 So it's so great to see everybody back for a reunion it seems a lot of reunioning not much unioning Just a little daunting for me because anything I say about the case people going to be like I know about that It didn't happen that way And I encourage you to do that as Phil says we want to dialogue So let me immediately give license if I say something in my understanding of the case that you think is simply wrong feel free to say so and then I assume whoever was on the other side will say I'm right and If you have a funny story to tell that would make for a great cocktail party tidbit about a point in the Presentation feel free to share that as well. We're all miked UN style. So it's actually very easy to do So I was reflecting on what would make this the trial of the century Sacco and vanzetti. I'm sorry There we are what made this the The trial of the century and for that it is useful to reflect back a bit on What was it issue in the heat of battle and see how much as we reflect upon it? We're like wow We spent years doing that what I call asbestos litigation traumatic stress disorder or is it? Yeah, wow that was really important and you know that kind of thing my own sense is there's actually a lot of lessons to be learned from this litigation and Some nicely counter-intuitive ones and I wanted to give you my own sense of it as we go along now I should contextualize my own role and things a little bit I'm a little embarrassed at that photo, but that's me as a program manager intern at Microsoft Corporation in the 1990s working on Excel version 3.0 and Those were good times Among my many duties over the summer was designing shrink to fit Very good feature. You may have used it. So I had a little to do with that They actually it came into our office because we got a Beta copy of maybe was even alpha of Lotus 1 2 3 and we were just about to go gold with Excel 3.0 And somebody's like stop the presses. They've got shrink to fit And so we actually hastened and managed to get that feature in And had it released before Lotus did in its own Software at the time we were the underdogs 15% market share to approximately 80% for Lotus 1 2 3 my other job Harkening towards my eventual accession to law school was Lotus v. Borland was going strong at the time Argument over whether you could copyright the menu tree of Lotus 1 2 3 like Slash FS literally slash file save you copyright the words Because it turns out that accountants would not abandon Lotus 1 2 3 even though it was substantially crappier than Excel Because they had learned their slash commands and did not want to unlearn them in any way. That's the real QWERTY kind of story there and So our job was not to get ourselves sued but to still have the accountants able to type slash FS So our idea over lunch Which I then was charged with delivering on was to come up with words that began with the same letters But were different for each command so slash folder stash to save a file instead of file save And you realize with Excel by the time you're like at data table Consolidate pivot table. You're like I got nothing, you know Merriam-Webster not helpful and it all sort of felt a little oogie. So we we actually ended up coming up with The help for Lotus 1 2 3 users feature where you press slash which invokes the help system Then it says what command do you want help with type the letters like FS and then we say oh that's save under the file menu Let us demonstrate and it had three speeds fast faster and blindingly fast and defaulted to the letter So we were actually pointed to approving Lee in a brief as the smoke rose over Lotus versus Borland See Microsoft didn't have to rip off the menu tree Anyway, as you can tell good times at Microsoft also spent a summer interning at DOJ in the civil appellate section And then clerked for Judge Williams who wrote I think two of the three appellate opinions. Oh, yes in the the case so good times all around I think that sort of balances out my conflicts of interest and has also been mentioned worked with Larry Lessig as his law clerk during that very brief time in which he was a special master my only claim to fame there was the press of course was all over this and Wanted to be in on some of these conference calls that you all remember and we were going to do a hearing But does it have to be public and in an amazing and never reproduced by me feet of legal research? It turns out there's exactly on point a piece of federal law Which I was just trying to find and could not find again from 1912 that says Special masters in antitrust suits have to make their proceedings open to the public. It's like well, I guess that kind of sells it okay, so after Larry was no longer involved a special master on the case Because there was a small article three problem with it turns out your case has to be heard by a federal judge instead of by a law professor we decided to make lemonade out of lemons and We did a seminar on the Microsoft case in which we literally would just take in the week's proceedings in the spring of 1998 and Just have a great time with it talk about with the class have guests come in and we created this website Which has endured and which former students ended up continuing to update and I'm very proud of it among our