THE ANTITRUST TY ING LAW SCHISM:
A CRITIQUE OF MICROSOFT III AND
A RESPONSE TO HYLTON AND SALINGER
Warren S. Grimes*
There is a schism in antitrust tying law. The point of contention is
the relevance of information asymmetries to a tie-in analysis. The court
of appeals’ en banc decision in United States v. Microsoft Corp. (Micosoft
III) 1 did not address the schism, yet that decision has charted a course
that may describe tying law’s future path out of the abyss. The Hylton
and Salinger recent article on tying law and policy2 suggests a different
path. The authors are critical of some aspects of Microsoft III, would
largely ignore information issues that could demonstrate anticompetitive
effect, and urge a virtual per se legality for high-technology, productintegration tie-ins. In these comments, I offer a critique of the tying law
aspects of Microsoft III and of the Hylton and Salinger article. I explain
why Microsoft III is largely true to empiricism and mainstream antitrust’s
recognition that information asymmetries can be, and often are, pivotal
to accurate competitive analysis of a tie-in.
I. THE SCHISM IN TY ING LAW AND POLICY
It is not a little perplexing that a seemingly intractable schism should
exist over antitrust law governing tie-ins. The fundamentals of tie-ins are
straightforward. A tie-in is a particular type of bundled sale that constitutes an abuse of seller power. Sellers bundle the sale of products that
might be sold separately as a business strategy—to make money. If the
decision to bundle is disciplined by competition, the seller’s offering
cannot harm competition goals: either the seller’s bundled offering will
be profitable (if consumers want the bundled offering) or it will be a
business failure (if consumers reject the offering). In neither case is
antitrust implicated. Anticompetitive bundled sales are limited to
* Professor, Southwestern University School of Law.
1 253 F.3d 34 (D.C. Cir. 2001) (en banc).
2 Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach,
69 Antitrust L.J. 469 (2001).
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instances in which competitive discipline is lacking (the seller can force
the tied sale) and the seller’s conduct is abusive (the seller creates,
maintains, or extends market power). This subset of bundled sales,
known as tie-ins, is the target of antitrust law.
If a seller is to bundle abusively, it must have power—the power to
circumvent, ignore, or suppress competition. What is the source of this
power? One source can be a seller’s dominant share in the tying product
market. There is probably a consensus among antitrust theorists that a
bundled sale that maintains or extends the tying-product market dominance is anticompetitive. To be sure, courts and theorists continue to
struggle with important questions about when such a tie-in has occurred.
For high-tech markets, networking efficiencies and the bundled sale’s
impact on innovation become critical issues.
Chicago theorists have suggested that harmful tie-ins are rare.3 The
Chicago critique is vulnerable, in part because its economic models are
not based on the oligopolistic conditions under which many (perhaps
most) challenged tie-ins occur.4 Nonetheless, if the only source of a tying
seller’s power to abuse lay in the seller’s dominant position in the tyingproduct market, there would be little basis for tying law enforced through
Section 1 of the Sherman Act and Section 3 of the Clayton Act. The
Sherman Act’s monopoly provision (Section 2) might provide an adequate platform for addressing abusive tying practices.
There is a problem with this approach. It ignores an obvious and
salient characteristic of tying: a harmful tie-in complicates a buyer’s
choice. A non-abusive bundling may simplify a buyer’s purchase (by
combining two efficiently bundled products), but a bundled sale that
runs against informed consumer demand (a tie-in) forces buyers to live
with second-best options. Buying choices are complicated and information voids may undermine the discipline that would channel seller behavior in the absence of the tie. A tying seller, even if it lacks dominance
in the tying market, can exploit these voids to exercise additional power
over output and prices, perhaps raising the costs of rival firms or inviting
them to engage in a similarly exploitative tying practice. Although recognition that information asymmetries can affect competition resonates
3 Justice O’Connor agreed in her concurring opinion in Jefferson Parish Hosp. Dist. No.
2 v. Hyde, 466 U.S. 2, 36 (1984) (“Tying may be economically harmful primarily in the
rare cases where power in the market for the tying product is used to create additional
market power in the market for the tied product.”).
4 For a summary and critique of the Chicago view, see Warren S. Grimes, Antitrust and
the Systemic Bias Against Small Business: Kodak, Strategic Conduct, and Leverage Theory, 22 Case
W. Res. L. Rev. 231, 253–61 (2001).
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through more than a century of antitrust decisions,5 by far the most
direct and thorough assessment of information problems in the tying
context came in the Supreme Court’s 1992 decision, Eastman Kodak v.
Image Technical Services, Inc. 6
The seller’s ability to exploit information asymmetries is at the core
of the current schism over tying policy. Participants in the ongoing
debate can easily be classified based on their view of Kodak. On one side
of the chasm are Kodak skeptics who ignore, disavow, or construe narrowly
the decision. 7 For them, information problems associated with tie-ins
are inconsequential or not the province of antitrust law. Theorists associated with this position tend to highlight the efficiencies associated with
bundled sales. Working from this platform, Kodak critics would impose
a heavy burden on plaintiffs seeking to establish an unlawful tie-in. Kodak
skeptics also stress the importance of allowing firms with market power
the freedom to compete and innovate, all of this in the interest of
dynamic change and progress. Hylton and Salinger associate themselves
squarely with this view. There is, the authors believe, substantial risk that
rules that condemn harmful bundling will overreach and deter beneficial
bundling, a criticism that they apply to the Supreme Court’s modified
per se rule governing tie-ins. Tying accomplished through product integration, Hylton and Salinger conclude, is especially likely to be beneficial
and should be accorded a wide berth under antitrust law.8
On the other side of the tying policy chasm are those theorists stressing
that information problems play a substantial role in a competitive analysis
of a tie-in.9 Kodak proponents emphasize the empirical nature of antitrust
5 E.g., Chicago Bd. of Trade v. United States, 246 U.S. 231, 244–45 (1918) (suggesting
that a rule setting the price for after-hours trading of agricultural commodities was responsive to information inadequacies that confronted many traders); California Dental Ass’n
v. FTC, 526 U.S. 755, 778 (1999) (“The existence of significant challenges to informal
decisionmaking by the customer for professional services suggests that advertising restrictions arguably protecting patients from misleading or irrelevant advertising call for more
than cursory treatment . . . .”).
6 504 U.S. 451 (1992).
7 Dennis W. Carlton, A General Analysis of Exclusionary Conduct and Refusal to Deal—Why
Aspen and Kodak Are Misguided, 68 Antitrust L.J. 659 (2001); Thomas C. Arthur, The
Costly Quest for Perfect Competition: Kodak and Nonstructural Market Power, 69 N.Y.U. L. Rev.
1 (1994); Benjamin Klein, Market Power in Antitrust: Economic Analysis After Kodak, 3 Sup.
Ct. Econ. Rev. 43 (1993); Herbert Hovenkamp, Market Power in Aftermarkets: Antitrust
Policy and the Kodak Case, 40 UCLA L. Rev. 1447 (1993); Carl Shapiro, Aftermarkets and
Consumer Welfare: Making Sense of Kodak, 63 Antitrust L.J. 483 (1993); George A. Hay, Is
the Glass Half-Empty or Half-Full?: Reflections on the Kodak Case, 62 Antitrust L.J. 177 (1993).
8 Hylton & Salinger, supra note 2, at 516 (suggesting that the probability of anticompetitive harm is lower for product integration than for contractual tying).
9 Grimes, supra note 4; Steven C. Salop, The First Principles Approach to Antitrust, Kodak
and Antitrust at the Millennium, 68 Antitrust L.J. 187 (2000); Rudolph J.R. Peritz, Theory
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jurisprudence: a court is guided by economic theory but instructed by the
competitive realities of the case before it. Rules of decision or economic
theory deductively applied cannot force a judge to don blinders obscuring these realities. Kodak proponents point out that seller abuses, whether
built upon traditional market power or the exploitation of information
voids, will distort competition and the efficiency goals that competition
serves. Moreover, Kodak proponents point to circumstances in which a
tie-in will be used by a powerful seller to raise rivals’ costs, deterring
entry and dynamic change. Thus, both sides in the debate invoke the
cause of innovation and progress.
Kodak proponents will be strained to find supportive language in Microsoft III, an opinion that in many ways follows the approach of Kodak
skeptics. In Microsoft III, the court refused to apply the modified per se
rule that the Supreme Court applies to tie-ins and, citing the novelty of
the issues and the possibility of procompetitive effects, imposed a rule
of reason to measure Microsoft’s software bundling practices.10 This
approach is consistent with the view of Kodak skeptics that few, if any,
bundling practices are genuinely anticompetitive.
Yet Kodak remains, so far at least, not directly limited by the Court that
issued it.11 Moreover, the force and logic underlying Kodak’s empiricism
cannot be erased by lower court decisions that distinguish or ignore it.
Perhaps in recognition of the underlying strength of this approach, a
few courts addressing information issues have expressly followed Kodak.12
But a parallel development may more accurately forecast future developments. The Microsoft III court did not embrace or expressly follow Kodak’s
information theories, but several aspects of its holding accept, expressly
or tacitly, the importance of information issues to a competitive analysis
of tying claims. As Microsoft III suggests, courts that do not expressly
invoke Kodak may nonetheless find it necessary to address the impact of
and Fact in Antitrust Doctrine: Summary Judgment Standards, Single-Brand Aftermarkets and the
Clash of Microeconomic Models, Antitrust Bull. 887 (2000); Severin Borenstein et al.,
Antitrust Policy in Aftermarkets, 63 Antitrust L.J. 455 (1995); Gordon B. Spivack & Carolyn
T. Ellis, Kodak: Enlightened Antitrust Analysis and Traditional Tying Law, 62 Antitrust L.J.
203 (1993); Robert H. Lande, Chicago Takes it on the Chin: Imperfect Information Could Play
a Crucial Role in the Post-Kodak World, 62 Antitrust L.J. 193 (1993).
