For An Extension Of Time On The Grounds That The United States Has Not Provided A Competitive Impact Statement In Compliance With The Requirements Of 15 U.S.C. § 16(b) ") is attached hereto as Exhibit 11 and incorporated herein fully by reference.

The failures of the United States and Microsoft to comply fully with the requirements of the Antitrust Procedures and Penalties Act ("Tunney Act"), 15 U.S.C. § 16(b)-(h), have kept Relpromax and the public generally from receiving all the information that is required by statute to be provided no less than sixty (60) days (in the case of the CIS) and fifty (50) days (in the case of Microsoft's disclosures) before the deadline for filing these comments. Accordingly, these comments are filed under protest, with a full reservation of all rights available to Relpromax, and must be viewed as preliminary and subject to amendment or expansion if and when additional public disclosures are made by the United States or Microsoft or by third parties making available information which should have been made available by either the United States or Microsoft.

We look forward to receiving the response of the United States to the foregoing and to the publication of all of these comments (including the exhibits and attachments submitted herewith all of which are again incorporated by reference) in the Federal Register and to the submission of these comments to the court by the United States.

Thank you very much for your attention to this matter.

  Respectfully submitted,


__________________________________
Carl Lundgren, Ph.D.
President
Relpromax Antitrust Inc.

EXHIBIT LIST

Exhibit 1   Discussion of computerized model, data inputs to model, and computer source code for model for analysis of competitive impact of the RPFJ consisting of:
  1. Explanation, model inputs, and intermediate outputs used as inputs to final calculations: Attachments A-1, A-2, B-F, and R-S
  2. Results: Attachments G-J
  3. Source code for model: Attachments K-Q
  4. Article by Carl Lundgren, Review of Industrial Organization, Volume 11, Number 4, August 1996, pp. 533-550: Attachment T

Exhibit 2  

Proposed Final Judgment dated on or about July 15, 1994, in U.S. v. Microsoft, Civil Action No. 94-1564, U.S. District Court for the District of Columbia

Exhibit 3  

Competitive Impact Statement dated July 27, 1994

Exhibit 4  

Memorandum Of Amici Curiae In Opposition To Proposed Final Judgment, signed by Gary L. Reback and dated January 10, 1995

Exhibit 5  

Declaration of Brian Dautch dated January 27, 2002

Exhibit 6  

Declaration of Paul M. Romer (Redacted Public Version) dated April 27, 2000

Exhibit 7  

Declaration of Carl Shapiro dated April 28, 2000

Exhibit 8  

Affidavit of former Senator John Tunney dated January 22, 2002

Exhibit 9  

Letter dated August 9, 2001, from 88 Members of Congress to The Honorable John Ashcroft (Attorney General of the United States), Steven Ballmer (Chief Executive Officer of Microsoft), and The Honorable Tom Miller (Attorney General of Iowa)

Exhibit 10  

Memorandum Of Points And Authorities In Support Of The Motion Of Relpromax Antitrust Inc. For Limited Participation As An Amicus Curiae And For An Extension Of Time

Exhibit 11  

Memorandum Of Points And Authorities In Support Of The Motion Of Relpromax Antitrust Inc. For Limited Participation As An Amicus Curiae And For An Extension Of Time On The Grounds That The United States Has Not Provided A Competitive Impact Statement In Compliance With The Requirements Of 15 U.S.C. § 16(b)

Exhibit 12  

Charles A. James, The Real "Microsoft" Case and Settlement, 16 Antitrust 58 (ABA Fall 2001)

Exhibit 13  

Dan Eggen, Enron Executives Contributed to Ashcroft Campaign, The Washington Post, January 11, 2002, p. A7


FOOTNOTES

1. See, among others, the Comment (dated January 17, 2002) of Robert E. Litan, Roger D. Noll, and William D. Nordhaus on the Revised Proposed Final Judgment and the letter (dated January 24, 2002) on behalf of the American Antitrust Institute by Albert A. Foer, Robert H. Lande, Norman W. Hawker, and Oded Pincas.

2. Charles A. James, The Real "Microsoft" Case and Settlement,16 Antitrust 58 (ABA Fall 2001) (a copy of the article is attached as Exhibit 12).

3. Congressional Record, Senate, March 21, 1890, page 2457.

4. In a competitive market, the result is segregation of minority workers into separate firms, but not lower wages, assuming equal skill by the minority workers.

Updated August 14, 2015