students is one of the great resources in the case so now let me just give you my sense of the case from that vantage point It's somewhat the story Phil told but much much More graphical because it's got pictures to go with it so we all remember these days when screens were convex and DOS was the order of the day and so there's DOS the behemoth that got Microsoft going MS DOS and you'd buy a computer you'd get MS DOS with it And then you'd run some other software in a way you would go so Not many of us although this room is not representative of us In the public would remember that DOS actually had competitors So there was like DR DOS from digital research which got sold to Novel which got sold to Caldera Which became sco and then in league with Microsoft that well, it's another story entirely There'll be a reunion ten years from now about that case. Let me tell you Sco versus IBM, but we digress so DR DOS competitor with DOS and this is like classic Commodity right if you're running Prince of Persia and it works you care not one wit whether it's DR DOS underneath Or MS DOS and DR DOS was designed to basically be unnoticeable underneath indistinguishable from MS DOS This is bad news from Microsoft because if they can't be selling MS DOS to the public and of course They don't sell it to the public out of a lemonade stand They sell it through OEMs original equipment manufacturers You buy your machine so that it doesn't arrive home as a complete doorstop. It already has DOS on it You wouldn't buy the machine unless it had some kind of DOS and that machine has to that manufacturer has to make a deal with Microsoft to get MS DOS and So in the grave competition that went on there Later in some unrelated litigation there were some emails disclosed which Microsoft I think later said we're out of context my own examination says they were pretty much in context Where Bill Gates says things like you never sent me a response on the question of what things an app would do that would Make it run with MS DOS and not run with DR DOS Essentially as there's some way we could make it so that DR DOS breaks a lot of the time in the way We design either MS DOS or our own Microsoft apps that run on top of it Brad Silverberg in another email What the user is supposed to do is feel uncomfortable and when he has bugs suspect that the problem is DR DOS and then go out and buy MS DOS so one way in which they experimented with destroying the beta phase of an early version of Windows was with the famous Aard code now we should just see how many people remember the old Aard code good times Wow even Ed Feltin's like so well So this is why you're setting up your windows on your machine And this is at a time when sometimes you'd run DOS sometimes you'd run Windows Windows was not yet fully eclipsing That's perfect It gives you a non fatal error detected error for D 53 and that's if you have DR DOS underneath you get this error And what is the nature of the error if you actually were to go to a glossary the error is you don't have MS DOS You have DR DOS Now it's like the doctor giving you this news and he's like don't worry. It's non fatal. It's like well. Tell me doc What's the problem? He says no, you're just not using my product. So wanted to tell you about your error This was in a beta that was later taken out after some uproar in the obscure technical circles But then you have other ways trying to figure out how to squeeze out DR DOS because this is serious money at stake and Jim Alchin co-president at the time in 1992 we need to slaughter Novel before they get stronger if we're going to kill someone There isn't much reason to get all worked up about it and angry nor to write an email saying you're planning to do that You just pull the trigger any discussions beforehand or a waste of time. We need to smile at Novel while we pull the trigger So what are the pieces of nostalgia about the anti-trust case is remember when villains looked like the Hamburglar? You know, it's like they have the striped suit and the eye patch and it's like rawr You know those were it's like kind of a simpler day of Cylons and humans kind of thing as these things come to light But of course, it's just a little bit, you know chest thumping. Yeah, this is just business, right? So how did this turn out to work? Well, roughly it tended to work through what Phil just mentioned these per processor licenses and things these OEMs Who need to move hardware to people they're facing the consumers. You're about to buy a new Dell or a new Hyundai electronics ink computer remember the old Hyundai's and It had a passenger seat You would buy it and it would say They they might want to offer you for some substantial amount of money less a version with DR DOS And again, it's like it's six or one half a dozen to the other That's why Microsoft though then says to these companies No, if you are going to buy any MS DOS for us You must buy it for every single machine you ship now if you care not to use it on some of the machines Feel free if you'd like to get a belt and suspenders and get DR DOS for a machine for which you've already paid for MS DOS You know, you're crazy, but go ahead And what would happen would be either you could sign that or there'd be equally unsavory