10 Microsoft III, 253 F.3d at 84–95.
11 The Court may have modified Kodak’s teaching on the appropriateness of summary
judgment in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
But Brooke Group did not address information issues or tying law. For one perspective on
the interaction of Brooke Group and Kodak, see Peritz, supra note 9, at 896 n.19 (discussing
how record facts take precedence over economic theory in determining liability).
12 An example is Red Lion Med. Safety, Inc. v. Ohmeda, Inc., 63 F. Supp. 2d 1218 (E.D.
Cal. 1999). For a discussion of this and other cases, see Grimes, Systemic Bias, supra note
4, at 276–77.
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information asymmetries in making careful competitive assessment. This
should surprise no one. Information problems are ubiquitous in real
markets, have long been a part of antitrust analysis, and are central to
assessing a tie-in’s competitive effects.
Echoing Justice Scalia’s dissent in Kodak, some theorists have suggested that the ubiquity of information asymmetries could lead to open
season for antitrust enforcers, encouraging a deluge of frivolous or
inconsequential antitrust claims. For example, an antitrust claim might
be brought to challenge a simple case of price discrimination, often
practiced by sellers that can charge higher prices to less informed buyers.
Leaving aside the Robinson-Patman Act, such conduct has, by itself, never
been considered an antitrust violation, notwithstanding the allocation
distortion and competitive injuries that may ensue. To avoid an onslaught
of such claims, antitrust might cast all information issues outside the
circle of competition analysis. But this solution would run counter to
more than a century of antitrust precedents, both within and outside
the tying law domain, that do consider information issues. A fair observer
would have to conclude that information issues are sometimes considered
and sometimes ignored by antitrust. So where does (and where should)
the doctrinal line lie?
For the lawyer or jurist constrained by the rule of law, the short answer
is to look to legislative mandate and judicial precedent. Although most
information imperfections may not warrant antitrust scrutiny, statute and
precedent can dictate otherwise. Section 3 of the Clayton Act provides an
answer for exclusionary practices. Section 3 proscribes all tie-ins and
exclusive dealing that may substantially reduce competition, whether or
not the cause of competitive injury is rooted in consumer information
asymmetries. So, too, do decades of Supreme Court tying precedents
that either tacitly or expressly account for information issues.13 The
question remains, however, whether the mandates of Congress and the
judiciary produce defensible doctrine. If not, Kodak critics would be
warranted in calling for repeal of Section 3 and the overturning, or the
narrow construction, of past precedent.
The use of tie-ins (as distinguished from benign or beneficial
bundling) involves a forcing that runs counter to informed consumer
demand. The seller’s affirmative, forcing tactic is distinguishable from
a more passive reliance on existing consumer information voids that
may be evident in a simple price discrimination scheme (e.g., a retail
chain that charges higher prices in neighborhoods where education
13
See infra note 75 and accompanying text.
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levels and competition do not preclude this behavior). The border
between actionable and tolerable exploitation will continue to generate
disputes, but statute and precedent provide meaningful guidance.14 In
particular, traditional antitrust claims that the Congress and the courts
have long recognized should be open to full competitive assessment.
Information problems that either exacerbate anticompetitive effects or
provide an efficiency justification for the conduct are, and have long
been, a part of an antitrust analysis of such claims.
The following two parts offer a review and critique of the Microsoft III
opinion and the Hylton and Salinger article. A primary theme running
through these remarks is that it is not possible to separate competitive
effects of tie-ins into two distinct categories—those that are caused by
information problems and those that are not. Because information issues
are an integral part of the competitive assessment of a tie-in, particularly
in high-tech industries involving the sale of complex products, and
because information voids may be used to show either the procompetitive
or the anticompetitive impact of a tie, excising these issues from a
competitive analysis is neither wise nor possible. Information issues do
complicate antitrust analysis, but their omission would lead to sterile
and indefensible results. Courts have developed, and will continue to
develop, short-hand tools that will guide future judges and counselors
in dealing with the competitive effect of information asymmetries.
II. MICROSOFT III AND TY ING
The court of appeals’ en banc opinion in Microsoft III will be an
influential precedent on Sherman Act claims, particularly those arising
in high-technology industries. Among the remarkable features of this
lengthy opinion is its per curiam status (consider how rarely nine members of the Supreme Court find consensus in a lengthy and complex
antitrust case) and the scholarship and craftsmanship evident in its
drafting.15 Here, the focus is on the portion of that opinion that deals
with the government’s claims against Microsoft’s bundling behavior.
14 In disputed areas, courts and decision makers should be guided by the severity and
ubiquity of anticompetitive injury, by the intractability of the information problem, by
the degree to which a seller departs from conventional selling practices to achieve the
exploitation, and by the extent that the seller can attain any countervailing benefits by
reasonable, less-anticompetitive means.
15 One of the seven sitting judges was the Honorable Douglas Ginsburg, who teaches
antitrust law and served as the head of the Justice Department’s Antitrust Division for a
period during the 1980s, circumstances that have encouraged surmise that Judge Ginsburg
had a prominent role in drafting the opinion.
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A. The Rule of Reason Applies to Tying Involving
Platform Software Products
The district court found that Microsoft’s tying of its Web browser
(Internet Explorer, “IE,” the tied product) with the Windows operating
system (the tying product) violated Section 1 of the Sherman Act under
the modified per se rule applicable to tie-ins. The court of appeals
reversed this holding because it concluded that a rule of reason standard
“should govern the legality of tying arrangements involving platform
software products.” 16 The court reasoned that this case offered
the first up-close look at the technological integration of added functionality into software that serves as a platform for third-party applications. There being no close parallel in prior antitrust cases, simplistic
application of per se tying rules carries a serious risk of harm.17
In this aspect of its holding, the Microsoft III court seemed intent on
revisiting the Jefferson Parish debate over the appropriate tying standard.18
If the court favored Justice O’Connor’s concurring opinion (arguing
for a rule of reason standard), it still could not ignore the majority’s
reaffirmation of the modified per se rule and that rule’s subsequent
application in Kodak. The Microsoft III court chose to recognize an exception to the rule, citing Supreme Court cases indicating that per se rules
are adopted only after adequate judicial experience. Each of the cited
cases, however, involved an apparent choice between a full-blown rule
of reason or a naked per se rule.19 This stark choice did not confront
the Microsoft III court because the modified per se rule, which has evolved
gradually from stricter per se treatment, substantially opens the inquiry
for a court assessing the legality of a tying arrangement.
As the per curiam opinion notes, the Supreme Court has instructed
that the modified per se rule governing tie-ins requires the plaintiff to
establish distinct elements: (1) a tying arrangement exists between two
separate products; (2) the “seller has some special ability—usually called
‘market power’—to force a purchaser to do something that he would
not do in a competitive market”; and (3) the tying arrangement forecloses
16
Microsoft III, 253 F.3d at 124.
Id. at 84.
18 In the tying portion of its opinion, the court of appeals cites the O’Connor concurrence
on four occasions. Id. at 88, 94, 94–95, 97.
19 Id. at 90. Of the four Supreme Court cases cited by the court of appeals, none involved
a tie. See Broadcast Music, Inc. v. CBS, 441 U.S. 1, 9 (1979) (horizontal price restraint);
Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 47–59 (1977) (vertical non-price
restraint); United States v. Topco Assoc., 405 U.S. 596, 607–08 (1972) (horizontal nonprice restraint); White Motor Co. v. United States, 372 U.S. 253, 263 (1963) (vertical nonprice restraint).
17
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a substantial volume of commerce.20 The requirement that a plaintiff
demonstrate that the tie exists between two separate products should
allow inquiry into the efficiency of a bundled sale, but the court of
appeals was skeptical. Because the separate-products inquiry would focus
on consumer demand (based on direct evidence of such demand or
industry-wide practices), the court found this inquiry would not permit
a full analysis of the efficiencies of a bundling practice. This was particularly so if Microsoft were a first-mover—the first firm in its industry to
initiate a potentially procompetitive bundling practice.21
There can be genuine difficulty in dealing with a first-mover’s tie-in.
Because the bundling is new, a court cannot be guided by past evidence
of consumer demand for separate products, nor can it be instructed by
the practices of competitors. But the court of appeals had a number of
options for dealing with this problem. Instead of discarding the modified
per se rule because it “may not give newly integrated products a fair
shake,” 22 the court could have acknowledged the prevailing view that
the separate-products test does allow (if not require) inquiry into supplyside as well as demand-side efficiency. Thus, strong evidence of a bundled
offering’s supply-side efficiencies would tend to make that offering more
attractive to consumers. This broader view of the separate-products test
is consistent with the Court’s statement in Jefferson Parish that consumer
demand will define a separate-product market only if “it is efficient” to
offer the product separately.23 The importance of supply side efficiency
in the separate-products test was also acknowledged by the Supreme
Court in Kodak,24 by a number of lower courts,25 and has obtained cur20 Jefferson Parish, 466 U.S. at 12–18. The Microsoft III court breaks down the second
factor into two separate requirements (market power in the tying product and the forced
sale of the bundled product). 253 F.3d at 85.
21 Id. at 88–89.
22 Id. at 89 (emphasis supplied).
23 466 U.S. at 19 (emphasis supplied) (“in this case no tying arrangement can exist
unless there is a sufficient demand for the purchase of anesthesiological services separate
from hospital services to identify a distinct product market in which it is efficient to offer
anesthesiological services separately from hospital services”). Justice Stevens wrote that
the separate-products inquiry focuses on “the character of the demand for the two items,”
but cautioned that the definition of separate products “depends on whether the arrangement may have the type of competitive consequences addressed by the [modified per se]
rule.” Id. at 19–21.
