A Proposed Antitrust Approach to High Technology Competition

INTRODUCTION This Article discusses the most critical antitrust issue of the new century: how to regulate competition in Internet, medical, media, telecommunications, computer hardware and software, and other high technology markets. The form of such regulation will have implications beyond the high technology sector. During the 1990s, high technology innovations became the greatest drivers of U.S. economic growth. Traditional industrial firms began to use high technology to enhance their productivity. (1) New Internet software allowed firms to adapt their purchasing and production schedules to meet changing demand, thus smoothing out the peaks and valleys of the economic cycle. Linchpins of the "old economy," such as Ford and General Motors, began to collaborate in business-to-business (B2B) e-commerce ventures that allowed them to sell products and purchase supplies online. (2) A 1999 survey found that American executives believed that they had exploited "only half of the potential of high-tech." (3) Thus, continued productivity gains across the breadth of the U.S. economy could be at risk if antitrust policy does not create an environment conducive to high technology investments. There is currently considerable debate about whether aggressive antitrust enforcement helps or hinders the development of high technology. That debate will be joined sharply in two cases whose outcome could determine the future control of the Internet: AOL Time Warner's pending monopolization suit against Microsoft (4) (AOL) and the final remedial phase of the most recent of three cases brought by the government against Microsoft (5) (Microsoft III). A recent Wall Street Journal editorial posed the high technology dilemma as follows: It's increasingly clear that products whose primary value lies in intellectual property--products such as software, pharmaceuticals, movies, records and many of the other things that drive today's economy-are fundamentally different from staples of the industrial economy such as autos and steel, or service-economy products such as banking and insurance. And those fundamental differences are wreaking havoc with traditional notions of economics that underlie antitrust laws.... (6) Some observers argue that the antitrust laws were designed to regulate competition in traditional industrial markets, where the effects of technological changes are relatively measured and predictable. When regulators understand the economic effects of particular conduct, they can condemn or approve it with relative confidence. (7) The courts and antitrust enforcement agencies, however, comprehend little about the ultimate economic effects of high technology. (8) They may therefore unintentionally preclude the development of promising new products by overregulating high technology industries. (9) Firms may be less willing to invest in high technology if they fear that they will be penalized for their success. (10) As Judge Frank Easterbrook has stated, "People are quick to condemn what they do not understand. Hasty or uninformed judgments may condemn novel practices just because of their novelty." (11) Former Federal Communications Commission Chairman William Kennard has explained how regulatory restraint freed firms to make the investments necessary for the development of the Internet: "The best decision government ever made with the Internet was the decision the FCC made 15 years ago not to impose regulation on it.... It was intentional restraint born of humility." (12) In its 1998 Microsoft II decision, the District of Columbia Circuit Court declined to find Microsoft liable for tying its Internet browser to its "Windows" operating system, pointing out that since courts have limited competence in evaluating high technology product designs, they should be "wary of second-guessing the claimed benefits of a particular design decision. …