alternatives Much of which might mean you couldn't have MS DOS on any of your machines and there were enough consumers who were still brand conscious Like generic and trade medicines that that was not a good deal for an OEM So this is actually a somewhat effective way of trying to keep DR DOS out and as windows started to ramp up There were basically other agreements that said if you want to be able to offer windows on your machine How about offering it with MS DOS not with some other thing underneath? So that gave rise to the investigation that Phil was talking about and this key element of the consent decree that it produced Basically saying that Microsoft would promise not to enter into license agreements like that Especially one in which you wouldn't say for example that if you want windows You've got to take MS DOS with it at the time that you're bundling up that computer Ready for resale to a computer So sorry to a consumer So that is a key phrase of it and of course it has it's this classic document smithed by attorneys on either side into Oblivion right because you can't condition a licensee of any other covered product operating systems other or other product Well, just say other product right provided. However that it should not be construed to prevent Microsoft from developing integrated products Like what does that mean? Well, I guess it means that if you have MS DOS in a window inside windows And it's not running on top it now DOS is running on top of windows. That's okay Well, who knows but a nice escape hatch from Microsoft that would become significant later As Phil said these parties came to this consent decree came to judge Sporkin known in the trades I believe a sporky for the application of the special Tony act gilded rubber stamp that every every antitrust judge is issued to apply to these things and Sporkin had read this book hard drive and was like Like wow, you know, this is I can't believe some of this stuff And I tried to find the transcript of the hearing in which unbeknownst to both parties Judge Sporkin is all about hard drive and you see both of them like struggling to do this like it's not even damage control They're just shell-shocked at this judge My kind of just wants to have a book club right there in the hearing couldn't get the transcript Unfortunately, though all I could find was the memorandum of the United States America in response to the court's inquiries concerning vaporware there's something especially fitting that vaporware is in quotes because isn't it inherently in quotes and Those were the allegations most out of the book that seemed orthogonal to put it in computer science terms to the issues in the Tony act hearing And that goes up as Phil says it's basically both sides against the judge And you have the DC circuit saying we don't know what put a B in Sporky's bonnet But he's off the case and we're returning it. Yeah, that's when they asked for Sporkin's removal We are returning it to judge Jackson because No, man looks more like a federal judge than Judge Thomas Penfield Jackson and if I may I know it's being recorded But the pipes nobody smells more like a federal judge than Judge Thomas Penfield Jackson with the pipe that he's got in chain It's just a perfect central casting sends you a judge with the gravelly voice and you know I don't know about you but whenever I'm in that guy's presence. I am terrified in a kind of respect sort of way Just amazing so he then takes out the rubber stamp applies it and you know returns back to judge land The most interesting comment by the way I remember him saying about the case because I actually had him as a guest in my internet class a Number of years later a surprise guest right ask students What questions they would ask the judge if he were here and they ended up being like not the most respectful questions in the world Because of course the judge wasn't going to be there, but then the judge was good times. So anyway He did make an observation. He said you know when I was in the Navy You know if I were wherever if you're like the shop on the shop floor and you have a question You go up to the foreman and you say you know I'm trying to figure out how to do this and the foreman tells you what the rule is or what it should be And then you go back and do it he says in the DC circuit We're in the same building right there two floors up and I have a question in this complicated case I can't ask them instead I have to go out on a limb make a decision and then it goes on appeal and there's some you know Big reversal or something couldn't they just have like called or something? I thought it was a very interesting observation about the way our justice system works Anyway, he is reawakened several years later with the rise as Phil said remember Netscape Those were good times remember 16-bit depth. Those were good times as well so Netscape Navigator is out there and There's a sort of conspiracy theory floating around Gary Reback among its proponents saying Netscape's got this new thing called Java and what's the motto of Java write once run Anywhere and if we got all the software developers who are writing for Windows Which is why people buy Windows because all the software is for Windows and that's why you write software for