24 In response to a Kodak argument that there was no separate market for parts and
services, the Court, after noting that parts and service had been and still were sold separately,
indicated that “the development of the entire high-technology service industry is evidence
of the efficiency of a separate market for service.” 504 U.S. at 463.
25 Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F. 3d 1147, 1179 (1st Cir. 1994)
(in rejecting a claim of separate product markets, the court noted the lack of evidence
“that it would be efficient for any entity to provide [the asserted tied service] separately
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rency among antitrust commentators.26 Even if a first-mover could not
establish that its bundled sale was a single product, application of the
modified per se rule could be defeated by establishing the quality control
defense available to a new or substantially modified product. The tying
seller could show that, absent the tie, consumers might purchase illsuited tied products that would undermine the performance of the tying
product, damaging the goodwill of the seller.27
Why did the court of appeals abjure a narrow holding consistent with
Jefferson Parish in favor of creating an exception to the modified per se
rule? Perhaps the court favored a broader agenda (to undermine the
modified per se rule)28; perhaps it sought to avoid drawing too sharp a
contrast with its 1998 holding in Microsoft II;29 perhaps it stretched or
compromised to achieve consensus among the seven participating judges;
or perhaps it was merely unaware of the analytical flexibility of the
separate-products test. Ultimately, the court’s motivation is irrelevant. A
more important question is whether this newly minted exception, if it
were accepted by other courts, would measurably change the law. If the
separate-products inquiry under the modified per se rule already allows
a court to examine the efficiencies of a bundled sale, then applying the
rule of reason may not alter outcomes in particular cases in any meaningful way. Still, the exception recognized by the court could do significant
mischief. Parties in tying litigation, unsure of whether the rule of reason
from other components of service.”); Grappone, Inc. v. Subaru of New England, 858
F.2d 792, 799 (1st Cir. 1988) (Breyer, J.) (quoting the Jefferson Parish language requiring
identification of a separate market that is “efficient” and expressing doubt that the plaintiff
could satisfy this requirement in light of the business justifications for the tie).
26 10 Phillip E. Areeda et al., Antitrust Law § 1742, at 192 (1996) (“courts generally
give the plaintiff the threshold burden of proving (1) that some customers actually want
the items separated and (2) that separating them is physically and economically possible”);
Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and its
Practice § 10.5a–5b at 410 (2d ed. 1999) (indicating that a tying seller may establish that
a bundled sale is a single product in a number of ways, including by showing that a new
product must be bundled with a related product in order to ensure the new product’s
proper performance); Lawrence A. Sullivan & Warren S. Grimes, The Law of Antitrust: An Integrated Handbook § 7.2b1 (2000) (suggesting that the demand of
“informed consumers” is most relevant to a separate-products inquiry, that informed
consumers might prefer a bundled package if the seller could provide it “more efficiently
than separate components,” and that, in any event, “no inquiry is complete without
considering the potential impact of the bundling on innovation.”).
27 United States v. Jerrold Elecs. Corp., 187 F. Supp. 545, 556–57 (E.D. Pa. 1960), aff’d
per curiam, 365 U.S. 567 (1961).
28 In their article and in their reply to these comments, Hylton and Salinger strongly
urge the elimination of the modified per se rule. Hylton & Salinger, supra note 2; Keith
N. Hylton & Michael Salinger, Reply to Grimes: Illusory Distinctions and Schisms in Tying Law,
70 Antitrust L.J. 231 (2002) [hereinafter Hylton & Salinger Reply].
29 United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998).
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standard would change outcomes, may spend substantial resources of
their own (and of the court) in litigating which standard should apply.
Moreover, if the modified per se rule (which is sometimes aptly called
a structured rule of reason) adequately addresses the first-mover case,
there is every reason to follow that rule. The modified per se rule provides
structure and focus to the judge’s and the counselor’s tasks, a welcome
result that suggests similar rules might well be adopted to confine the
scope of rule of reason analysis for vertical distribution restraints or
other antitrust claims.
Another remarkable aspect of the appellate court’s holding is the
apparent inconsistency in the treatment of certain Microsoft bundling
conduct under Sections 1 and 2 of the Sherman Act. The court reversed
a judgment in favor of the government’s tie-in claims under Section 1
of the Sherman Act, but, after careful and much more exhaustive analysis,
upheld the judgment that the same conduct constituted unlawful maintenance of a monopoly in violation of the Section 2 of the Sherman
Act.30 The particular tying conduct found to violate Section 2 was: (1)
Microsoft’s refusal to allow computer manufacturers to uninstall IE or
to remove it from the Windows desktop; and (2) Microsoft’s removal of
the IE entry from the Add/Remove Programs utility in Windows 98.31
Can these apparently conflicting results be reconciled?
The court of appeals explained that, in order to establish that these
practices constituted Section 1 violations, the plaintiffs on remand would
have to demonstrate harmful effects in the “tied-product market” that
outweighed any benefits of the tying arrangement.32 A focus on harmful
effects in the tied-product market is a carryover from leverage theory.
This focus finds support in language from Jefferson Parish.33 But an exclusive focus on competitive effects in the tied-product market cannot be
justified as a matter of economic theory. A compelling Chicago critique
30
Microsoft III, 253 F.3d at 50–80.
Id. at 95–96.
32 Id. at 96.
33 For example, Justice Stevens wrote:
Thus, the law draws a distinction between the exploitation of market power by
merely enhancing the price of the tying product, on the one hand, and by
attempting to impose restraints on competition in the market for a tied product,
on the other. When the seller’s power is just used to maximize its return in
the tying product market, where presumably its product enjoys some justifiable
advantage over its competitors, the competitive ideal of the Sherman Act is not
necessarily compromised. But if that power is used to impair competition on the
merits in another market, a potentially inferior product may be insulated from
competitive pressures.
Jefferson Parish, 466 U.S. at 14–15.
31
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of leverage theory has been that a tying seller might transfer market
power from the tying-product market to the tied-product market without
either increasing or decreasing the seller’s overall return. To determine
if a tying arrangement harms competition, a competitive assessment
(under either the modified per se rule or the rule of reason) must
include an overall analysis of competitive effects in both the tying- and
tied-product markets.
The court of appeals had already done such an assessment in determining that the specified tying practices violated Section 2. That assessment,
which the court called “a similar balancing approach” to that applied
in Section 1 cases under the rule of reason,34 focused on competitive
effects in both the operating software and the browser markets. With
respect to browsers, the court of appeals was dealing with a record that
showed only two firms were competing in the sale of browsers and the
court’s own finding (in affirmation of the district court) that Microsoft
had barred its rival from the most “cost efficient” methods of distribution.35 Surely the court of appeals cannot have intended to cast doubt
on the completeness of its own competitive assessment of these tying
practices under Section 2. The competitive analysis would not have been
complete without considering the effect of the bundling practices on
both the tying- and tied-product markets—and the court, in its Section
2 analysis, placed great emphasis on the impact of the Microsoft practices
on its Netscape rival’s efforts to distribute its browser program. Nor does
it seem likely that the court intended to suggest that a tying analysis
under Section 1 would require some greater evidentiary showing than
would be required to establish that the same practice violated Section
2.36 That being the case, it is difficult to see how further litigation on
these two tying practices, even under the rule of reason standard that
the court adopted, could be more than a sterile exercise that repeats
the balancing analysis already conducted.
B. The Court of Appeals’ Empirical Assessment of
Microsoft Bundling Practices
The Microsoft III decision is clad in the rhetoric of a Chicago theorist
skeptical of harmful tie-ins. At times, the court’s allegiance to this view
34
Microsoft III, 253 F.3d at 59.
Id. at 64.
36 Differentiating the burden imposed on a plaintiff based on whether a tying claim is
brought under Section 1 or Section 2 may be defended to the extent that a monopolist’s
conduct may be more likely to have anticompetitive effect. But an economically rational
antitrust must be rooted in analysis of competitive effects. If substantial anticompetitive
effect is demonstrated, tying behavior should be unlawful under either section of the
35
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goes beyond rhetoric, as when the court refuses to apply the modified
per se rule. But in a number of critical respects the court’s careful
empirical analysis of Microsoft’s bundling conduct is consistent with
evolving post-Chicago theories of exclusionary conduct. Thus, for example, in the portion of the court’s Section 2 analysis concluding that
Microsoft deprived Netscape of the most cost-efficient methods of distributing its browser program,37 the court is addressing classic exclusionary
conduct that raises rivals’ costs.38 As described below, the court’s treatment of information issues is also largely consistent with post-Chicago
theory.
In its analysis of the tying claims under Section 1 and Section 2 of
the Sherman Act, the Microsoft III court dealt with information issues
expressly and by implication. In assessing the Microsoft’s tying behavior
under Section 2, the treatment of information issues was in one instance
open and direct. The government had challenged Microsoft’s demand
that computer manufacturers not remove the IE icon from the boot-up
screen. Microsoft responded that manufacturers were free to add a second browser program on the display screen. The court, as did the district
court, discounted Microsoft’s argument because manufacturers had testified to the costs of consumer confusion if the icons of two competing
browsers were included on the screen. The manufacturer, the court
noted, might have to spend additional funds on consumer assistance in
responding to the confusion that the two icons would generate.39 Thus,
the Microsoft demand that a manufacturer not remove the IE icon was
consequential—a manufacturer might resist adding a Netscape icon if
it would raise post-sale service costs.
In another phase of its Section 2 analysis, the court gave weight to
the effects of Microsoft’s bundling practices on computer manufacturers.
