Microsoft’s Five Fatal Flaws

Abstract

In September, 2007, the European Court of First Instance (“CFI”) issued a decision of monumental importance to the fields of antitrust and intellectual property. The court ruled that Microsoft had abused its dominant position by failing to provide its rivals with proprietary information sufficient to render their goods interoperable with Microsoft’s operating system. In so finding, the court necessarily discounted the “incentive to create” principles that explicitly underlie the intellectual property laws. At its heart, the holding reveals a European predilection for explicit short-run social gains in place of promoting the less demonstrable, though possibly overriding, benefits of long-run innovation. Although immensely controversial, and in tension with the treatment given intellectual property in the United States, the Microsoft decision ultimately rests on a subjective determination that is not yet vulnerable to empirical disproof. Despite being questionable from a theoretical perspective, then, the court’s promotion of the short-run over the long-run was not indisputably erroneous. Taking as a given the indeterminacy of the CFI’s short-run/long-run trade-off, this Article argues that on its own terms the decision is a profoundly poor one, suffering as it does from at least five fatal flaws. We explore these fundamental shortcomings to explain how the court departed from pertinent case law, incongruously imposed ordoliberal principles on information markets, adopted a long-discredited framework for analyzing competitive behavior, made improper determinations of consumer preference on the basis of questionable survey data, and failed to address the considerable administrative cost associated with its holding. Ultimately, and worst of all, we show that the precedential value of Microsoft may serve as a Damoclean threat to new economy innovation. We conclude that because the holding in Microsoft poses such a variety of serious threats to the proper administration of competition law, the application of the opinion should be closely confined to the peculiar facts of the case.