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Supreme Court may have to decide on MS tying, says Lessig

And on current precedents, Microsoft could yet escape

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MS on Trial Did Microsoft illegally tie Internet Explorer to Windows? That depends on how you interpret the law, and the law itself is in urgent need of clarification, according to Harvard Law School professor Lawrence Lessig. Lessig had been asked by Microsoft trial judge Thomas Penfield Jackson to produce a brief dealing with the tying issue, and in a 45 page document filed yesterday examined the issues in some considerable detail. But Lessig does not come down in favour of one side or the other - his brief, essentially, merely provides Jackson with the tools to make a decision, and it remains conceivable that Microsoft will escape the tying charge. In the Microsoft case, says Lessig, Jackson could follow the Court of Appeals ruling of June 1998 which found that combining IE and Windows did not violate the earlier consent decree, and that there was no tying if there was a "plausible benefit" to the combination. Or alternatively he could follow earlier precedents which indicate that Microsoft could be found guilty of tying. The nub of the problem is that earlier precedents don't always sit happily when applied to the software business, and we're therefore in uncharted territory. Lessig thinks it probable that it'll be the Supreme Court that finally straightens this one out. The Supreme Court has already examined tying between two service products (in the Jefferson Parish Hospital case), while another famous case, known as Eastman Kodak, dealt with a tie between a physical product (film) and a service (film developing). The Microsoft case involves a tie between two products (Windows and IE) which the Supreme Court has not considered expressly. So far as lower courts are concerned, Lessig views the Court of Appeals decision in the Microsoft case as a "prominent manifestation of... uncertainty" so far as tying is concerned. Lessig chides the courts' reluctance to get involved in "the intricacies of software design" since design decisions in other sectors are examined routinely. He suggests that they evidently believe that "code is different" and "uniquely beyond the ken of federal courts... As a matter of judicial policy, I believe it is a mistake to fetishise code in this way. While I agree that an overly invasive antitrust policy can stifle innovation, I am not a sceptic of courts' ability to understand how software functions; nor do I believe that software technology is so benign that it is advisable for courts to ignore the competitive impact of code-based restraints." Lessig says that there were three stages in the evolution of Windows 9x: initially, when OEMs were bound contractually to include IE, but the code was separate; a second stage when there was some modularisation; and a third phase when browsing and non-browsing functionality are mixed, so that browsing cannot be removed (no ADD/REMOVE) without disabling the non-browsing functions, so that contractual binding was no longer needed. Tying "per se", as it is called, has been determined by the Supreme Court to be anticompetitive and illegal. However, in other rulings, a "rule of reason" has been used which means that the facts must be examined, rather than using absolutely the assumption that tying is always anticompetitive. Lessig believes that "there is a significant probability that the Supreme Court will modify current doctrine" about tying law for software. Lessig advises Judge Jackson to decide the case under existing per se analysis, as well as under an alternative analysis. Examining the assumption that the Court of Appeals decision will be followed, Lessig points out there are two possible interpretations of it: a narrow one and a broader one. The appellate court decided that the combination of Windows with IE happens at the design stage, and not during installation - whether the products were architected to be one, rather than whether they could be one product. The court made a mistake of course in claiming that "the products do not exist separately". Following a lengthy and complex analysis, Lessig concludes that under the Court of Appeals' test of tying, Microsoft would win. Lessig than goes on to examine in even more detail the situation if the appellate court decision is not favoured by Judge Jackson. The judge is entitled to do this since the appellate court had seen no evidence and received no relevant briefs when its decision was made, so it is not unassailable. In examining whether there are one or two products, legally speaking, Lessig makes a very important point: he suggests that software products should be defined by their functionality, and not by their code. As he points out, the consumer does not care if IE functionality is provided by one file or 50. The Court of Appeals had difficulty understanding this. This suggestion favours the government's case of course. As to whether Windows 9x and IE are a single product, it all depends. Lessig notes that tying law was developed without software in mind, and criticises "a very lenient rule" that would result in Microsoft prevailing if it were applied. Lessig tells Judge Jackson that he has to decide this one under existing law. A breath of fresh air enters Lessig's brief when he points out that the whole point of the open source/free software movement is to favour modularity. Lessig goes on to suggest that the Court should craft a standard that makes sense of the values in antitrust law and of the peculiar facts about software. As the argument progresses, it becomes more and more evident that software does introduce some legal problems not previously considered or resolved. Critics of the appellate court decision say that its test is not extensive enough to deal with strategic bundling behaviour, and that a more detailed examination of the "integration" is needed. Lessig makes his own very interesting suggestion: that "two software products combined in a 'new way' would be considered a 'single product' for purposes of antitrust tying law - regardless of how they were linked (whether by code or by contract) - but this conclusion would be presumptive only. The presumption could be defeated if the plaintiff can show that the particular bundle at stake raises the risk of a particular anticompetitive harm. If, in other words, it is a bundle of the kind of products likely to cause an anticompetitive harm, then the presumption [of] finding a 'single product' would be rebutted." He gets the bullseye when he says: "The aim of any antitrust inquiry should be whether the particular bundle is a strategic bundle, aiming at anticompetitive ends, not whether the bundle achieves its interlinkage through contract or software." Lessig concludes that the Court could decide either way on whether Microsoft is guilty of tying, but the weight of his arguments certainly do not exclude the possibility of Microsoft escaping through the horns of the dilemma that Judge Jackson faces. ®

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