Windows because all the people are Buying Windows so you get the network effect if it turns out you could write just as easily for Java and Java runs on Windows through the delivery vehicle of Netscape and it runs on Macintosh and everything else why Developers will start writing for Java and then consumers won't have to decide on the basis of the amount of software which particular Platform to buy into so this was seen as a crucial threat by some accounts to the huge market share that Windows enjoyed at the time and we saw Microsoft responding in some ways to make sure that internet explorer Which either had no Java or later its own flavor of Java that Scott McNeely of son called What did he say if you put a little poison in a cup of coffee? It's no longer fair to call it a cup of coffee It's poisoned coffee So in his view Microsoft had poisoned coffee Java that broke compatibility Perhaps harking back to the way that MS-DOS was seeking to break compatibility with DR-DOS and you end up with the case And there's film alone on the brief making the charge going after Microsoft on this So how would I summarize this case if I had to using bullet points which I almost never do but why not it's 10 years ago Right, so let's use some bullet points So the first claim which at first seems obvious But I think is as an academic matter especially one we're thinking over is did Microsoft actually have a monopoly? Because if they don't have a monopoly they can be pretty nasty and we just call it you know competition It's only once you become a monopolist that certain restrictions kick in in just how mean you can be so did they have a monopoly and I Don't know about that. Well, what was a monopoly on? Did they have a monopoly on Windows systems? Yeah, but that sounds circular. Did they have a monopoly on operating systems? Well, they had huge market share That's fair, but it wasn't necessarily Secure every time you go out and buy a machine you might be buying a machine that doesn't have their thing on it And it wasn't like Apple was like hard to find you could get it if you wanted it And so what does it mean to say that it's not that it is a monopoly? And the best I could come to because certainly at the time and I think even now I think it is fair to describe it as a monopoly and certainly one of the outcomes of the Complicated thread of litigation was unambiguously in the eyes of the law Microsoft had a monopoly here. Maybe even still does Was that the relevant thing is PC's and PC operating systems by PC? I mean personal computers not necessarily IBM PC style Windows machines And that it does have overwhelming market share and that it is kind of hard to switch you make a certain investment It's not so easy if there are certain pieces or things about the system. You don't like it's a little too expensive It doesn't have the features you want all the lazy aspects that might accrue in a product if a monopolist is the one producing the product You might say it's hard to switch because of the feedback loop and network effects from one us over another But that's worth keeping in mind the other question is all right. You've got the monopoly Did you abuse your power and there are some kind of? garden variety bullying activities that came to light during the discovery and the trial There were a number of sad original equipment Manufacturers the best example of that actually arose from what Phil referred to as the contempt contempt proceeding This entire proceeding at first was a contempt proceeding because the claim was that that consent decree that they finally got in after Sporky got removed had been violated by this new behavior involving a request to OEMs Well, not even a request a demand a licensing demand to OEMs that they must retain Internet Explorer on the machine and on the desktop so that when the user turns it on you've got IE Now can they add Netscape later in my understanding correct me if I'm wrong anybody everyone who knows more about this than I do None of these contracts purported to say you were not allowed to add Netscape on before it left the factory So the OEM could add both if you wanted and remember they were both free but One thing the OEM couldn't do was fail to include IE and that power of the default was thought of as a way of making sure you're Using IE instead of Netscape. Yes, sir There were some allegations at the time that If you installed IE there was no official policy it wasn't in the contract But you might get frowned at in other words there I think you're right at least my recollection is there wasn't Being contractual but and that's a neat point because the overall point might be that if you are an OEM and you are in Microsoft's bad Graces, there's all sorts of ways in which life could be made Difficult and that's one thing that Gary Reeback certainly played to the hilt when he lodged an anonymous brief on behalf of combative but Fearful companies that if their identities were known they would somehow pay dearly For daring to contest yes anybody can correct me if I'm wrong But I believe that around that time one of the issues was not just the installation of Navigator or other browsers because there were other browsers But what icons you could display on the desktop at the time of