Because the practices of computer manufacturers would have substanSherman Act. Requiring a greater showing of anticompetitive effect when a defendant is
not a monopolist would be at odds with the congressional intent behind enactment of
Section 3 of the Clayton Act. See Jefferson Parish, 466 U.S. at 10 (congressional finding
made in enacting Section 3 “is illuminating, and must be respected”).
37 Microsoft III, 253 F.3d at 64.
38 A seminal work that addresses the raising of rival’s costs is Thomas G. Krattenmaker
& Steven C. Salop, Anticompetitive Exclusion: Raising A Rival’s Cost to Achieve Power Over Price,
92 Yale L.J. 209 (1986).
39 Micorosoft III, 253 F.3d at 60–61. One reader of an earlier draft of this paper suggested
that Microsoft was merely trying to thwart computer manufacturers’ efforts to “deceive”
customers into thinking Microsoft’s browser was not present on their machine. This view,
however, is difficult to reconcile with the factual premise accepted by both lower courts:
that the presence of more than one browser icon on the computer screen would increase
consumer confusion and the computer manufacturer’s after-sale service costs. If this
premise is correct, Microsoft’s actions tend to preclude market access for rival browsers.
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tially less impact on competition if computer purchasers had adequate
information, the court appears tacitly to accept the underlying information problems that beset consumers. In a theoretical world of wellfunctioning markets, purchasers of personal computers (PCs) would
have adequate knowledge of both the hardware and the bundled software
that they purchase. If a particular bundled offering were unsatisfactory,
a knowledgeable customer would purchase a rival’s more satisfactory
offering. But this theoretical world does not exist. Both the hardware
and software that are included in the bundled sale are highly sophisticated and complex products. One would expect consumers to exercise
some competitive discipline by shopping for price, features, and quality
reputation. One would not expect, however, that consumers would alter
purchase decisions based upon the identity of the bundled middleware
programs—programs, such as an Internet browser, that rely on operating
system software but themselves provide a platform for additional applications software. Instead, most consumers would likely rely on the manufacturer to supply reliable and workable middleware programs.
Under these conditions, the market may still function competitively
if the manufacturer exercises independent judgment in choosing which
middleware programs to bundle with the computer. Just as a patient
relies on a doctor to provide independent professional advice, the PC
buyer trusts the manufacturer’s reputation to bundle the right mix of
efficient and productive middleware. There will be exceptions, just as
there are in healthcare. A few sophisticated buyers may pick and choose
among computer offerings based on the bundled middleware package.
For the bulk of purchasers, however, the nuances of middleware will be
left unexplored. The consumer will trust the computer manufacturer.
Whether one views the consumer’s relative ignorance in purchasing
a bundled PC product as a market imperfection, or merely as a market
reality, it is a matter of consequence in any antitrust analysis of bundling
practices of industry participants. The Microsoft III court accepted the
key role played by computer manufacturers in maintaining effective
competition in the sale of PCs and bundled software when it affirmed
the district court’s holding that Microsoft had violated Sherman 2 by
precluding manufacturers from removing the icon for Microsoft’s IE
browser. To be sure, the court’s holding was premised on Microsoft’s
monopoly power in the operating software market (Windows), power
that might be exercised even in the absence of consumer information
If the lower courts’ factual premise is incorrect, there is still no evident reason why
computer manufacturers, acting as a proxy for consumers and in a highly competitive
market, should be denied the freedom to choose the identity and number of browser
icons to appear on the boot-up screen.
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voids. But consider whether the court could or would have reached the
same result if the average PC purchaser were actively involved in deciding
which browser program to purchase. Under these conditions, Microsoft’s
monopoly position in operating software could not easily have been
leveraged into the browser market. Entry and market penetration barriers
would have been lower for actual or potential browser rivals, pushing
the court to conclude that Microsoft’s exclusionary conduct was relatively
unthreatening to competition. Instead, as the court of appeals recognized, Microsoft’s bundling conduct deprived Netscape of one of the
most “cost efficient” methods of distributing its browser program.40
In its treatment of Microsoft’s tying conduct under Section 1 of the
Sherman Act, the court of appeals’ approach to the first-mover issue
also reflects recognition of the role of information issues. The first firm
in an industry to bundle a particular combination of products may do
so because the firm possesses information not known or understood
among rivals and buyers of the product. If consumers were already
aware of and anxiously anticipating the potential benefits of the bundled
offering, this fact could establish that the offering was not a bundling
of separate products. It is only when the bundled offering meets with
consumer resistance that the first-mover faces substantial risk of liability
under the modified per se rule. Assume that to preserve the goodwill
of its offering, firm A bundles a primary product and a related product
used with the primary product. Without the bundled sale, consumers
might purchase a rival’s related product that would not perform well.
Of course, if all buyers knew which related products would function well
with the primary good, the bundling would not be necessary. But, as
Bork has said, a bundled sale may be the least expensive way of addressing
the consumer information problem that confronts the seller of a primary
product.41 Bork’s view is consistent with a separate-products inquiry that
allows a full efficiency analysis or with a quality control defense that
allows a tying seller to establish that bundling is an efficient response to
40 253 F.3d at 64 (Microsoft did not bar rivals from all methods of distribution, but “did
bar them from the cost efficient ones”).
As another theorist points out, it is not only the computer manufacturers, but also the
Internet access providers and Internet service providers who are direct consumers of
browser programs for distribution to consumers. John J. Flynn, Standard Oil and Microsoft—Intriguing Parallels or Limping Analogies? Antitrust Bull. 645, 719 (2001) (suggesting
the critical role of Microsoft’s exclusionary practices toward manufacturers, access providers, and service providers).
41 Robert Bork, Antitrust Paradox 380 (1978) (Addressing a tie-in involving supplies
used in a leased manufacturing machine, Bork wrote: “The problem is one of information
and policing. The manufacturer is likely to understand the technical problems of his
machine better than the lessees.”).
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the consumer’s inadequate information.42 The Microsoft III court did not
address the nuances of how a first-mover might establish the efficiency
of its bundled sale. The court did, however, insist on a rule of reason
analysis that presumably would allow a litigant like Microsoft to establish
that its bundled sale was an efficient response to consumer information
problems. Here, again, the court has reached a result consistent with
recognition of the role that consumer information problems play in a
competitive analysis of tie-ins.
Despite the Microsoft III court’s express or tacit acknowledgment of
the relevance of information issues, the court was not consistent in its
approach. At one point, when explaining why the ubiquity of a tying
practice in an industry demonstrates its procompetitive impact, the court
states: “Firms without market power have no incentive to package different pieces of software together unless there are efficiency gains from
doing so.” 43 The statement ignores the real possibility that firms in the
industry have chosen to impose the tie-in to exploit the same or similar
consumer information deficiency. For example, the circumstance that
all automobile manufacturers impose certain contractual ties with respect
to replacement parts can be explained either by the efficiencies inherent
in such a tie or by the consumer’s difficulty in calculating life cycle prices
at the time the automobile is purchased. Faced with an opportunity to
increase profits by taking advantage of the information void, all firms
in an otherwise competitive industry may follow the same bundling
practice. The facts in IBM Corp. v. United States showed tying behavior
by all rivals in the industry in a pattern that is consistent with parallel
exploitative behavior.44 The Microsoft III court should have qualified its
statement to indicate that in the absence of exploitable information asymmetries
or cartel-like behavior, firms lacking market power will have no incentive
to bundle pieces of software unless it is efficient to do so.
A strength of the court of appeals’ decision in Microsoft III is its careful
and methodical treatment of the issues and evidence that underlie the
government’s monopoly maintenance claims. The decision is partial
vindication for those who believe that antitrust has a vital role in hightechnology markets subject to rapid change. To be sure, the court’s
decision to create an exception to the modified per se rule is vulnerable
42
Sullivan & Grimes, supra note 26, § 7.2d4 (describing the quality control defense).
Microsoft III, 253 F.3d at 93. Earlier in the opinion, the court made a another statement
that suggests the same faulty premise: “If competitive firms always bundle the tying and
tied goods, then they are a single product.” Id. at 86.
44 IBM Corp. v. United States, 298 U.S. 131, 140 (1936). See the discussion of this case
in Warren S. Grimes, Antitrust Tie-In Analysis After Kodak: Understanding the Role of Market
Imperfections, 62 Antitrust L.J. 263, 299–300 (1994).
43
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for reasons suggested above. But viewed broadly, Microsoft III validates
an empirical competitive analysis that includes a careful assessment of
information issues. Indeed, the case demonstrates the futility of any
effort to keep information issues out of the competitive assessment of
a tie-in. Under any standard short of per se legality, a seller accused of
unlawful tie-ins will occasionally be put to the test of explaining the
efficiencies that underlie its bundling decision. In many cases, these
efficiencies will be linked to information that the seller possesses that
buyers do not yet possess or could not adequately grasp. Even if the
tying seller has a dominant position in the tying-product market, the
court may still be compelled to address information issues. The court
of appeals directly parsed the parties’ consumer confusion arguments
in concluding that Microsoft’s browser-related conduct constituted an
unlawful maintenance of a monopoly under Sherman Act Section 2.
There is no evident reason why such information arguments should be
relevant in assessing a tying arrangement under Section 2 but not be
relevant in assessing the same conduct under Section 1.
III. HYLTON & SALINGER ON TY ING LAW AND POLICY
The Hylton and Salinger article offers support for, but also strong
criticism of, the Microsoft III court’s treatment of tying arrangements.
The authors argue broadly that tying by product integration provides
efficiency benefits for society and should be prohibited only if the plaintiff has borne a heavy burden of establishing anticompetitive effect.
