We the People

OEMs and other distributors. Application developers and ISVs. Poten­tial competitors. That leaves only one critical set of relationships to con­sider: the platform monopolists’ relationships with us.

Our considerations as consumers are more or less the flip side of the corporate drive toward profit maximization. As software consumers, we’re the end users who pay for platforms developed and priced under the IP laws. Our platform developers price their products as a relatively small component of a total system that combines hardware, a platform, applications, training, support, and service. Over in Manifestoland, platforms are free because Musoft opted out of the IP system—but con­sumers do pay more for training, support, service, warranty contracts, and at least some applications.

The indirect impact of the different IP regimes here and in Mani­festoland is likely to be more profound than a bit of a pricing differen­tial. It’s likely to alter the entire structure of relationships throughout the industry—and thus the very nature of the industry. Musoft’s inability to restrict distribution channels would lead to a radically different power balance between Musoft and OEMs than between Microsoft and OEMs. As a result, Musoft would be unable to extract many monopolistic terms and conditions from other vendors in the supply chain. As we’ve already seen, the likely outcomes of this industry restructuring would include an increase in consumer choice, an increase in competition, a change in the rate at which a de facto standard is adopted, a reduction in incentives to platform development, and a consequent possible reduction in plat­form innovation—quite likely a net win for consumers.

Were we to try some sort of Manifesto-like reform and decide that while it cleared up some existing problems, it created others, that hardly would be either shocking or disastrous. Reform doesn’t have to be all or nothing. If reform points us in a good direction but still needs a bit of tweaking, by all means, let’s tweak it. It would be naive to believe that our first broad-brush pass at a reform as complex as software IP rights could be correct in all of its specifics. If we ever attempt radical reform, we have to recognize our first try as the start of a new process amenable to corrective tinkering, not as the endpoint in our reform efforts. The Manifesto’s proposal would uproot our value calculations from their current locale and land them in a radically different place. We’d undoubt­edly need a few incremental steps to move from that new place to a soci­etal optimum. Foreseeable potential disasters, say a possible reduction in platform innovation, suggest areas in which we should monitor empir­ical evidence and consider moderate patches.

These issues are particularly thorny because society’s relationship with platform developers focused on network economics is rather complex, and it’s hard to separate the value that the developer places on direct revenues from those that it places on long-term control. The Manifesto’s proposal, if adopted, might clear up many of the existing antitrust prob­lems without deterring innovation or retarding progress. On the other hand, it might simply shift the tension from anticompetitive behavior to the inadequacy of IP rights, thereby necessitating a round of tinkering following a radical reform. It’s also possible that political transition costs will render any radical reform untenable. Many people believe that reg­ulated industries tend to “capture” the agencies that regulate them, often to the point that regulation stops serving the public. If we chose to imple­ment IP reform by creating numerous agencies, each with industry­specific responsibilities, we might fall into that same trap.

We the people are not a particularly radical bunch. If we wanted to establish a more perfect information sector and establish justice, we’d turn first to the voices of moderation. Fundamental reform in this country never happens before we hit a crisis. We’d never try something radical—like redoing our IP system from scratch—to avoid a looming crisis. We’ve consistently demonstrated our aversion to radical reform with health care, with energy, with taxation, with security, and with privacy rights. We certainly won’t start radical reform with IP. Mani­festos may be fun to talk about in academia, but out here in the real world they look more than a little risible. Fortunately, though, the humor dissipates if we look at central messages rather than at specifics. The essence of the Manifesto’s proposal lies in the idea that no one should have IP protection for something that they’re not willing to share with the rest of us. Now, that’s hardly a radical claim. It’s simply a return to the Constitution’s desire to promote both progress and knowledge; secrecy may promote progress, but it’s singularly ill-equipped to advance scientific knowledge

How would that observation play with the more moderate reform voices—and what might it be able to tell us about dealing with Microsoft? Some opponents of the deal that Microsoft cut with the DoJ floated “compulsory licensing” at Judge Kollar-Kotelly’s Tunney Act hearing. Under a compulsory licensing regime, Microsoft would have to put its products on the market, announce their price, and let anyone and everyone willing to pay the price take the product. While that might not seem to be much of a concession, compelling Microsoft to offer such licenses to its APIs would curtail its ability to strong-arm OEMs. This solution—like a similar compulsory licensing scheme gaining popularity among observers of digital entertainment—splits distribution rights from compensation.

Misuse remedies, whether of the well-accepted patent variety or the more avant-garde copyright variety, tell a rights holder who misused its property rights by harming a related market to fix that market—and not to bother suing anyone for infringement until the market has been fixed. Could the government apply a misuse remedy to Microsoft? After all, Microsoft would undoubtedly complain—with some justification—that it was simply using the IP rights that the government gave it. It seems unfair to take away IP rights, property, just because the owner misused them. Behavioral remedies tell monopolists how to use their property more responsibly, which is why behavioral remedies are generally prefer­able. But behavioral modification can’t fix markets that have suffered irreparable damage. Those markets need more draconian remedies, and misuse remedies fit the bill. And the government can impose them. Microsoft cited its “unfettered liberty” to use its IP rights as it saw fit numerous times. But the Supreme Court said way back in 1917 that a monopolist’s liberty to use its IP rights is not unfettered, and can con­stitute misuse.¹⁰ What’s more, the Supreme Court also has explained that a monopolist who misuses patents to violate the antitrust laws risks losing those patents, even if it never defended its anticompetitive actions as the legitimate exercise of its property rights.¹¹ There’s no reason to treat misused copyrights any differently.

