Intervenção do Estado no Domínio Econômico - PDF

Ana Carolina Lopes de Carvalho Marcelo de Lima e Souza André Melo de Abreu Marina Cruz Vieira Villela Carlos Jacques Vieira Gomes Miguel Ragone de Mattos Carlos Emmanuel Joppert Ragazzo Raquel Gonçalves

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Ana Carolina Lopes de Carvalho Marcelo de Lima e Souza André Melo de Abreu Marina Cruz Vieira Villela Carlos Jacques Vieira Gomes Miguel Ragone de Mattos Carlos Emmanuel Joppert Ragazzo Raquel Gonçalves Maynarde Flávio E. S. de Carvalho Rodrigo Macias de Oliveira Marcela Campos Gomes Fernandes Vladimir Spíndola Grupo de Pesquisa de Direito Econômico UnB Coordenação Ivo Teixeira Gico Junior Antônio de Moura Borges Brasília/2005 Intervenção do Estado no Domínio Econômico Temas Atuais São Paulo 2005 Copyright 2005 Coordenadora: Yone Silva Pontes Diagramação: Luiz Fernando Romeu e Nilza Ohe Ilustração de capa: Ana Carolina de Sá Revisão: Impressão e acabamento: Graphic Express 2005 Proibida a reprodução total ou parcial. Os infratores serão processados na forma da lei. Edições Aduaneiras Ltda. Tel.: Fax: DDG: LEX Editora S.A. Tel.: Fax: DDG: Rua da Consolação, 77 CEP São Paulo Understanding the Solution for Microsoft Ivo Teixeira Gico Junior 1 Trabalho produzido no âmbito de estudos de mestrado realizados na Columbia Law School, com o apoio da Fulbright Foundation. Os conceitos emitidos são de exclusiva responsabilidade do autor. 1. Introduction In this paper, I will examine the issue of relief in the Microsoft case. I have tried to answer the following questions. If Microsoft is liable for monopolization on the operating system market and illegal tying in the browser market, what is the less drastic and intrusive relief that might remedy all the charges? Did the district court find a balanced remedy that will create competition without destroying Microsoft? And, finally, what would be a better approach? I start analyzing the Findings of Facts, where the fact finder will tell us what happened and what are the explanations for each fact. Those facts will guide us in choosing the remedies to be adopted. They demonstrate that Microsoft was highly worried about protecting its monopoly in the Intel-compatible operating system market and to achieve this objective it was willing to do whatever it was necessary. In general lines, what one can infer from the facts as stated by the court, is that Microsoft wanted to protect Windows. At the Conclusions of Law I will analyze how Judge Jackson has formulated the legal standards that will guide his analysis of the facts and how he has judged those facts under the anti- 1 Doutorando em Direito Comercial pela USP, Bolsista Fulbright e Mestre (LL.M.) com honra máxima (James Kent Scholar) pela Columbia Law School (Nova York), Especialista em Processo Civil pelo IBEP/IBDP, Graduado em Direito pela UnB, Advogado em Brasília. Coordenador-Geral do GPDE. 266 Ivo Teixeira Gico Junior trust law lenses. Once I have reviewed the facts and the law of Microsoft, I will study the solution adopted by the court. I am particularly interested in what problems each provision has been drafted to cure. How the court has approached such problems and what rationale is behind each solution. After studying the court s solution, I will propose a different approach, i.e., the compulsory license of communication code, as a more efficient solution. I will discuss what are the problems related to the operating system market, how they interact and the best way to neutralize them. Finally, I will make a quick analysis of why I do not agree with the proposed divestiture remedy and why disclosure, if adopted on the terms I will explain, would probably work more efficiently. 2. The Case 2.1. Findings of Fact Market Definition In every antitrust Sherman Act 2 case the threshold issue is to determine market power possession, or not, by the challenged firm. Market power can be defined as the power to exclude competition or to control prices. Later, the reasonableness of certain conducts will depend on the market power level. Traditionally, courts have adopted the market-definition-and-share approach to develop antitrust analyses. A firm can only possess market power in a determined market; therefore, to establish whether or not Microsoft detains monopoly power, first we have to ask ourselves what is the relevant market. In Microsoft, Judge Jackson concluded that [c]urrently there are no products, nor are there likely to be any in the near future, that a significant percentage of consumers worldwide could substitute for Intel-compatible PC operating systems without incurring substantial costs. Furthermore, no firm that does not currently market Intel-compatible PC operating systems could start doing so in a way that would, within a reasonably short period of time, present a significant percentage of consumers with a viable alternative to existing Intel-compatible PC operating systems. It follows that, if one firm controlled the licensing of all Intel-compatible PC operating systems worldwide, it could set the price of a license substantially above that which Understanding the Solution for Microsoft 267 would be charged in a competitive market and leave the price there for a significant period of time without losing so many customers as to make the action unprofitable. Therefore, in determining the level of Microsoft s market power, the relevant market is the licensing of all Intel-compatible PC operating systems worldwide. 