The Case For Structural Relief: Breaking Up Is Hard To Do? Glenn B. Manishin, Esq. Blumenfeld & CohenTechnology Law Group 1615 M Street, N.W., Suite 700 Washington, DC Which Remedies? Appraising Microsoft II April 1999 Washington, DC

April 30, 1999Glenn B. Manishin Page 2 Roots of Antitrust Policy Government market intervention justified for market failure Antitrust relief objectives: Pry open market to competition Prevent recurrence of exclusionary conduct Regulation (administrative, judicial, etc.) is imperfect substitute for competition

April 30, 1999Glenn B. Manishin Page 3 Conduct v. Structural Relief Ban specific behavior Dependent on enforce- ment oversight and resources Risks of evasion and enforcement failure (decree proliferation) Inconsistent with rapid technical change Violations can be simple cost of doing business Remove anticompetitive power and incentives Eliminates risk and costs of regulation by decree Avoids judicial definitions of technology products and license price-setting Maintains complete incentives for innovation Violations easily detectable and curable

April 30, 1999Glenn B. Manishin Page 4 An Historical Anecdote [T]he very genius for commercial development and organization which was manifested from the beginning soon begot an intent and purpose to exclude others [by] dealings wholly inconsistent with the theory that they were made with the single conception of advancing the development of business power by usual methods. [O]rdinarily [an] adequate measure of relief would result from restraining the doing of such acts in the future. But in a [monop- olization] case like this... the duty to enforce the statute requires the application of broader and more controlling remedies. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)

April 30, 1999Glenn B. Manishin Page 5 Structural Relief Alternatives Divestiture along business lines Operating systems (OS), applications, and content businesses in separate entities Windows OS as Open Source Software Divestiture of multiple vertically integrated entities Each Baby Bill spin-off competes in all market segments

April 30, 1999Glenn B. Manishin Page 6 Rating The Options (I) Horizontal OS/Apps./Content Divestiture Eliminates ability of divested OS entity to leverage monopoly power Reduces long-term govt oversight, but initial line- drawing required Maintains OS monopoly (pricing) power Prevents realization of any scope economies from OS product integration Absent reintegration ban (transitional?), potential risk of recreating current competitive problems

April 30, 1999Glenn B. Manishin Page 7 Rating The Options (II) Windows Family As OSS Product Novel application as antitrust remedy, but alters OS market structure and incentives Avoids bundling dilemma, i.e., browser integration, and judicial line-drawing Potential conflict between IP rights (license payments) and judicial price-setting Requires continued govt and judicial oversight role to ensure source code disclosures Long-term impact on OS innovation unclear

April 30, 1999Glenn B. Manishin Page 8 Rating The Options (III) Vertical Divestiture of Integrated Entities Avoids all judicial product definitions and technical line-drawing Maintains all efficiencies (economies of scale and scope) Potentially more complex corporate reorganization issues (employees, stock options, etc.) Risk of OS fragmentation largely illusory and offset by entry of compatibility-enhancing products

April 30, 1999Glenn B. Manishin Page 9 Conclusions Conduct remedies present serious risks of decree scope/definition, enforcement and repetitive antitrust litigation Structural relief offers clean mechanism for eliminating anticompetitive incentives without intrusive govt oversight Vertical divestiture is preferable in view of efficiency and govt regulation impacts