Hylton and Salinger criticize the modified per se rule because they
believe it likely deters procompetitive bundling practices, particularly
product-integration tying in high-technology industries. Thus, while the
authors might welcome any movement away from the modified per se
rule, they also reject the rule of reason that the Microsoft III court would
substitute in its place. Instead, they favor a standard derived from a 1976
Fifth Circuit opinion requiring that, as a prerequisite for establishing
an unlawful tie, the integration be solely “for the purpose of tying the
products, rather than to achieve some technologically beneficial result.” 45
In operation, Hylton and Salinger suggest that this test “has proved to be
a formidable barrier to plaintiffs.” 46 The authors also favor the standard
suggested in the 1998 Microsoft opinion (Microsoft II): a technological tie-
45 Hylton & Salinger, supra note 2, at 479 (quoting Response of Carolina, Inc. v. Leasco
Response, Inc., 537 F.2d 1307, 1330 (5th Cir. 1976)).
46 Id. at 480.
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in should be deemed lawful if “there is plausible claim that the tie-in
brings some advantage.” 47
Hylton and Salinger have moved the tying debate forward. One measure of progress in bridging the chasm between Kodak critics and Kodak
proponents occurs when theorists on opposite sides reach agreement
on a point formerly in contention. The authors at one point indicate
that the Chicago position on tying is vulnerable because Chicago models
“did not address the situations that at least today seem to be the most likely
ones for intervention” 48—a tying seller with oligopoly (not monopoly)
power, perhaps seeking to extend its power into another oligopolistic
market. This has been a major point of criticism of the Chicago model.49
Hylton and Salinger also offer a theoretical model—“the decision-theoretic approach”—for measuring the error rate of various legal rules
governing tying and determining which rule will maximize social welfare.
Unfortunately, the authors offer only hypothesized data, with no evident
means for empirical verification.50
As a more ambitious effort to establish the soundness of virtual per
se legality for product-integration tie-ins, the Hylton and Salinger article
falls well short of the mark. The rationale supporting their model appears
to rest on three vulnerable propositions: (1) tying is ubiquitous and
almost always procompetitive or benign in its impact; (2) information
exploitation issues of the type raised in Kodak have been and (at this
point their argument is implicit rather than express) should continue
to be ignored by the courts; and (3) product-integration ties are more
likely to be efficiency-enhancing than contractual ties. Each of these
premises is examined below.
A. Are Tie-ins Ubiquitous and Overwhelmingly Benign
or Procompetitive?
Throughout their article, Hylton and Salinger use the term “tying” to
describe any bundled sale of products that might be sold separately.
For the authors, bundling and tying are synonymous. This choice of
terminology can be confusing because the Supreme Court (albeit incon47
Id. at 483 (quoting United States v. Microsoft Corp., 147 F.3d 935, 950 (D.C. Cir. 1998)).
Id. at 488.
49 For one statement of this criticism, see Grimes, Systemic Bias, supra note 4, at 253–61.
50 At one point, after the authors have supplied hypothesized numerical data to apply
their formula, they concede: “there is no reason to believe that these particular assumptions
are realistic . . . .” Hylton & Salinger, supra note 2, at 522.
48
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sistently)51 and many theorists52 have distinguished between bundled or
packaged sales of products, which are almost always procompetitive or
benign, and tied sales, which are a narrower subset of bundled sales far
more likely to be anticompetitive. Examples of harmless or beneficial
bundlings include the sale of a right and a left shoe as a pair, the sale
of a camera with a lens, the sale of a steering wheel with an automobile,
or the sale of a law school education as a bundled package of courses,
seminars, and consultations with professors. These bundled offerings
should not be described as tie-ins.53
At what point does a bundled sale become a tie-in? Here, usage may
differ, but a useful starting point is that a bundled sale does not become
a tie-in unless there is substantial demand for the sale of the bundled
products as separate items and unless the seller is able to force the
bundled sale on an unwilling buyer. These conditions are two out of
the three that the Supreme Court, in Jefferson Parish, recognized for
application of the modified per se rule against tie-ins.54 Thus, the sale
51 In Jefferson Parish, Justice Stevens distinguished between “packaged sales” and tie-ins.
466 U.S. at 12. In Kodak, the Court cited with approval Justice Stevens’s Jefferson Parish
language distinguishing “package sales” from tie-ins. 504 U.S. at 479 n.27. In her concurring
opinion in Jefferson Parish, Justice O’Connor uses the term “tie-in” to describe all bundled
sales. 466 U.S. at 39 (describing the sale of “cars with engines or cameras with lenses” as
tie-ins). The Microsoft III court also appears to use “tying” and “bundling” as synonyms.
253 F.3d at 87 (“But not all ties are bad. Bundling obviously saves distribution and consumer
transaction costs.”).
52 Hovenkamp, supra note 26, § 10.2 (distinguishing between “package sales” and “tieins”); Sullivan & Grimes, supra note 26, § 7.2 at 388 (“tying is a subset of a much larger
group of bundled sales”). Areeda’s usage is not consistent, but volume 10 of his treatise
uses the term “packages” or “bundle” when describing combined sales that are clearly
benign or procompetitive. 10 Areeda et al., supra note 26, §§ 1732e2–e3, at 12–13.
53 In their reply, Hylton and Salinger agree that a bundled sale of right and left shoes
or a bundled sale of an automobile with a steering wheel would not constitute a tie-in.
Hylton & Salinger Reply, supra note 28, at 235, 236. They disagree with the other two
examples. At some length, they urge that the bundle of courses, testing, and pedagogical
services offered in a law school degree program constitutes a tie-in because some students
would prefer to mix and match their own courses and professors from a variety of law
schools. They suggest that under Jefferson Parish, the substantial supply side-efficiencies
underlying a law school’s bundled offerings could not be considered. Id. at 235–236.
The Hylton and Salinger reading of Jefferson Parish is principled, but it has not prevailed.
Shortly after the decision was handed down, Judge Posner expressed concern that Jefferson
Parish might be read to preclude a supply-side efficiency analysis as a part of the separateproducts inquiry. Jack Walters & Sons Corp. v. Morton Building, Inc., 737 F.2d 698, 703–04
(7th Cir. 1984). But the Jefferson Parish Court itself wrote that a separate-product market
responsive to consumer demand can exist only where it is “efficient” to offer the product
separately. 466 U.S. at 19. It is now clear from the Supreme Court’s language in Kodak,
from a number of lower court holdings, and from the views of a number of commentators,
that the separate-products test allows consideration of supply-side efficiencies. See supra
notes 24–26.
54 See supra note 20 and accompanying text.
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of a cold tablet that includes a pain killer, cough suppressant, and
decongestant in combination would be a tie-in if there were substantial
consumer demand for the separate purchase of these medications and
the consumer had no option for obtaining them separately. If the separate medications are available at competitive prices, the combination
cold tablet would not constitute a tie-in.
Hylton’s and Salinger’s choice to depart from this usage would be of
no moment but for their insistence, throughout the article, that tying
is ubiquitous and its prevalence proves that it provides “convenience
and lower costs.” 55 If tying and bundling are synonymous, few would
dispute this conclusion. But the authors next use this as a premise for
arguing that rules of decision that do not strongly favor the tying seller
are likely to deter much beneficial conduct.56 Of course, the Supreme
Court’s modified per se rule governing tying does not apply to the
universe of bundled sales. It applies only to a narrow subset of bundled
sales—tie-ins, understood as forced bundled sales that run against informed
consumer demand for separate products. A very high percentage of such tieins are likely to be anticompetitive.57
Whether the modified per se test, which the authors declare to have
no economic basis,58 serves to eliminate most meritless tying claims will
of course depend on how one construes the separate-products test.
Hylton and Salinger agree with the Microsoft III court that measuring
consumer demand for separate products will not adequately shield many
beneficial or efficient bundled sales from the modified per se rule.59 The
55
Hylton & Salinger, supra note 2, at 471, 486, 498, 500.
For example, Hylton and Salinger attack a rule of reason standard by starting with
the hypothesized figure that only 0.1 percent of all tying occurrences are harmful. Id. at
500. But if ties include only those bundled sales that fail the separate-products test and
are forced on consumers, such ties would rarely be procompetitive or benign. A relatively
rare exception might be a tie that, despite failure to demonstrate sufficient efficiencies
to be considered a single product, qualified for the quality control defense.
57 In their reply, Hylton and Salinger question the importance given to the demand of
informed consumers. Hylton & Salinger Reply, supra note 28, at 241. Tying sellers have
urged that weight be given to informed consumers because they are less susceptible to
information asymmetries and can bring effective competitive discipline to a market. This
was, for example, an argument advanced by Kodak in defense of its tying practice. Kodak,
504 U.S. at 475 (“Kodak contends that these knowledgeable customers will hold down
the package price for all other customers.”). Although the argument has limits, as when
the defendant can impose a tie in a manner that discriminates against less-informed
consumers, it should be considered. Another reason to pay attention to the demand of
informed consumers is that such consumers are more likely to understand and take
advantage of the supply-side efficiencies inherent in a bundling practice. The demand of
informed consumers becomes an avenue for considering strong supply-side efficiencies.
58 Id. at 470–71.
59 Id. at 478.
56
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separate-products test, they conclude, will not allow full inquiry into a
tie-in’s efficiencies. But the prevailing view is that a court can dismiss
tying claims if the bundled offering is efficient.60 Indeed, although there
has been criticism of lower court rulings that dismiss claims of tie-ins
that are likely to have been anticompetitive,61 there is scant evidence
that the modified per se rule is spawning decisions that prohibit beneficial
tie-ins. Hylton and Salinger point to only two post-Jefferson Parish cases
that they find objectionable.62 One of these cases is Microsoft III; the
other is a district court ruling in a private suit against Microsoft.63 In
each case, the authors criticize the legal standard applied by the court
but make no mention of the separate-products analysis.64
Hylton and Salinger do criticize certain of the Supreme Court’s preJefferson Parish holdings. They suggest that the Court, in cases like Interna60
See the sources cited supra note 44.
