Networks, Access, and 'Essential Facilities': From Terminal Railroad to Microsoft

Abstract:     
Microsoft's well-publicized antitrust troubles in the US and EU have focused attention on interoperability and access issues that often arise in networks industries - when dominant firms controlling critical technical information refuse to license that information to competitors in complementary markets. This deprives consumers of the benefits of "network effects" and forecloses competition in the complements, but the difficult issue is whether there is a principled basis for antitrust intervention. This Article suggests that there is - the essential facilities doctrine, which has had a long, if somewhat controversial, history.

The doctrine has often been described as lacking theoretical grounding and consistent rationale. This characterization, however, is undeserved. The Article shows that, contrary to general perception, key American essential facilities cases are rooted in sound, though unarticulated, principles. Courts have tended to invoke the doctrine only where a facility had natural monopoly characteristics or strong network effects, and compulsory access would create or facilitate competition in a necessity. In other words, application of the doctrine has generally been limited to situations where denial of access would be socially wasteful, impede competition, and adversely impact public interest.

These limiting principles are, not only economically defensible, but eminently sensible, and can be applied equally well to cases involving access issues in modern-day networks, to help identify when the doctrine could properly be invoked. This method would be more effective than treating refusals to supply interoperability information almost as a separate category of conduct, as the European Commission's recent Discussion Paper seems to recommend, since incompatibility does not cause similar consumer or economic effects in all markets. To illustrate, this Article draws on the familiar stories of Microsoft's antitrust problems in Europe and Apple's iPod/iTunes controversy.

This Article also critiques two other common objections to the doctrine: 1) that compulsory access would not improve consumer welfare because the "harm" it seeks to remedy - monopoly leveraging - supposedly has no economic significance; and 2) that application of the doctrine would deter innovation and undermine the policy objectives of intellectual property law.

Number of Pages in PDF File: 40

Keywords: antitrust, essential facilities, refusals to deal, interoperability, intellectual property, open access

JEL Classification: D23, D42, D62, L12, L41, L43

Accepted Paper Series