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Remedies Brief of Amici Curiae

Litan, Robert E., Noll, Roger G., Nordhaus, William D. and Scherer, Frederic M., "Remedies Brief of Amici Curiae" . Available at SSRN:

Abstract:

    Now that it has found Microsoft in violation of the Sherman Act, the Court faces its most important challenge. It must fashion a decree that promises to introduce effective competition in the market that Microsoft has monopolized ? Intel-compatible operating systems ? and to restrain Microsoft from projecting its current monopoly into adjacent markets. That monopoly has proved of enormous value to Microsoft: as shown below, in 1999 Microsoft's rate of return was 88 percent on its investments in capital and research and development ? a record of profitability exceeding the average return of other major corporations by a factor of more than thirteen.

    Achieving the required remedy objectives is a heavy responsibility. Too often in the past, the government plaintiffs and the courts have devoted most of their attention to the liability phase of antitrust cases and have tended to breeze through the remedy phase. This case is too important and the stakes for the nation are too high to allow such a course of action to be followed here. The Court has a unique opportunity not only to establish a clear record for appellate review of the remedy, but also to set an important precedent for the way in which remedy determinations are made in future antitrust actions.

    In particular, this Court will establish in the process of setting a remedy in this matter the contours of relief in monopolization cases where the defendant's value arises primarily from intangible assets in the form of intellectual property rather than the tangible capital assets characteristic of such prior major monopolization cases as Standard Oil, Alcoa, and AT&T. In essence, this case provides an important test of how antitrust law and remedies should be applied in the "New Economy," where informational capital is the scarce and precious asset and physical assets are relatively minor and hardly unique. We argue that while the valuable assets underlying our economy may be new, the rules of antitrust remain just as valid as when the Sherman Act was first enacted: monopoly power is just as dangerous today when firms holding it have repeatedly demonstrated a willingness and ability to abuse that power. Dissolution of the kind proposed for Microsoft's operating-system monopoly was both impossible and irrelevant in many earlier major structural cases; dissolution here is the logical extension of physical or regional divestiture for companies based largely on tangible assets to a company whose value is based largely on intellectual and informational assets.

    We submit this brief without the benefit of knowing what relief the government plaintiffs will seek. However, our understanding of the relevant legal standard is that this Court has broad discretion in fashioning an appropriate remedy. It need not be limited to the remedies the government plaintiffs may propose. Now that the Court has issued a broad legal Conclusions of Law, it has the authority ? indeed the responsibility within the contours of existing law ? to impose whatever remedy it finds most appropriate to address the violations it has found, regardless of what the government plaintiffs may propose. For this reason, we urge the Court, following its scheduled May 24 hearing, to establish procedures (including evidentiary hearings on the risks and benefits of alternative courses of action) for developing a record that will enable the Court to develop a remedy that will provide a reasonable chance for competition to work without the monopolistic distortions outlined in the Court's Findings of Fact and Conclusions of Law.

    The Court has recognized the time-urgency of deciding this matter by suggesting that it may ask for immediate review of its Conclusions of Law and remedy order by the Supreme Court. There is certainly merit to this concept, especially in light of Microsoft's announced plans to extend Windows to the server and Internet access provider markets. Nonetheless, we believe that, because the underlying remedy issues are so complex, the key concern is the quality of the assessment rather than the speed of the resolution. Hence, a careful study and assessment of alternatives should not be sacrificed in the rush to resolve uncertainties surrounding the outcome of this case.

    The need for a careful and thorough study of remedies is underlined if the Court contemplates a structural remedy with respect to the monopolized markets. We will argue that conduct and licensing remedies are unlikely to introduce workably competitive conditions into the market monopolized by Windows and that it will be necessary to impose a structural remedy if demonopolization is the goal. At the same time, however, the complexity and potential risks of a structural remedy along with the history of past structural cases underline the need to ensure a careful and thorough study and assessment of alternative approaches before a final remedy is ordered.

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