US assistant attorney general and DoJ head Charles James was in Brussels fingering (if not quite rattling yet) sabres last week. The "theory of monopoly leveraging," which appears to underly some of the European antitrust case against Microsoft, has "very little standing in the US" and "has been largely if not entirely rejected by our courts."
The theoretical side is primarily relevant to academics and judgment spotters, but insofar as James is arguing that the European Commission is poised to implement laws against Microsoft that would not and could not apply in the States, it has some immediate relevance to the rest of us. Monopoly leveraging is essentially the use of an existing monopoly in one market to leverage your way into another. Thus, in Europe's case one of the primary concerns about Microsoft was that it was using its desktop monopoly to leverage dominance in the European server market.
As the investigation progressed it became clear (well, as clear as it ever can be if you're reading the occasional smoke-signal from the Competition Commission) that Europe was also considering Media Player and other aspects of integration/forced bundling.
So, if Europe imposes tough measures on Microsoft which the US authorities deem to be based in the theory of monopoly leveraging, and the theory of monopoly leveraging has been widely discredited in the US, then here we go down the massive US-EU antitrust/trade war route. We think that's what Mr James is suggesting.
But hold hard, you say, if this theory has very little standing in the US, how come Mr James' little chicks at the DoJ (prior to his arrival, we'll own) successfully made numerous charges against Microsoft stick, and Mr James and his boss John Ashcroft have negotiated a settlement "that will put an end to Microsoft's unlawful conduct, bring effective relief to the marketplace and ensure that consumers will have more choices."?
This may be where the wretched theoretical stuff comes into play. Microsoft was indeed pinched for unlawful tying of IE code into Windows, but was not exactly nailed for attempted monopolisation of the browser market via leveraging of its Windows monopoly, as such. You may recall, unless you nodded off slightly before we did, that the appeals court judges tossed out some of Judge Jackson's conclusions on the browser market because the DoJ had not established a clear definition of the browser market. And a small historical artefact reminds us that, a long time ago in a courtroom far, far away, Jackson threw out a portion of the states' suit against Microsoft observing that several courts had "either rejected the theory outright or expressed extreme doubts about its viability."
Jackson's phrasing then (in 1998) is interesting in light of his subsequent observations that US law and precedent was not adequate to cover the issues he was dealing with, and that the courts would therefore have to modernise them (we precis massively). But his argument during the case was that the law should be evolved, whereas Charles James now seems to be suggesting something on the lines of 'we've considered that one, it didn't work, so let's throw it out and carry on with what we've got.'
For a "largely rejected" theory, however, it's been making quite a bit of the running in matters of interest to us in recent years. It figured in the Microsoft trial (you'll find Franklin Fisher's views on the subject here, although the frivolous Reg is far more intrigued by his Janis Joplin's Yearbook and the Theory of Damages) and it also reared its head in the Intel-Intergraph and Bristol v Microsoft cases. In none of these, however, was it clearly established or clearly rejected.
One of the most recent decisions touching on the subject was in Virgin Atlantic v British Airways, where the appeals court rejected Virgin's claim of monopoly leveraging, "and questioned whether the leading court decision articulating the theory of 'monopoly leveraging' (Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979)) remained good law."
Now, we quite clearly have some US courts wondering if monopoly leveraging theory works, and can be effectively applied by the law, but it's a little bit of a leap from this to "largely rejected." So we feel a Theory of Dubya Antitrust Lawyering coming on.
Antitrust law is complicated, involved, expensive and tricky to apply. It's a tinkerer's and inteferer's kind of law, which if pursued relentlessly by Big Government would lead to the stifling of innovation and the destruction of competitive edge. (Despite this being Microsoft's contention, largely, this is true, but only if it's relentlessly pursued to its illogical conclusions. The counter is that not doing anything about it at all will result in widescale abuses, and that therefore the law must do something) In saying the theory of monopoly leveraging has been largely rejected by US courts, James is speaking not exactly the truth, but what will become the truth because of the way his office implements (or not) antitrust law. He is expressing an intention to get the hell out of the kitchen, as if we hadn't noticed that already. Given the overall 'lay off' approach of the current administration, it's hardly surprising.
Where does that leave the European case? Well, it's not absolutely clear to what extent this is based on monopoly leveraging theory in the first place. In the broad sense that Microsoft is accused of leveraging its desktop monopoly to wrest server business from the Unix market it might be, but if it is viewed as having denied rival vendors sufficient data for them to be able to interoperate with Windows desktops (which it is), then we needn't necessarily worry out heads about monopoly leveraging, because that would be clear, protectionist, anticompetitive conduct. Would James argue that action couldn't be taken on this because the conduct hadn't resulted in a monopoly, yet? We hope not.
Mario Monti and his merry persons are highly unlikely to just say, 'oh all right Chuck,' call the whole thing off and rubber-stamp the DoJ-MS settlement instead, so James' sabre-rattling won't have been entirely successful. But what then? The troubling thing about what James is saying may depend on how far he and the US administration intend to take it. If it is the case that he intends only to deal with existing monopolies, and that companies with such monopolies will be able to start with an effective clean sheet in each new market (no monopoly by definition, therefore no case), we may well have a problem here. But this will basically be a crystalisation of a transatlantic problem that already exists.
Even prior to the arrival of the current crowd, US antitrust authorities didn't like the idea of messing with offences that hadn't happened yet. In its response to the public comment on the consent decree, the DoJ wrote "Obviously, the Department cannot, in a Consent Decree, proscribe every conceivable kind of anticompetitive conduct in which a firm might engage in the future. It certainly cannot allege in a complaint anti-competitive conduct that has not yet occurred." (from Red Herring, in an oldish but interesting take on the subject) European authorities, on the other hand, do. That's why the DoJ case against Microsoft was about past sins, whereas the European one considers possible future monopolies. So, plus ca change? ®