Success, Dominance, and Interoperability

Abstract

In September 2007, the European Court of First Instance (CFI) ruled that Microsoft violated the European Union’s competition law by failing to provide certain of its rivals with proprietary computer protocols that would have enabled them to make their products fully 'interoperable' with Microsoft’s dominant operating system. In the process, the court suggested that an owner of certain kinds of dominant intellectual property is obliged to share its property with rivals to the extent necessary to allow those rivals to compete 'viably' with the dominant firm. Thus, in theory, should protocol sharing fail to achieve the requisite degree of 'viability,' the court could in the future order Microsoft to share its proprietary source code, if in its view that kind of compulsory disclosure is the only way in which the rival could achieve competitive 'viability.'

Among other things, this ruling has placed in stark relief a critical tension, not only as to the proper application and adjustment of competition law and intellectual property law, but also between the respective legal approaches to these issues of the United States and the European Union competition regulators. While Europe has opted for less intellectual property protection and more short-term consumer benefit, the United States, which almost fully protects dominant intellectual property holders from sharing obligations, has chosen to sacrifice some short-term consumer welfare in exchange for preserving to a fuller extent the incentives for innovation and the long-term consumer benefits that it promises to bring.

This Article explores these tensions and attempts in the process to assess the relative merits of the European and U.S. approaches. Since it is impossible to evaluate the conflicting approaches empirically, we endeavor to compare them along several theoretical and practical dimensions, and then to suggest a set of narrow circumstances when sharing obligations might achieve net social benefits. We conclude that, taken together, the benefits of unimpeded invention and the costs of error inevitably associated with mistaken judicial efforts to impose sharing requirements on firms possessed of dominant intellectual property counsel strongly against the aggressive imposition of such requirements, and in favor of approaches that are least likely to dilute ex ante incentives to invent.