Unbundling Scope-of-Permission Goods: When Should We Invest in Reducing Entry Barriers?

Abstract

Scope-of-permission goods are goods of arbitrary scope, where consumption of the good is non-rivalrous, where users can be excluded from consuming the good - through market organization, technology or law - and where increments to the good can be added to the good, once they are created, at zero marginal cost. Scope-of-permission goods naturally include pay TV, computer software, copyrighted works and licenses from collective right collectives such as ASCAP and BMI.

These goods have been at the heart of some of our most difficult cases in antitrust law and competition policy. This includes the extended antitrust litigation over the blanket licenses for the use of copyrighted works issued by ASCAP and BMI. It also includes the Windows operating system, especially as it has grown over time with the addition of Internet Explorer and the Windows Media Player.

In the ASCAP cases and in the U.S. and EU antitrust actions against Microsoft, the core question is to what extent do we want to re-scope a scope-of-permission could so as to foster entry. In the recent revision of the 40-year-old consent decrees in ASCAP, we have once again pushed ASCAP to offer meaningfully smaller licenses - a required subtraction of scope - with the hope that we would create entry in collective rights organizations.

The U.S. and EU have taken different paths in their actions against Microsoft. Both focus on the scope of the rights given to end-users in Windows. The U.S. has chosen to limit the visibility of the Windows Media Player by allowing computer sellers to hide visible means of access to WMP. WMP remains present to rise up if invoked by a savvy consumer or by a third-party. In contrast, the European Commission has required Microsoft to engage in mandatory versioning, requiring Microsoft to offer computer sellers versions of Windows with and without WMP.

The U.S. remedy intrudes less directly into product design, the EU remedy does a better job of preserving competition in media players by limiting the reach advantage that Microsoft has by being able to tie and distribute WMP with Windows. But we had a better alternative available, one that was rejected by both the U.S. and the EU. Imposing a must-carry obligation - requiring Microsoft to distribute other media players if it chose to distribute WMP with Windows - would have neutralized Microsoft's ability to tie WMP to Windows, while avoiding concerns about fragmenting the programming infrastructure available to third parties. This would have created the possibility of strong competition, akin to the facilities-based competition we have sought to create in U.S. telecommunications.

At least for software, we should think that there are strong asymmetries between subtraction and addition remedies. Subtracting disrupts the natural flow of product development and leaves the software producer with the difficult task of unscrambling the software code. It also creates the risk of fragmenting the programming base available to third parties. Subtraction may be sensible when the underlying goods are more distinct - when we can separate Bach from the Beatles - but in the Microsoft cases, instead of subtracting scope, as we did in ASCAP and the U.S. and EU have done in Microsoft, we should have expanded the scope of Windows by imposing a must-carry remedy.

Keywords: software, pay-TV, copyright, licensing, Windows