Grimes, Systemic Bias, supra note 4, at 243–44, 277–78 (describing cases in which courts
may have dismissed legitimate tie-in claims). See also Salop, supra note 9, at 194–201 (listing
commonly occurring “traps” that cause courts to ignore evidence of actual anticompetitive effects).
62 Hylton & Salinger, supra note 2, at 482–84.
63 Caldera, Inc. v. Microsoft Corp., 72 F. Supp. 2d 1295 (D. Utah 1999).
64 In their response to these comments, Hylton and Salinger mention three other cases
in which they claim that strong supply-side efficiencies were present. Hylton & Salinger
Reply, supra note 28, at 238–39. Each is a pre-Jefferson Parish holding and, accordingly, of
limited value as an indicator of current separate-products analysis. In the first of these
cases, Anderson Foreign Motors, Inc. v. New England Toyota Distributor, Inc., 475 F. Supp. 973
(D. Mass. 1979), the court concluded that separate-products analysis did not excuse a
possibly unlawful tie-in involving the distributor’s requirement that dealers accept delivery
of vehicles on the distributor’s truck. The court, however, acknowledged that seller efficiencies and business justifications were relevant to the separate-products inquiry; it was
presumably the result, not the test, that Hylton and Salinger object to. In a second of
these cases, Krehl v. Baskin-Robbins, 664 F.2d 1348 (9th Cir. 1982), the court concluded
that the ice cream and the trademark attached to it were an inseparable product. The
case cannot illustrate a failure to account for seller efficiencies.
In the third case, Siegel v. Chicken Delight, 448 F.2d 43 (9th Cir. 1971), the court held
that the franchisor could not dictate packaging and supply choices to franchisees when
the franchisor could exercise adequate control simply by specifying quality requirements.
Hylton and Salinger say that the requirements imposed by the franchisor might have been
a justifiable metering device. Hylton & Salinger Reply, supra note 28, at 239. But metering
could more efficiently (and without exploiting information deficiencies) be accomplished
in other ways. An obvious choice today (perhaps unavailable to Chicken Delight in 1971)
would be a computerized cash register. Chicken Delight, it turns out, is an excellent example
of a case in which information deficiencies could have exacerbated anticompetitive injury.
In response to the argument that a franchisee agreed to the franchisor’s requirements
when the franchise contract was signed, the court noted that the franchisee signature “is
clouded by the fact that [the franchisee] may well have been unaware of what the cost
would come to in practice.” 448 F.2d 43, 52–53. For discussion of the competitive effects
of requirements tie-ins imposed upon franchisees, see Warren S. Grimes, When Do Franchisors Have Market Power? Antitrust Remedies for Franchisor Opportunism, 65 Antitrust L.J. 105,
142–48 (1996).
61
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tional Salt 65 and Northern Pacific,66 was willing to “fudge the market power
and forcing issues in order to find the defendant’s tie-in unlawful.” 67
There is no question that some of these older cases would not be argued
or decided on the same terms today. But it is far from clear that the
result would be different. A number of Supreme Court decisions that
condemned tying arrangements (IBM Corp. v. United States,68 International
Salt, and Northern Pacific) involved deferred purchase of the tied product,
a circumstance that is likely to enhance the difficulties of life cycle
pricing.69 Indeed, in Northern Pacific, the railroad had imposed a contractual tie of indefinite duration as a part of long-term leases and sales of
railroad property. Two of the ties were imposed by sellers that made
exceptions for large and powerful buyers (IBM and Northern Pacific).70
Even if the ties had some efficiency benefits, the exceptions granted to the
largest and most knowledgeable buyers would undermine the benefits.71
A. Are Information Exploitation Issues Irrelevant
to Tie-in Analysis?
After briefly summarizing Kodak’s holding, Hylton and Salinger find
that the case is not easily reconciled with Jefferson Parish, a case they
65
International Salt Co. v. United States, 332 U.S. 392 (1947).
Northern Pac. Ry. v. United States, 356 U.S. 1 (1958).
67 Hylton & Salinger, supra note 2, at 476.
68 298 U.S. 131 (1936).
69 See discussion of these cases in Grimes, Tie-in Analysis After Kodak, supra note 44,
at 299–302.
70 IBM Corp. v United States, 298 U.S. 131, 134 (1936) (tie not imposed against the
U.S. Government). In Northern Pacific, the railroad did not impose the tie against 390 of
its large customers. F. Jay Cummings & Wayne L. Ruhter, The Northern Pacific Case, 22
J.L. & Econ. 329, 344–45 (1979). Kodak did not impose its tie of spare parts and service
against the most powerful class of buyers—those sufficiently large to service their own
machines. Kodak, 504 U.S. at 476.
71 Hylton and Salinger suggest a possible efficiency for the tying clause in Northern Pacific :
Since railroads have high fixed costs, and need to maximize service in order to
minimize the average cost of rail service, the tie-in in Northern Pacific could
have been designed to facilitate full or nearly full utilization of the railroad’s
infrastructure. This would have benefited the railroad’s consumers by lowering
the price of rail service to them over time.
Hylton & Salinger, supra note 2, at 476 n.33.
Because large buyers were excepted, the welfare effects of the Northern Pacific tie seem
ambiguous, at best. But assuming that the tying clause produced a more efficiently run
railroad, this efficiency rationale, if accepted, could be used to justify cartel activity in any
transportation industry. Many monopolies and cartels are efficient—a circumstance that
has not been deemed sufficient cause for excusing monopoly or cartel violations. In
particular, antitrust law has recognized that monopoly power may stifle innovation, suppress
output, and raise prices—undesirable social results that may vastly outweigh the social
benefits of efficient operation.
Based on their own analysis, two economists concluded that a cartel enhancement effect
66
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deem to offer the most current statement of “classical tying doctrine.” 72
The authors note that a number of lower courts have interpreted Kodak
to apply only if the tying seller changes its marketing policy after a buyer
has purchased the original equipment.73 No assessment is offered of the
correctness of these holdings; no mention is made of decisions that do
apply Kodak; and Kodak is ignored for the remainder of the article.74
The Kodak decision has not been received with the acclamation that
many of its proponents had anticipated or hoped. Still, it is naive to
believe that, by ignoring or distinguishing Kodak, one can dispel the
information issues that are an integral part of competition analysis.
Information issues are central to understanding tying sales that complicate a buyer’s purchase decision. These issues were around well
before Kodak was decided. They would endure even if the decision
were overturned.
On at least six occasions prior to Kodak, the Supreme Court ruled for
the plaintiff in tie-in cases involving deferred purchases of the tied
product,75 a circumstance likely to give rise to consumer information
issues. Hylton and Salinger cite Jefferson Parish as a decision that excluded
information issues deemed irrelevant to tying analysis. Indeed, Justice
Stevens wrote that while information gaps are market imperfections
and “may generate ‘market power’ in some abstract sense, they do not
generate the kind of market power that justifies condemnation of
tying.” 76 But Justice Stevens went on to explain that the two market
is the most likely explanation for the tie in Northern Pacific. Cummings & Ruhter, supra
note 70, at 341–50. For analysis suggesting anticompetitive effects in both International
Salt and Northern Pacific, see Grimes, Tie-in Analysis After Kodak, supra note 44, at 298–302.
72 Hylton & Salinger, supra note 2, at 481.
73 Id. at 482.
74 In Part IV of the article, the authors do mention Kodak once more, offering this
observation: “Even Eastman Kodak serves to some extent as an illustration of the postChicago School’s tenuous influence, since its reach has been severely limited by lower
courts.” Id. at 515. For criticism of lower court holdings that Kodak applies only when
there has been a change in seller marketing policy and for a summary of cases that do
apply Kodak, see Grimes, Systemic Bias, supra note 4, at 276–80.
75 FTC v. Texaco Inc., 393 U.S. 223 (1968) (oil company tied the sale of tires, batteries,
and accessories to award of gas station franchise); Perma Life Mufflers, Inc. v. Int’l Parts
Corp., 392 U.S. 134 (1968) (franchise contract required franchisee to purchase Midas
Muffler parts); Atlantic Ref. Co. v. FTC, 381 U.S. 357 (1965) (oil company tied the sale
of tires, batteries, and accessories to award of gas station franchise); Northern Pac. Ry.
Co. v. United States, 356 U.S. 1 (1958) (railroad tied the sale or lease of railroad lands
to exclusive use of its transport services); International Salt Co. v. United States, 332
U.S. 392 (1947) (lease of salt-injection machinery conditioned on future purchase of
defendant’s salt); IBM Corp. v. United States, 298 U.S. 131 (1936) (lease of tabulating
equipment conditioned on purchase of defendant’s punch cards).
76 Jefferson Parish, 466 U.S. at 28.
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imperfections relied upon by the court of appeals were not relevant
because neither “forces consumers to take anesthesiological services they
would not select in the absence of a tie.” 77 Thus, the Court’s holding
cannot fairly be interpreted as a blanket rejection of the relevance of
information issues, but only as insistence that a “forcing” be demonstrated. This is made clear earlier in the opinion when, addressing the
Sherman Act’s treatment of ties, Justice Stevens wrote that tying may
harm a consumer because “the freedom to select the best bargain in the
second market is impaired by his need to purchase the tying product,
and perhaps by an inability to evaluate the true cost of either product
when they are available only as a package.” 78 In a footnote, Justice Stevens
continued: “Especially where market imperfections exist, purchasers may
not be fully sensitive to the price or quality implications of a tying
arrangement, and hence it may impede competition on the merits.” 79
Whatever one makes of Jefferson Parish’s treatment of information
issues, there is no doubt that information concerns were pivotal eight
years later in Kodak. And they were central to the court of appeals’
analysis in Microsoft III. Without describing or directly applying Kodak
teaching, the court of appeals addressed, either expressly or by implication, many of the information issues surrounding Microsoft’s bundling
of its Windows operating software with the IE browser program.80
Hylton and Salinger do not address the pivotal role that information
issues play in understanding the competitive effects of Microsoft’s conduct (some of those issues may work in Microsoft’s favor). The authors’
survey of post-Chicago literature omits significant work that supports
the critical role of raising rivals’ costs81 or information asymmetries82 in
analyzing tying conduct. Instead, they focus on theorists who, like the
authors, ignore or discount information issues. They critique the work
of Whinston, and Carlton and Waldman, whose models assume that
buyers have adequate information.83 By ignoring the literature that deals
77
Id.
