UNITED STATES V. MICROSOFT:
When It Comes To Our National Competition Policy, Who Calls The Shots?

By DAVID C. LUNDSGAARD

Thursday, Apr. 04, 2002

Federal antitrust enforcers have reached an agreement with Microsoft that they believe is sufficient to resolve the Microsoft case, but a number of state governments disagree. They believe the agreement insufficiently addresses the judicial finding that Microsoft was engaged in an illegal maintenance of its operating system monopoly. Accordingly, they are asking a federal judge to override the decisions of the Department of Justice, and impose harsher sanctions on Microsoft.

These states' pursuit of harsher remedies sets up a direct conflict between different visions of appropriate national economic policy relating to Microsoft. Thus, their suit highlights a pressing (though often hidden) question in American antitrust law: When it comes to our national competition policy, who calls the shots?

Unfortunately, the answer is: everybody and nobody. It should be our national government that calls the shots as to our national competition policy, but that is not currently the case. By bringing this anomaly to public prominence, Microsoft provides a unique opportunity to address this problem.

In Antitrust Enforcement, More Is Not Always Better

When it comes to antitrust, overenforcement can present real harms. Overzealous enforcement of the antitrust laws can actually stifle competition - ironically, since the purpose of the laws is to promote it.

By contrast, the government can't "overenforce" the burglary laws - the only argument against stricter enforcement of those laws is that there are other socially valuable uses of enforcement resources. In the antitrust context, however, overzealous enforcement not only can waste resources, but also can have the effect of constraining effective competition.

Many antitrust scholars believe, for example, that the overly aggressive anti-merger policies of the 1960s and 1970s were perhaps the single greatest obstacle to successful international competition by American businesses during that era. Today, it is difficult to find an antitrust professional who favors a return to that era of merger overenforcement.

Antitrust Decisions Regarding Microsoft Are Properly Made At the Federal Level

This feature of antitrust law means that the decision as to what constitutes the appropriate level of antitrust enforcement is not simply a decision as to how much relief one thinks that a court will award, or what else might be done with enforcement dollars. Crucially, it is also a decision as to our competition policy in general.

And, when it comes to a company of national significance such as Microsoft, a disagreement about that competition policy is essentially a difference of opinion as to how our national economy should be governed. Thus, when the dissenting states ask the federal court to go beyond the federal settlement of Microsoft, they are effectively asking the court to displace the federal government's opinion of appropriate national competition policy with their own.

It is easy to imagine how this aspect of Microsoft could have been even worse. Imagine only, for instance, that Judge Jackson had not made his ill-advised remarks to reporter Ken Auletta and therefore had not been removed from the case by the appellate court. With Judge Jackson still on the case, the dissenting states might even be continuing to argue for a breakup of Microsoft, thereby making the divergence between the relief agreed to by the federal government and the relief sought by the dissenting states even more dramatic.

A Problem with a Long History: Federal versus State Antitrust Enforcement

While Microsoft is perhaps the most notable recent example of this anomaly in our national competition policy, it is by no means the only one. The essential problem runs much, much deeper.

The problem has two basic facets. First, states are allowed to enforce the federal antitrust laws. This makes the states virtually coequal to the federal antitrust enforcement agencies, giving them the authority to dictate national competition policy to almost the same degree as the federal government.

Second, the states are allowed to enact and enforce their own antitrust laws - even when those laws run contrary to the policy dictates of our federal antitrust laws. Consider, for example, the flood of state "Illinois Brick repealer" statutes. These are state statutes that allow plaintiffs to recover damages under circumstances that the United States Supreme Court announced, in its Illinois Brick decision, would be bad antitrust policy.

Regardless of what one thinks about the "Illinois Brick repealer" statutes as a matter of antitrust policy generally, they are undoubtedly an expression of state antitrust enforcement preferences that are directly contrary to federally-announced policy.

A Strong Solution: A Specific Federal Statute Addressing Federal Pre-emption

The Microsoft experience has helped pull this important issue from the arcane recesses of government policy debates into the political arena. It therefore provides a unique opportunity to address the problem.

Fashioning a response will not be politically simple. At one extreme end of the spectrum are the state antitrust enforcers - who believe that their contribution to antitrust enforcement is a positive good, and who wish to leave the existing system as it is. There are critics like Judge Richard Posner, who favor stripping the states of their independent right to enforce the antitrust laws. And there are those, at the other end of the spectrum, who favor eliminating state regulation of antitrust law entirely (except perhaps as to the limited province of solely intrastate commerce).

The starting point for a sensible solution is the proposition that the federal government, not the several states, should be in charge of our national economic and competition policy. Even this proposition is controversial, but we are long past the point of realizing that our economy is, in most respects, now essentially national in scope. Having numerous separate enforcers with uncertain and overlapping jurisdictions can only lead to conflict and, frequently, overenforcement.

The most coherent overall solution would be a federal statute that governs the extent of federal pre-emption of state law in the antitrust field. (The doctrine of pre-emption governs when federal law displaces, and thus extinguishes state law, and when the two can co-exist). There are many areas, such as the Copyright Acts, in which Congress has specified the extent of federal pre-emption, and Congress should follow its own example to do the same in the antitrust context. There will always be gray areas and disputes around the margins, but this is the logically the best long-term solution.

Meanwhile, a reasonable intermediate step would be to give the federal antitrust enforcement agencies a pre-emption "trump card." That is, the federal agencies could announce that, with respect to a particular set of allegedly anticompetitive acts or an allegedly anti-competitive merger or acquisition, that the federal government was asserting exclusive authority in the interest of a uniform national competition policy.

In Microsoft, for example, the federal agencies could have played such a trump card to ensure that the federal settlement agreement was the only game in town. Once played, the pre-emption "trump card" would ensure that, for better or for worse, national competition policy would be made at the national level.

A sensible revision of the division of labor in antitrust enforcement between the state and federal governments is long overdue. Microsoft can be the catalyst for that revision, by prompting us, as a nation, to recognize the essential point that our national competition policy is a question of national concern, and should be announced and implemented by our national government.


David C. Lundsgaard, a 1992 graduate of the Yale Law School, is a partner with the Seattle law firm of Graham & Dunn PC. He practices in the area of antitrust and trade regulation litigation and counseling.

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