Remedies in Microsoft: Be Careful What You Ask For
Like doctors, lawyers should aspire to do no harm. Well, we should hope to do much, much better, but we should settle for not doing any harm. It doesn’t always work that way, though, as recent news concerning Microsoft makes clear.
Start with good news. At the end of last week, Dell and Google announced a new deal under which, we all assume, Google will pay Dell to pre-install Google software on Dell machines. As that deal suggests, even in today’s networked world, pre-installation of software is valuable. Skype—the free voice-over-IP software—has also reached a deal with Dell. The U.S. antitrust remedy in the Microsoft case hoped to create greater competition for pre-installed software and seems to be doing exactly that. Chalk one up for the lawyers.
But now the bad news: consumers are going to find it harder to get new tools from Microsoft and will have to pay more to get them.
As is being reported today, Adobe and Microsoft have been in months of negotiations over a planned new feature to Microsoft Office, namely, Office would make it possible to create .pdf files from within Office itself. I do that from Office now, but I had to pay—OK, the Law School had to pay—a decent chunk of money to Adobe for the Acrobat authoring software. Microsoft describes the .pdf feature as the second most-requested feature sought in the software.
Step back for a second. Microsoft is adding new features to Office and it has been in months of negotiations with Adobe regarding adding that feature to Office? You wouldn’t think that good competition policy would dictate that you have to ask your chief competitor for permission to enter their market, but this is the tricky world of modern antitrust. If Microsoft just competes directly it will be accused of monopolization, tying and predatory pricing, but if we see negotiation between competitors, we should fear old-fashioned Section 1 collusion. You might think that this weird world was dictated by some intellectual property oddity—perhaps copyright concerns regarding the .pdf format—but in a post earlier today, James DeLong makes clear that that is pretty unlikely.
We are going to find it hard to navigate in these waters. As I have noted in published work (an online version here), there is a fundamental arbitrariness to the scope of goods like software. Once a function is created, the marginal cost of adding it to Windows or Office is nothing, so software can expand and expand. Usability limits—how many features can consumers manage—may be the real determinants of product scope. Indeed, usually consumers request features that are already in the software, but the software is so complex, they don’t know that.
But this is not that case. This is a feature consumers would like and currently have to pay extra to get. I can create .pdf files right now from within Microsoft Word, and I will be able to do that either way, with the Microsoft version or with one provided by Adobe. Adobe wants Microsoft to have to charge for its version, just as Adobe does.
But unlike physical goods, where very little stuff is given away, companies give away software all of the time. Google gives away most of its software and yet seems to have a nice market cap. Adobe gives away the Acrobat reader program, but they charged for it originally and then concluded that wasn’t the right way to run their business.
It seems unlikely that we want Microsoft to have to sell its software piecemeal with separate prices for each piece. I get why competitors to Microsoft would like that. And I do understand that Microsoft’s power to bundle software together gives it great power that we will struggle to police. But the D.C. Circuit had little trouble finding monopoly maintenance in Microsoft’s actions against Netscape.
Here, in adding pdf functionality to Word directly, Microsoft isn’t protecting a monopoly. It is entering a new market, where prices are pretty high. I have little doubt that consumers will benefit from this entry—certainly in the short-run and probably in the long run as well.
So what is Adobe supposed to do if a competitor gives away software that Adobe charges for? Well, what would it do if Google started giving away a free, ad-supported .pdf creator? Would Adobe think that it had an antitrust remedy? Is Microsoft the only company that can’t give away software? I can’t get that result out of current U.S. antitrust law (again, I have published work on this, with an online version here).
The bad news for consumers is that Microsoft, faced with a threatened antitrust claim from Adobe in Europe, is altering both Vista and Office, reducing the functionality of both. Office won’t ship with the .pdf capability, but consumers will be able to go download it. I don’t think that that is the end of the world, but as the Google and Skype deals with Dell make clear, even with always-on networks, pre-installation matters.
[Disclosure: The Law School has received grants from Microsoft in the past, and, I believe, continues to do so.]