Misuse remedies may fix the software market—if not now, then someday, during one of those future Microsoft trials lurking just around the corner. A misuse remedy applied to Windows’ entire IP portfolio would accomplish a few things. First, Microsoft would find itself holding a valuable trade secret of platform source code shorn of IP rights, which is exactly what Musoft had over in Manifestoland. And we’ve already seen that Manifestoland’s IP rights create a better situation for everyone but Musoft. Second, had the courts imposed a misuse remedy in 2001, Windows XP never would have integrated middleware like a media player and an instant messenger. After all, had they remained independ­ent modular applications dangling off the edge of the translation fron­tier, Microsoft would have retained its IP rights. If Microsoft chose to integrate them into the platform, it would have lost those rights. WMP would thus remain an application, and it would compete on its merits, win or lose.

But misuse remedies are not without potential downsides. When applied only after the fact to abused software, they can wreak havoc on the translation frontier’s natural evolution. The same forces that moti­vate Microsoft to avoid integrating functionality into Windows prema­turely also could motivate it to avoid integrating mature functions into the platform. We could actually miss an appropriate evolutionary stage in the platform’s development. But eventually, things would probably correct themselves, Microsoft would regain its IP rights over some future platform, and the technology would get back to where it should have been. The question then is whether the risk of incurring this potential problem is worth the cost of imposing the misuse remedy. It seems to me that it is.

From a more pragmatic perspective, though, misuse remedies pose another problem. Much of the government’s support—and many of its witnesses—came from tech companies, most of whom have pretty sub­stantial IP portfolios.

So there you have it. The radical Manifesto let us glimpse a world in which software companies would have to choose between IP rights and trade secret protection—but reminded us that to get there, we’d have to redo our IP system. The more moderate voice of misuse remedies sug­gested that we might be able to restrict that choice to rights holders who misused their IP. In other words, if a future court once again decides that Microsoft has leveraged its monopoly from one generation of the trans­lation frontier to the next, it can call upon the priests of IP to bless its misuse remedy. And that might be the best way to restore competition and to protect consumers.

Then again, the open-source movement contributed its own ideas. We still don’t know just how radical a restructuring open-source software could impose on the information sector. As we’ve seen, a large part of the answer may lie in government action. Governments who adopt open­source infrastructures increase the probability of a positive impact. The proliferation of software patents or court rulings that invalidate key open-source license terms decrease its likelihood of having any impact. But in the final analysis, open source is only part of the story. Because while it may restructure software, it’s not clear what impact it will have across the rest of the information sector. And as the record companies and movie studios could tell you, we seem to run into new problems each time the information sector extends its reach across another industry.

The record companies and movie studios also could tell you that those problems seem to be pushing us toward splitting compensation from control. This split’s power is that it continues to reward production, but refuses to reward obsolete approaches to distribution. It promises to direct innovation toward harnessing new technologies rather than toward reimposing transaction costs that technology can eliminate. Though entertainment-industry incumbents may lament the loss of tried- and-true business models, they nevertheless hear this critical message of the information age. This message is well worth remembering whenever we contemplate IP reform—and whenever the information sector swal­lows yet another industry and threatens to disenfranchise its incumbent, powerful distributors. IP laws that push innovators to harness technol­ogy will serve us well; those that push innovators to deter technology serve us ill.

One way or another, the transition from an industrial age to an infor­mation age will force us reconsider the relationships among IP policy, IP law, innovation, competition, scientific knowledge, and consumer welfare. Have we harmed ourselves? If we gave Microsoft the weapons with which to violate the antitrust laws—in the form of needlessly strong IP rights—we were complicit in our own anguish. And if we were, it cer­tainly doesn’t let Microsoft off the hook, but it does tell us how to avoid getting hurt again. If we want corporations to innovate and to maximize profits without disturbing the market’s natural competitive forces, perhaps we should give them the tools they need to innovate and to max­imize profits—but deprive them of the weapons most useful in disturb­ing markets. That would be a great form of consumer protection, and not too shabby for shareholders, either—at least for the shareholders of innovative companies other than the monopolist. The bottom line, though, is that if we don’t want monopolists to destroy competitive markets or to harm consumers, we must disarm them.

Our trip down the rabbit hole has thus taught us a new way to think about lubricating the economy. Distributors in the information sector will invariably try to use IP law to preserve existing transaction costs. At times, we may agree to preserve those costs. But we don’t have to accept their arguments carte blanche. We always should consider alter­native proposals, all within the appropriate constitutional framework for IP policy: grant only those rights necessary to promote the progress of science and useful arts.