initial start up and that got to arguments about Microsoft wanting to retain certain consistency and quality in the desktop to know that if somebody is starting the system and the Brand they see up there is Microsoft not Packard Bell that you know when they call in for help They can say click on the second icon to your right that kind of thing the response from the other side Of course was rubbish the OEMs know their customers They want to be able to craft a desktop with all sorts of offers from quicken and AOL and You know how dare Microsoft tell them how that desktop should operate So this all came to a head because we had Judge Jackson make a fairly I think to my recollection early Preliminary decision that going forward as a litigation is sorting everything else out Microsoft needs to not force the OEMs to include IE With the systems if the OEMs don't want to do it that results in this letter from Microsoft to their OEMs About recent court ruling and the letter says the court's order states of Microsoft may not license Windows 95 on the condition that the Licency also license and pre-install any Internet Explorer any Internet browser software including IE 30 or 40 therefore you may pre-install Windows 95 with or without the IE portion of the operating system All right, so far crystal clear. You don't have to do IE then you read down a little more and it says Attachment a has a list of the files that are IE 3.0 under the courts order You may either put in everything as we kind of want you to or you can install everything But Internet 3.0 as defined by these files you may not elect to install only selected portions of those files It's all or nothing Then the next page points out that if you opt for nothing instead of all our tests indicate that the resulting program will not boot and the program will be deficient in other ways and I love this little bit of lawyering here because it was Designed and developed on the assumption that IE 3.0 is an integral part of the system and therefore an integrated product See we're proving it's an integrated product because if you take it out the thing won't boot Well, this is some extraordinary lawyering. I love the letter by the way I apologize if any of this caused any distraction to your business Contact your account manager if you have questions the account manager will say shred the letter forget about it and keep IE on the system And everything will be fine So is it fair to say that the Department of Justice has a litter of kittens when this letter goes out and Demands a million dollars a day fine. This is now the contempt contempt proceeding for Microsoft being so I don't even know what the adjective would be here and Judge Jackson, I think my sense of that hearing was a judge Jackson felt personally Having a stick put in his eye by Microsoft at this point judge Jackson is like you guys are evil and from then on Jackson seemed to have even less patience Just I think that might be Tim Ehrlich in the back So he's already getting his can't comment me and on at that point It was like, you know Microsoft could be as clean as a driven snow after that and you know this still made it so that judge Jackson was not happy which resulted in a Series of rulings that had as Bill said judge Jackson taken off the case. All right, so that's the sad OEMs What's the other part sad Internet service providers? There was some evidence introduced that? Enumerated here in the complaint that basically had it that first back in the day with Windows 95 if you Open it out of the box. You've got Windows 95 and you want to get online How do you get online? Well either you can take one of the discs that AOL dropped on your head from a helicopter as you were walking down the street Remember those days or you can double click on the online services folder Which has it all conveniently there ready to go and you'll get a selection of online services Where is that selection drawn from those ISPs that have chosen to cut a deal with Microsoft? so if you want to deal for some marquee space in that folder come to us that might cost you money or it might come in the form of a Requirement that when you as an online service give your customers a browser to use it had better be IE and not Netscape So yes, sir okay, so You know what happened to the Netscape eventually it got sold for four billion dollars to AOL and You'd ask why did AOL want to pay so much money for a browser that they really didn't feel they could compete with Microsoft and The answer that it said in legal briefing that I was reading said that they were They wanted to make the deal to have space on the desktop for AOL And the only way they could have that deal was if Netscape was an alternative to the internet Explorer and They would have a status quo with Microsoft So There is America online inside the online services folder then as I understand it Microsoft does a brilliant business move They keep the online services folder after all the deals are negotiated It's rolling off the assembly line that but like you know what that is so yesterday the online services folder What we have now is the internet connection wizard and we just do it all over again You guys remember you made that deal to be an online services folder the online services