Id. at 15
79 Id. at 15 n.24.
80 See the discussion supra Part I.
81 Krattenmaker & Salop, supra note 38.
82 An example of this literature is Borenstein et al., supra note 9. See also Salop, supra
note 9, defending more broadly the empirical approach endorsed by the Supreme Court
in Kodak.
83 Hylton & Salinger, supra note 2, at 509–13. The authors correctly note that Whinston’s
conclusion that tie-ins can generate anticompetitive effects is limited to a narrow set of
conditions unlikely to be duplicated in most tie-ins. But Whinston’s work is based on a
narrowly defined model. It does not purport to be a broad survey of all potentially
anticompetitive effects of tying and, in particular, does not address information issues
78
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with the information aspects of tying, they bypass the single most salient
feature of many anticompetitive tie-ins.
B. Anticompetitive Risks Are Lower for Product Integration
Than for Contract Ties
A central theme for Hylton and Salinger is that tie-ins achieved by
product integration are less likely to harm competition than tie-ins
effected by contract. The authors state at one point:
[T]here are good reasons to believe that the base-rate probability of
anticompetitive harm is lower for technological integration than for
contractual tying. . . . [T]echnological integration entails sunk costs
that are generally larger than those associated with contractual tying.
The risks are larger for the technological integrator, and the market
is likely to impose relatively severe penalties for mistakes—in comparison to contractual tying.84
Indeed, the stakes are likely to be higher when a seller makes a substantial investment in integrating two formerly separate products. Some of
these costs may be sunk or non-recoverable if the strategy is unsuccessful.
If there are networking efficiencies associated with the tied product, the
stakes (potential benefits and potential losses) may be greater still. A
tie-in implemented through product integration may also be more efficient to enforce. The customer has no choice but to purchase the tied
product, so the seller need not worry about a buyer who “cheats” on the
associated with tie-ins. See Michael D. Whinston, Tying, Foreclosure, and Exclusion, 80 Am.
Econ. Rev. 837 (1990). Carlton is no friend of the Kodak decision and has urged that it
be construed narrowly or overturned. Dennis W. Carlton, A General Analysis of Exclusionary
Conduct and Refusal to Deal—Why Aspen and Kodak Are Misguided, 68 Antitrust L.J.
659 (2000).
If, as Whinston’s recent article indicates, economic theory on tying’s anticompetitive
effects is formative, past contributions cannot be read to support or refute the premise
that most tying is benign or procompetitive. Michael D. Whinston, Exclusivity and Tying
in U.S. v. Microsoft: What We Know, and Don’t Know, 15 J. Econ. Persp. 63, 79 (2001).
84 Hylton & Salinger, supra note 2, at 516–17. In their response to these comments,
Hylton and Salinger state that post-Chicago literature on anticompetitive tying relies on
the mechanism of denying rivals adequate scale. They describe the raising rivals’ costs
literature as dealing with vertical integration. Hylton & Salinger Reply, supra note 28, at
234 n.20.
Denying a rival efficient scale may be one of the ways in which a dominant firm can
raise its rivals’ costs. The seminal work on raising rivals’ costs dealt with a variety of
exclusionary practices, including tie-ins and exclusive dealing. Krattenmaker & Salop,
supra note 38, at 223 (“a sensible antitrust law need not treat as lawful all exclusive dealing
arrangements, tie-ins, vertical mergers, refusals to deal, and boycotts. We present an
antitrust theory that explains how a wide variety of exclusionary restraints can, under fairly
strict conditions, create or enhance market power.”). The Microsoft III court’s holding
that Microsoft’s bundling practices deprived Netscape of the most efficient avenues of
distributing its browser is consistent with this post-Chicago analysis.
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Response to Hylton and Salinger
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contractual tie.85 But alone or collectively, these distinctions between
contractual and product integration ties do not determine overall competitive effect. The distinctions simply show that both the costs and
benefits of a product-integration bundling are likely to be higher.
Higher risks mean only that a seller will consider product integration
if it is confident of a higher or more certain return on its investment.
That return might arise from an efficiency gain but it might also arise
from an anticompetitive market distortion. So higher stakes, by themselves, do not support a policy to impose a more relaxed standard on
product integration ties. Indeed, if product integration is treated more
leniently than contractual tying, a tying seller could be expected to
choose product integration precisely when it has reason to expect an
antitrust challenge to its conduct.86
In addition, the high sunk costs involved in product integration may
make it less likely that a court will force a reversal of the integration
strategy. Consider a judge who is confronted with two unlawful tie-ins.
The first is effected by contract; the second by product integration. It is
relatively simple for a judge to enjoin future use of the contractual tiein. There is probably little sunk investment in such a tie and little concern
about excessive interference with the defendant’s operations. In contrast,
the same judge may be reluctant to order a redesign of an integrated
product. Thus, even if the legal standards for tying by contract or by
product integration were identical, a tying seller may perceive tactical
advantage in proceeding by product integration. Once the integration
is accomplished, momentum favors the tying seller in any litigation that
might ensue.
A judge’s reluctance to interfere with product integration decisions
is well founded. But the risk is that this reluctance will compromise the
integrity of tying law and encourage sellers to prefer product integration
85 Because product integration ties involve the simultaneous sale of the tying and tied
products, one substantial source of a tying seller’s power over under-informed consumers
is eliminated: there is no deferred purchase of the tied product as in cases like Kodak,
Northern Pacific, International Salt, and IBM. There is, however, another major source of
exploitable information asymmetries that is often present in high-tech industries: the
complexity and sophistication of the tying and tied products.
86 This result was predicted by Lessig. See Microsoft III, 87 F. Supp. 2d (No. 98-1233),
Brief of Professor Lawrence Lessig as Amicus Curiae (filed Feb. 1, 2000). Hylton and
Salinger suggest that this criticism “is only valid to the extent that the effect underlying
it is sufficiently important empirically to outweigh other considerations.” Hylton & Salinger,
supra note 2, at 525. Of course, all effects of suspect bundling activity, both anticompetitive
and procompetitive, should be subject to empirical testing. The authors do not offer
empirical evidence that would either vindicate or negate the concern that relaxed tying
standards for product integration would distort product design decisions.
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tying over contractual tying, especially when they believe their conduct
may have anticompetitive consequences. Some courts that have examined product integration tying, including the Microsoft II court, have
signaled more lenient treatment of product integration tying.87 The
Microsoft III court, although imposing a rule of reason test for “platform
software products,” wisely drew no distinction in the legal standard
between contractual and product-integration tying. Nor did the court,
in its analysis of Microsoft’s bundling conduct under Section 2, suggest
that different legal standards for contractual and product-integration
tying should apply in a monopolization claim.
An overall assessment of the competitive effects of high tech, productintegration tying is not complete without a careful examination of the
role of networking efficiencies. A dominant firm is likely in industries
with strong networking efficiencies. As in any industry, superior skill and
foresight can lead to a firm earning a substantial market share. But once
a firm has become the largest in the industry, networking efficiencies
may create a momentum that leads to dominance. This momentum is
directly linked to efficiency—the more people in the network, the more
useful the network. So how is antitrust law to deal with such industries?
The Microsoft III court, citing disagreements in the literature, drew no
definitive conclusions. The court contrasted two views88—one that such
industries deserved heightened antitrust scrutiny89—the other that antitrust should move cautiously because the drive to obtain incumbency in
an industry with networking efficiencies can encourage innovation.90
Assume that Firm M desires to become the incumbent provider of
operating software for personal computers. Networking efficiencies are
87 In Caldera, Inc. v. Microsoft Corp., 72 F. Supp. 2d 1295, 1322–23 (D. Utah 1999), the
court criticized the Microsoft II court’s suggestion that a product integration is lawful as
long as the seller offers a “plausible claim that it brings some advantage.” The Utah
court said:
Certainly a company should be allowed to build a better mousetrap, and the
courts should not deprive a company of the opportunity to do so by hindering
technological innovation. Yet, antitrust law has developed for good reason, and
just as courts have the potential to stifle technological advancements by second
guessing product design, so too can product innovation be stifled if companies
are allowed to dampen competition by unlawfully tying products together and
escape antitrust liability by simply claiming a “plausible” technological
advancement.
88 Microsoft III, 253 F.3d at 49–50.
89 Steven C. Salop & R. Craig Romaine, Preserving Monopoly: Economic Analysis, Legal
Standards, and Microsoft, 7 Geo. Mason L. Rev. 617, 654–55, 663–64 (1999) (heightened
scrutiny of exclusionary conduct in high-tech networked industries is necessary because
such conduct may deter innovation).
