THE PATH LAID BY TRINKO: EU Microsoft (interoperability issue) in light of Trinko and IMS

1. THE PATH LAID BY TRINKO: EU Microsoft (interoperability issue) in light of Trinko and IMS Eleanor M. Fox New York University School of Law Global Competition Law Centre, Brussels 12 July 2004

2. “There were two paths and [we] took one” • and which did Europe take? • TRINKO, IMS, • MICROSOFT (interoperability), • and duties to deal

3. I. Introduction-outline • US – background; essential facilities • Trinko • EU – IMS • EU – Microsoft: workgroup servers • and duty to disclose interface information • Microsoft in view of • IMS • Trinko

4. US- background: essential facilities doctrine, duties to deal • Terminal Railways • AT&T • Aspen • Trinko v. Bell Atlantic • Becomes Verizon v. Trinko

5. TRINKO (Sup.Ct. 2004)(Scalia) • The 1996 Telecoms Act • The complaint • Is there an antitrust duty? • General rule: freedom to refuse to deal • Monopoly is okay, forced dealing is bad (incentives) • Does this case qualify for an exception? • The Aspen exception? No • Essential facilities? No • This case is about insufficient assistance to rivals

6. Should we add an exception to the no-duty principle? • Court: no. The marginal costs are greater than the marginal benefits • The 1996 act protects competition • In monopoly (unilateral act) cases, courts are likely to get it wrong • Beware false positives • Intervention to supervise a duty to deal is beyond the abilities of courts

7. Europe – IMS 29 April 2004 • Refusal to grant a license can constitute abuse only in exceptional circumstances • Access must be indispensable, and • Refusal must - • prevent emergence of a new product for which there is potential consumer demand • Be unjustified • Exclude any competition on secondary market

8. When is access indispensable? “[I]t must be determined whether there are products or services which constitute alternative solutions, even if they are less advantageous, and whether [obstacles make] it impossible or at least unreasonably difficult … to create … the alternative products or services.” para. 28

9. MICROSOFT-EU March 2004 • Workgroup servers and Microsoft’s duty of interoperability – duty to disclose interface • Novell was the pioneer, with NetWare; Sun, Linux have “limited presence” • Microsoft disclosed interoperability info while it developed Windows NT.4, then it “disrupt[ed its] previous levels of interoperability • Microsoft designs its system so that rivals’ workgroup servers cannot call up all functions on its OS that NT can do, and so that its NT can access these functions more quickly

10. MICROSOFT-EU March 2004 • Microsoft shifts users to its system by promising and delivering seamless workability of NT.4 with Windows PC and pointing out that rivals do not deliver seamless workability • Incidents (MUP): Microsoft creates incompatibilities by its upgrades and delays in curing problem

11. “Microsoft’s refusal puts Microsoft’s competitors at a strong competitive disadvantage in the work group server operating system market, to an extent where there is a risk of elimination of competition. “ para. 589 • “The interoperability information at stake is indispensable for competitors to be able to viably compete in the work group server operating system market.” para. 1064 • “If Microsoft’s competitors had access to the interoperability information …, they could use [it] to make the advanced features of their own products available ….” para. 694 • Though Microsoft’s incentives may be diminished, the refusal causes in a net loss in innovation.

12. Microsoft in view of IMS • Does the Commission meet the test of indispensability? • Does the Commission meet the test of new products? • Does Microsoft’s refusal exclude all competition on the market? • Are the IMS tests the rights ones for this problem? • Is Microsoft problem more like local loop access?

13. Microsoft in view of Trinko • Do the Microsoft facts come within an exception from the freedom to not deal? • Aspen? no • Essential facilities doctrine, if any? No • Is there reason for a new exception? • Does the regulatory background (the US decree) or do M’s own incentives provide protections? • Marginal costs and benefits? • False positives; ability of judges, monitors

14. Microsoft in view of • THE BEST RULE? • What is the best rule to advance consumer interests, preserve/enhance incentives to compete and innovate? • To what extent is the answer a matter of philosophy and political economy? • Trust the market (and Microsoft); trust the agency, the courts, the rivals? • Is it tenable for US/EU to take two paths?