folder is still there But no one uses it anymore. They're all using the internet connection wizard If you'd like a place in the internet connection wizard come talk to us and we'll do the deal all over again some really smart Well in some ways so anyway the case goes on and on and eventually Netscape is saved Well, maybe that's one of the questions. What was the actual take away the upshot of the case? What was it about and to me the essence of it for better or worse was this desktop Was the idea that what the user sees when he or she boots the computer and Looks at it for the first time and what is present front and center there? Greatly determines what the user will do not the quality of the products that they could acquire by logging on or by going To the store and buying it or having a disk dropped on their head But what literally pops out of the box that to me is all the case was at the end of the day about It was not Microsoft building a system that took great strides towards making it so Netscape would not run on the system it was not about Them somehow managing to cut deals with comp USA so you couldn't get Netscape in the store or something It was just about the defaults about what arises on the system now This starts to get me thinking about the future and one of the things I said This is a little counterintuitive was I see in my own thinking about things a transformation over these past ten years of Microsoft from sort of the schoolyard bully. Let's be fair into the good guy and That's what's so unusual to me and to think about that. I think about The Odyssey the magnifox Odyssey game system Right hours of family fun playing the Odyssey game system. That's amazing. You could pack a lunch in this thing as well as eat it and The Odyssey game system was a completely self-contained console It had five games and you turned the dial to which game and guess what every single game came from magnifox If you had another game that you thought was better that you wanted to introduce to compete Game number six with all the other five. You couldn't do it Even if magnifox was the only producer of video games in the world I don't think there's an antitrust case against magnifox for refusing to allow third-party games to run in their console Why not? Why not? It's kind of weird if they bolt it down entirely They then are completely licensed to do whatever they want with it same with a refrigerator, right? I mean, I guess maybe third parties could design parts to work with the refrigerator that replacement But generally no these refrigerator Manufacturer might have a complete market on all the innards and the fact that you can't run third-party apps on your fridge Is not seen as a problem. So now turn to one of my favorite subjects of the day Version one of the Apple iPhone gorgeous object that it is Says you can't run any outside code. It's an Odyssey Steve Jobs doesn't apologize for that. He says we define everything on the phone So don't be surprised that that's how we choose to run our show People that are so eager to write software for the iPhone there is a gray market developer community not hoping to sell the apps but just wanting to code for it for fun and Slipping the apps to iPhone users willing to jailbreak their phones under threat from Apple Apple comes out with a press release It says by the way We can't guarantee that your phone will not be fried If you jailbreak it because it checks in with the mothership all the time So you might have an eye brick if you are not careful Then Steve Jobs sees the light and he says okay, we're gonna release a software development kit for the iPhone Anybody can now write code for the iPhone Not a real Newsweek cover just for the record would have been a very slow news week But how does the iPhone Software ecosystem work if I've invented a cool piece of code Call it Netscape, and you have an iPhone and I want to give it to you. I can't give it to you. That is weird I have to give it to Apple and Then Apple will decide in its own time and on its own counsel whether or not to let you get my program What are the limitations in the iPhone app store? Well? It's hard to say Apple plays a card as close to the best But we have this fuzzy picture of Steve Jobs presenting the store a few months ago, and here they are illegal malicious privacy porn bandwidth hog and Unforeseen can't have any unforeseen apps on the iPhone. What does this mean in practice? well for one thing if you want to sell an iPhone app and You are not in a special relationship with Apple You might have to wait as much as six months just to get approved because there's so many people desperate to write apps for the iPhone It also means that at any time your app might be pulled back here is the marketer's dream The I am rich app sold for the maximum $999.99 out of the iPhone store Apple by the way takes 30 percent off the cost of every piece of software can you imagine if Microsoft back in the day had been like We can take 30 percent of every piece of software like you can buy word perfect. That's fine We'll take 30 percent of word perfect and 100 percent of word is totally up to you whichever you want. That's choice. We would have Conniptions over that but here nope Apple takes its cut and by the way