84 F.Supp.2d at 14, 18. Microsoft has been charged of monopolizing the operation system 2 (OS) market for Intel-compatible personal computers 3 (PC). In determining which are Windows competitors in such market we need to include all alternatives sources for Microsoft s OS and exclude potential suppliers: 1. whose products are too different (product dimension of the market); or too far away (geographic dimension of the market) and 2. who are not likely to shift promptly to offer defendants customers a suitable proximate (in both product and geographic terms) alternative. 4 We need to establish the limits of the rivals attraction and consumers repellence. For reasons I believe are obvious, geographical limits do not apply to our case. In general lines, all potential alternatives to Windows will face one or more of the following problems 5 that will 2 Operating System means the software that controls the allocation and usage of hardware resources (such as memory, central processing unit time, disk space, and peripheral devices) of a computer, providing a platform by exposing APIs that applications use to call upon the operating system s underlying software routines in order to perform functions. 97 F.Supp.2d at 73, 7(u). 3 Intel-Compatible Personal Computer means any computer configured so that its primary purpose is to be used by one person at a time, that uses a video display and keyboard (whether or not the video display and keyboard are actually included), and that contains an Intel x86, successor, or competitive microprocessor, and computers that are commercial substitutes for such computers. 97 F.Supp.2d at 74, 7(x). 4 Areeda at For a similar approach to the costs and the economics involving operating systems market and an analysis of economies of scale, application variety, processor compatibility, network effect and learning costs see: Michael P. Akemann, Microsoft s Licensing Agreements: Theory and Evidence on the Sale of MS-DOS and Windows, 24 J. Corp. L. 553, 569 (1999). 268 Ivo Teixeira Gico Junior be enough to create a barrier for competitors to erode Microsoft s power to establish supracompetitive prices for its operating systems. Learning cost. Operating systems are highly complex and deal with an infinity of features and settings. The majority of users are selftaught and it took them a lot of time to be able to effectively interact with their OS. Any migration for a different platform will be, at least, time consuming. All OS not part of the Windows family will necessarily carry that cost. Albeit I cannot say that this cost is enough to isolate Microsoft, consumers will be willing to pay a premium for not having to relearn how to operate their computer. 6 In some cases, not only a lot of time investment will be necessary, but also a higher degree of computational sophistication will be required to successfully utilize the new OS. For certain systems like Linux, 7 Unix, etc., the degree of sophistication is so high that only computer professionals are willing or able to learn it. Hardware cost. To migrate from one OS to another, in many cases, the consumer will have to acquire a different computer. That is necessarily the case for all non-intel compatible PC operating systems, primarily Mac OS. It is also required for all server oriented OS. Not only they require a more robust machine than normally available for the SoHo 8 market, but also they accept a much-restricted set of accessories, what can imply new investment, as the old ones are not supported anymore. Since the OS cost accounts for only a very small percentage 6 Here when I say computer I mean operating system, once the fundamental utility of an OS is to operate the computer. 7 Linux is not really the name of an operating system. In fact, Linux is the name of the kernel (the innermost part of the larger system) of free software. The larger system includes not only the kernel but also thousands of programs operating system components and application programs designed to work together and built collaboratively by tens of thousands of volunteers all over the world. See Eben Moglen, Microsoft Can Gain by Freeing Software, San Jose Mercury News, 12/26/99. 