90 Ronald A. Cass & Keith N. Hylton, Preserving Competition: Economic Analysis, Legal
Standards and Microsoft, 8 Geo. Mason L. Rev. 1, 36–39 (1999) (antitrust implications of
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a powerful incentive for firm M to create an appealing product that will
become the industry standard. But once dominance has been achieved,
while Firm M still has an incentive to innovate (in order not to lose its
incumbent position to a rival offering), Firm M now has an obvious
and effective avenue for anticompetitive conduct that will maintain its
incumbent position. Consider, for example, how Firm M might integrate
two formerly separate products (thereby raising the costs of rivals to
offer a substitute product); exercise leverage over writers of applications
software not to write, or to write only on less favorable terms, software
for rival operating systems; or exercise leverage over computer hardware
manufacturers not to load rival operating systems into its machines.
The list is not exhaustive, but illustrative of the type of anticompetitive
conduct Firm M might be driven to employ in order to maintain its
dominant position.
Before Firm M became the dominant firm in the industry, heightened
antitrust scrutiny of its conduct would be inappropriate. The pre- dominance firm has no heightened ability to engage in anticompetitive conduct and, at this stage, the potential benefits of innovative change in
product offerings are substantial. However, once dominance has been
achieved, Firm M will have heightened opportunity (and no reduced
incentive) to engage in anticompetitive conduct because of the likely
absence of significant competitive discipline. The most likely conditions
that lead to reduced competitive discipline are: (1) market dominance
(a likely result in networked industries) and (2) exploitable information
asymmetries (possible, for example, when complex and sophisticated
products are being bundled). The traditional analyses employed in tying
cases, then, are very much relevant to the actions of Firm M. If it is
demonstrated that the seller’s conduct is taken when one or both of
these underlying conditions are present, heightened antitrust scrutiny
is warranted.91
IV. SYNTHESIS AND CONCLUSION: MICROSOFT III AS A
PARADIGM FOR POST-SCHISM TY ING LAW
A harmful tie-in, by forcing an informed buyer to purchase an undesired bundled product, complicates the purchasing decision. Excluding
networking are unclear because efficiencies of networks may encourage innovation by
providing a more durable monopoly to innovating winners).
91 Based upon their premise that a great deal of tying conduct is benign or procompetitive, Hylton and Salinger would disagree with heightened antitrust scrutiny for tying
conduct in the context of network efficiencies. But their premise, as previously pointed
out, is vulnerable because the modified per se rule is likely to screen out almost all
beneficial bundling arrangements.
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this intuitively obvious and striking feature of tie-ins from a competitive
analysis leads to a sterile exercise that has little to do with marketplace
realities, is inconsistent with fundamental competition principles, and
dishonors congressional intent underlying Section 3 of the Clayton Act.
It is unclear to what extent Hylton and Salinger genuinely dispute
these propositions.
In their reply to these comments, Hylton and Salinger question
whether the information issues raised in Kodak are appropriate fodder
for antitrust. Market power generated by information asymmetries, they
suggest, would be limited by the seller’s need to protect its reputation and
by the buyer’s ability to seek contractual protection against opportunistic
behavior. 92 These arguments have been thoroughly ventilated in the
literature addressing Kodak.93 Whatever one’s view of the propriety or
impropriety of including information analysis in antitrust cases, I would
think the issue has been long settled in favor of inclusion. Certainly the
treatment of information issues in Microsoft III suggests this. So too do
Hylton and Salinger when they affirm that “informational asymmetries
sometimes play a role in tying” and criticize unnamed Kodak proponents
who might wish to exclude information issues favorable to a tying seller.94
Indeed, if all information problems were ephemeral and easily corrected,
these asymmetries would not be an incentive for either procompetitive
or anticompetitive bundling. Sellers would not need to bundle to protect
the goodwill of their products (because consumers could be easily educated about which ancillary products are appropriate); nor would sellers
have significant incentive to exploit information problems through tieins (because consumers could easily obtain needed information and
sidestep the problem). In fact, many information problems are intractable, a fact evidenced by numerous consumer protection statutes, the state
and federal securities laws, usury laws, and numerous FTC regulations
addressing topics from franchising to funeral homes. It is precisely when
information problems are intractable that their anticompetitive potential
will be greatest. Antitrust has only a small role in addressing these information problems. But it is a well- established role, one confined to traditional claims that threaten exploitation of information asymmetries at
the same time as raising other competitive concerns. Tie-ins are a
prime example.
92
Id. at 243.
See the sources cited supra notes 7 and 9.
94 Hylton & Salinger Reply, supra note 28, at 241–42. If there are theorists who would
favor inclusion of information issues only when it favors the plaintiff to do so, the Hylton
and Salinger criticism is well taken.
93
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The Hylton and Salinger reply carries the argument one step further.
They urge that where information is relevant, “the vast majority of tieins are designed with a procompetitive purpose, to enhance the provision
of information to uninformed customers.” 95 That bundled sales may
serve this procompetitive end is not disputed, but there is no empirical
data base to support or refute their contention about relative frequency.
What we do know is that there are some cases in which a tying seller
uses a tie abusively to exploit information asymmetries96 and some in
which the seller bundles procompetitively, perhaps to overcome goodwill
risks associated with information asymmetries. So the relevant question
is whether antitrust can parse information issues to separate a procompetitive bundling from an anticompetitive tie-in. Microsoft III is testimony
that courts have been and will be able to make these distinctions.
The future of tying law may lie with decisions like Microsoft III. To be
sure, that decision seems a strange model for resolving the role of
information asymmetries in tying analysis. The court of appeals did not
address the Kodak controversy, offered no generalized rules for addressing information issues, and spoke in terms reflecting skepticism about
a tie-in’s potential for competitive harm. Still, Microsoft III is a paradigm
for tying analysis because of what the court did. The opinion set about
in disciplined and scholarly fashion to resolve the issues before it. In
the course of performing this task, the court found it necessary to deal,
either expressly or by implication, with various information issues that
were relevant to a full competitive analysis of Microsoft’s bundling
conduct.
If analysis of information issues is pivotal and unavoidable in Section
1 tying cases, what does this portend for a market power screening test
that some courts and theorists favor? Under this approach, a tying seller
that lacked the requisite market power in the tying-product market would
not be subject to the modified per se rule announced in Jefferson Parish.97
Following this approach, some lower courts have dismissed tie-in claims
because the seller was deemed to have insufficient market share in the
tying product.98 But a rote application of a market power screening test
95
Id. at 241.
See cases cited supra note 75.
97 The use of a market share screening test may have gained impetus when that approach
was adopted in the Justice Department’s 1985 Vertical Restraint Guidelines. U.S. Dep’t
of Justice, Vertical Restraint Guidelines (1985). The Guidelines were withdrawn in 1993.
65 Antitrust & Trade Reg. Rep. (BNA) 250 (1993).
98 Lower courts that have declined to recognize information issues in tie-in claims continue to dismiss the claims because the claimant has failed to demonstrate a high market
share in the tying product. E.g., Queen City Pizza v. Domino’s Pizza, Inc., 124 F.3d 430
96
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is difficult to reconcile with the empiricism of Kodak. Indeed, even Jefferson
Parish, a case that Hylton and Salinger deem to embody classic Supreme
Court tying law, allows room for circumstances in which a seller’s power
is not linked to market share. As Justice Stevens wrote for the Court, the
modified per se rule would not apply unless the “seller has some special
ability—usually called ‘market power’—to force a purchaser to do something that he would not do in a competitive market.” 99 This formulation
suggests that a seller’s power to coerce can be based on circumstances
other than the seller’s market share in the tying-product market.100 The
plaintiff advancing a tie-in claim still would have the burden of showing
that the tying conduct was coercive, but the burden could be met by
showing market power in the tying-product market, information asymmetries that would be exploited by the tie-in, or (as occurred in Microsoft
III) some combination of the two factors.
A strict market share screen could lead to a perverse result in cases
in which the oligopolists in a market adopt the same harmful tie-in. If
the tying seller can coerce a buyer because of a lock-in, the plaintiff
could still sustain a tying claim by asserting a market definition confined
to a single brand, as the Supreme Court allowed in Kodak. But this
approach would not work if there is no lock-in. A strict market share
screen could leave uncovered cases of anticompetitive parallel tie-ins,
no matter how coercive and harmful to the consumer. Such a result
would be inconsistent with text and the intent behind Section 3 of the
Clayton Act.
Ex ante rules of decision, such as a per se rule or a rule of reason,
have long been a part of antitrust jurisprudence. Such rules incorporate
a policy bias, but they are helpful and necessary guides to counselors
and courts confronted with complex competition issues. Still, the rote
application of such rules in disregard of the facts produces perverse
results. During the populist era, Chicago critics rightfully cited the
excesses of mechanical applications that favored plaintiffs. More recently,
post- Chicago critics have taken aim at rote applications that favor defendants. The best protection against perverse results is the Kodak precept
that courts be guided by the facts. Hylton and Salinger suggest that
(3d Cir. 1997); PSI Repair Servs., Inc. v. Honeywell Inc., 104 F.3d 811 (6th Cir. 1997);
Wilson v. Mobil Oil Corp., 984 F. Supp. 450 (E.D. La. 1997).
99 Jefferson Parish, 466 U.S. at 12–18.
100 Other interpretations are possible. Those seeking to read Jefferson Parish more narrowly
might cite the Court’s later refusal to entertain the plaintiff’s market imperfection argument because the defendant had only a 30% market share in the tying product (hospital
service) market. Id. at 28.
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this approach is “casual empiricism,”101 presumably because there is no
authoritative data base used to guide the decision. But the factual analysis
(guided by economic theory) that occurs in cases like Microsoft III is
anything but casual. We do not have, and for the foreseeable future will
not have, authoritative data bases for establishing ex ante rules with the
precision expected of a natural scientist. What we do have is the laboratory of common law experience. The rules that evolve from that laboratory should be guided by economic theory (Chicago’s emphasis) and by
the facts of each case (post-Chicago’s emphasis). Three cheers for that
kind of “casual empiricism.”
101
Hylton & Salinger Reply, supra note 28, at 245.