Antitrust Lamentations

IP priests had little say in the Microsoft trial. After all, it was an antitrust trial! Microsoft stood accused of violating the antitrust laws. The victims were competitors, competitive markets, and consumers—the characters that animate the antitrust world.

But it turns out that a detour through the temple of IP might have been in order, after all. For in the government’s focus on the perpetra­tors and their victims, it forgot to consider the weapon. Microsoft owns little other than IP rights. The administrators of IP had granted Microsoft the property rights to every product that it used to corrupt the market. Congress had presumably considered IP policy and issued its results as the Patent Act and the Copyright Act. But these statutes, for the most part, ignored the peculiarities of software. Congress left the courts to grapple with the complexities of products that fit comfortably into no existing IP category. The software industry crafted its own combination of patent, copyright, and trade-secret protection, and in so doing emerged with protection that was likely far stronger than any that Con­gress had ever imagined. These rights enabled Microsoft to violate the antitrust laws.

Even Microsoft saw these rights as the basis of its power. Microsoft continued to forward its “unfettered liberty” argument years after Judge Jackson first shot it down. The Court of Appeals even felt that: Microsoft’s primary copyright argument borders upon the frivolous. The company claims an absolute and unfettered right to use its intellectual property as it wishes: “If intellectual property rights have been lawfully acquired,” it says, then “their subsequent exercise cannot give rise to antitrust liability.” That is no more correct than the proposition that use of one’s personal property, such as a baseball bat, cannot give rise to tort liability. As the Federal Circuit succinctly stated: “Intellectual property rights do not confer a privilege to violate the antitrust laws.”⁴

Though the relationship between antitrust and IP remains at least some­what tense, the frivolity of Microsoft’s claims seemed clear. Microsoft had strong property rights and behaved as if it had unfettered liberty. A bit over the line? Perhaps. But who’s to stop Microsoft from exercising its legally acquired IP rights before the antitrust trial is over?

The dilemma runs deeper still. The information sector’s key stories unfold where technology, law, and economics intersect. Software tech­nology allowed Microsoft to develop its product line. IP laws defined what Microsoft could and could not do with its products—and what its competitors could and could not do with their own product lines. Eco­nomics told Microsoft how to use those products and rights to maxi­mize its profits. Microsoft behaved as expected. When it emerged as a monopolist, Microsoft surveyed the terrain, saw its capabilities, and behaved precisely as a duly empowered, rational monopolist—with perhaps a slightly above average taste for risk—should behave. It pushed its actions far into the gray area of antitrust, and paid little heed when it peeked out the other side into the realm of the violator.

The jeremiad of IP thus came to pass. Back in the temple of IP, we heard the anguished cries in abstract terms. The priestly lamentations about the deviation of IP law from IP policy seemed strangely disem­bodied. After all, who could say that our software was not improving each year, while simultaneously getting cheaper? Who could say that our information sector wasn’t thriving? And yet, as the government’s case unfolded, it became clear that we could have foreseen—and even pre­dicted—virtually everything that had happened, if only we had focused on the weapon itself. But, as America’s foremost defender of weaponry might say: IP rights don’t kill markets. Monopolists kill markets. Once again, we chose to ignore the weapon and to focus exclusively upon the shooter.

Now in all honesty, that focus didn’t turn out to be so horrible. The government demonstrated how and where Microsoft had hurt competi­tive markets and—at least by implication, if not explicitly—consumers. The government did a phenomenal job of establishing liability. It proved both that Microsoft was a monopolist and that it had violated the antitrust laws. And while the former may seem obvious to anyone not immersed in the technical arcana of antitrust, it remains a subtle and challenging point within the antitrust community itself. And it should certainly be obvious to anyone, inside that community or out, that the latter is always tough to prove. The government’s performance on antitrust liability was nothing short of spectacular.

But its oversight cost the government—and us—when it came to the remedy.

But that’s jumping ahead. For the jeremiad of IP leads us back to a central theme of the information sector’s formative years. Stories that seem to embody irrationality may in fact indicate little other than mis­direction. Much as the bubble may have been powered, in no small part, by the false parallels drawn between the applications barrier to entry of platform software and the Internet barrier to entry of the dot-com world, so too the triumphs and defeats of the government’s case against Microsoft may have been powered, in no small part, by the deviation of the IP laws governing platform software from the constitutional pre­scriptions of IP policy.