8 SoHo stands for Small Office and Home Office, it is normally used in opposition of the Corporate computer market. The SoHo market is differentiated from the corporate market by specific demands, primary use of the personal computer and capital investment level. Stable internal standardized networks dominate the corporate market while versatility and single computers characterize the SoHo market. Understanding the Solution for Microsoft 269 of the PC price, even a substantial increase in prices would not constitute incentive enough for consumers to migrate to another platform. The direct consequence is the increment of the demand inelasticity in the OS market. Moreover, the non-intel compatible OS companies like Apple did not demonstrate any interest in porting their OS platforms to the Intel system and there is no notice that they intend to do so in a reasonable period of time. Compatibility cost. 9 The compatibility cost can be divided in two aspects: application, and hardware compatibility. The application compatibility is connected to the current availability of application for a determined OS. Nobody buys an OS for itself; it is only a platform over which the applications programs are run. In case of migration to another platform, all previous acquired applications are rendered useless and need to be reacquired in a version compatible with the new OS. In addition, not every application exists for all platforms. Since Windows is the dominant platform, the bulk of commercial applications are developed for it. The economical costs of porting a Win application to another platform is not compensated because of its invariably restricted base of users. Therefore, every consumer will have to take into consideration the costs associated with application incompatibility or the loss of application availability. We have the same problems of compatibility and availability with hardware. Migration of platform may require new hardware acquisition or imply restricted options. These costs increase the indifference to price increases. All these factors increase the inelasticity of OS market demand. Price cost. Operating systems are very expensive to develop, but once they are created it is inexpensive to create another copy of it. In economic terms, OS have high fixed cost and negligible marginal costs. Since Microsoft has the broadest base of users it can spread the development cost between more users and, therefore, charge less for a Windows license than Apple is able to charge for a Mac OS license. Additionally, all server oriented OS are more expensive since they 9 To a analysis of the importance of compatibility see: Mercer H. Harz, Dominance and Duty in the European Union: A Look Through Microsoft Windows at the Essential Facilities Doctrine, Emory Int l L. Rev. 189, 213 (1997). 270 Ivo Teixeira Gico Junior require a much more sophisticated software engineering. The only OS that can bit Windows in price, Linux, which is for free, is far too complex and unfriendly to present a threat in the short term. It is unlikely that any OS will achieve a base broad enough to allow fixed cost dispersion in the same proportion that Windows allows. Translation cost. One might think that any OS could be ported to the Intel-compatible platform, but the costs associated with that are very high and no company has yet demonstrated any interest in doing so. Even if an OS were ported to be Intel-compatible, all the learning and compatibility costs would still be present making much less likely that a consumer would migrate to it. Now that we have an idea of the costs associated with OS migration, a good way to start the analysis is to imagine Microsoft as a single monopolist in the OS market and than inquire what are the possible alternatives that a regular consumer would look for if the product was unreasonably priced (above competitive level). Server 10 operating systems. The problem with the server operating systems is that they are developed to run on more robust machines (much higher hardware costs), privilege stability at the expenses of compatibility (hardware and software compatibility), not all of them are developed with a friendly graphic user interface (GUI) 11 necessary to market it in the SoHo market and are priced at a higher level. They are developed with the corporate market in mind and adopt a software 10 PC systems, which include desktop and laptop models, can be distinguished from more powerful, more expensive computer systems known as servers, which are designed to provide data, services, and functionality through a digital network to multiple users. 11 GUI is a technology that was first developed by Xerox Corporation during the 1970s. It decided not to market the product but demonstrated it for representatives of Apple in 1979, which decided to develop it for its new powerful personal computer line. Microsoft started in the business of GUI with Intel-based architecture in Since them Apple and Microsoft have been fighting. For more details on the GUI wars and its importance see: Nicolas P. Terry, GUI Wars: The Windows Litigation and the Continuing Decline of Look and Feel, 47 Ark. L. Rev. 93, 98 (1994). Joseph Myers, Casenote, Apple v. Microsoft: Virtual Identity in the GUI Wars, 1 Rich. J.L. & Tech. 5, 10 (1995). Understanding the Solution for Microsoft 271 structure design different from the one adopted by a home-user OS. Therefore, even a substantial increase in the price of an Intel-compatible PC operating system above the competitive level would result in only a trivial increase in the price of an Intel-compatible PC system. Very few consumers would purchase expensive servers in response to a trivial increase in the price of an Intel-compatible PC system. Furthermore, a consumer would not obtain a satisfactory substitute for an Intelcompatible PC operating system even if he purchased a server, since server operating systems lack the features--and support for the breadth of applications--that induce users to purchase Intel-compatible PC operating systems. 84 F.Supp.2d at 14, 19. All of the foregoing is enough to exclude the server operating systems as reasonable substitutes for Windows. Non-Intel compatible PC operating systems. These systems are associated with learning, compatibility, price, hardware and/or translation costs. By definition either the consumer will have to acquire a different computer system 12 or the OS would have to be ported to the Intel platform. All these costs would more than justify the exclusion of the incompatible systems from the roll of Windows rivals, and even if MacOS were included Microsoft market share would be above 80% and increasing. Information appliances. All the actual gadgets available are not satisfactory substitutes of personal computers and therefore cannot be included as Windows rivals. No operating system designed for a handheld computer, a smart wireless telephone, a television set-top box, or a game console is capable of performing as an adequate operating system for an Intel-compatible PC. 84 F.Supp.2d at 15, 22. None of these or similar gadgets are capable of performing all the features that a PC is. One consumer who uses a PC only as an electronic agenda might opt to start using only a personal organizer, but no bona fide person would argue that a PC and a personal organizer are interchangeable, much less that the gadgets operating system threat the realm of computers OS. They are distinct products that attend to different demands. See United States v. Philadelphia National Bank, 374 U.S. 321 (1963) 12 Hardware and software. 272 Ivo Teixeira Gico Junior (commercial banking is a distinct line of commerce); Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979) (blanket license is more than individual licenses together). Any argument that they will substitute PC entirely is highly speculative; therefore they should not be included in the market. Network computers. The network computer is not a viable substitute for PC now. 13 They rely heavily on the processing power and memory of servers and are susceptible to latency, congestion, asynchrony, insecurity across a communications network, and contention for limited processing and memory resources at the remote server. 84 F.Supp.2d at 17, 26. Problems definitely not associated with PC operating systems. They are also cumbered by the compatibility cost and the hardware cost, should the consumer have to change to it. All such limitations make it more likely that the network computer model is probably going to occupy a very specific niche of the market, such as airport terminals, but not threat the PC market. Any different conclusion is not supported by the present market configuration and is highly speculative. Therefore, they should not be included in the market. For all these reasons, the context in which Microsoft power should be analyzed was correctly established and the relevant market [should be] the licensing of all Intel-compatible PC operating systems worldwide. 84 F.Supp.2d at 14, Market Power Microsoft enjoys enough power in this market to maintain prices above long-run marginal cost, exclude competitors and by doing so monopolize it. Two elements indicate such monopoly power: 1. its market share for the Intel-compatible PC operating systems, 13 A possible explanation of why network computers are not a viable a alternative in the present, the relationship between computers, Microsoft, AT&T, the evolution of the Telecommunication market and the role played by antitrust values, see: Steve Bickerstaff, Shackles on the Giant: How the Federal Government Created Microsoft, Personal Computers, and the Internet, 78 Tex. L. Rev. 1, 3(1999). Understanding the Solution for Microsoft high entry barriers and lack of commercial viable alternatives for Windows. 84 F.Supp.2d at 19, 34. Microsoft has retained a substantial market share for the last decade in the Intel-compatible PC operating systems. Even if the only reasonable, though imperfect, substitute Apple s MacOS were included, Microsoft s domain would stand above eighty percent and be still increasing. 84 F.Supp.2d at 19, 35. Nonetheless, bigness in is not unlawful per se. We should look for market power, i.e., the ability to raise prices in the short run well above its costs without losing considerable portion of its costumers or the existence of a kind of protection against competitors entry or expansion and the unlawful use of such power. United States v. E.I. du Pont de Nemours & Co.
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