after a few Reports that said their Apple approval mouse has fallen off the treadmill. This is an app that does nothing It just shines a red gem for a thousand dollars thereby proving indeed you are rich Apple kills the app. It's just gone and the journalist reached the guy who wrote the app He's like, I don't know it's gone I think six people around the world bought the app two of whom demanded refunds the other four of whom were rich and Guy's still waiting to see if he gets his 70% off of those four Then we have this app the iPhone tethering app Which allows you to use your all-you-can-use network plan for your 3g iPhone and hook it into your computer So your computer can get free 3g and just download email and stuff and have the phone just basically be a modem Gone taken out of the store with not any clear explanation to the makers of the app Here's the box office app as well gone. We're left speculating Can you imagine if one fine morning Netscape disappeared? There was no way to install Netscape on a Windows operating system because Microsoft had killed it and Netscape was like Yeah, we don't know why we've emailed Microsoft several times some people think it might be a security risk Right, can you imagine what the reaction would be? And so you also have this climate of fear that we alluded to but not just with the OEMs now With anybody wanting to get in that six month line to write an app You better not say anything bad about Apple because you might be screwed. Yes, sir Speaking of Netscape the the child of the Netscape browser firefox is forbidden to be deployed on the iPhone because the iPhone terms of service Forbid interpretive languages from running on the on the platform and JavaScript, which is a key component of the web and of the browser Cannot run on the iPhone. There you go similar example This isn't just the same configuration the iPhone fits the it's an object It has an OS people write software for it that nicely fits the template of the Microsoft case But as we go into the cloud you have the same idea of a platform That people can write software for like the Facebook platform that has all sorts of restrictions Facebook at any time can kill your Facebook app that you've written that millions of people might be liking for any reason whatsoever Here's the superwall application Facebook decided it was too spammy that killed it one fine morning Here's 2.4 million users of superwall and it's like nope on July 6th There are zero users of superwall not only no new installs It's a web 2.0 app kill it for everybody that had asked to install it functionality gone We reserve the right to charge a fee for using the platform or any individual features if we do charge a fee And they can calculate it however they want if we do charge a fee you're totally entitled to walk away It just means that your app will no longer work. You have to disgorge all the information you got Using the app and then you're back at a tabula Raza Again, just think if Microsoft had said to intuit one fine day. Hey, you know this quicken thing seems to be turning out Well, it's been a great three-year run guys. I'd like one million Dollars and you have till Wednesday totally up to you though If you don't want to pay the million dollars just quicken will stop working on all existing machines How would that go over in the DOJ Phil if they tried that and yet here? It's a right reserved to Facebook for which our instinct. I think without the benefit of this comparison our instinct is Whatever it's a Facebook platform. They wrote it. They get to write the rules. They're the rules Yes, sir. I know we're low on time, but go ahead. Well, I don't know anything about The issues involving Facebook or Apple, but one thing you haven't really mentioned which was basic to the Microsoft case Which may or may not be basic to these was that Microsoft's actions? Protected the barrier to entry into operating systems Which was the source of its monopoly power and that's the claim I gather about Java that that was a monopoly maintenance case Designed in part people from having also also the browser correct and the closest I would say in these more latter-day Examples might be the iPhone tethering app They have a certain business model that they want to do or maybe it would be the no fire Fox running On the machine that you are in with it or it might be when Facebook preempts an app That's really popular with its own and that new app. Maybe that's more tying than maintenance I don't know because as we know from the case the boundary between the OS and the app And what counts is tying or just part of the OS is a confusing one something. I know that Ed took up Oh, yes, sorry Karma Their potential difference is and I have not looked in particular at these markets But I'm not sure that the iPhone has monopoly monopoly question. I agree. I agree I jumped right to the bad behavior right the other question But that's why I highlighted the question of how much when we answered the charge from Microsoft that they didn't have a monopoly The arguments we use to answer it Might be powerful here absolutely and that's a critical right that's a critical role And one about what we need to be completely agree Facebook has monopoly on the Facebook platform You got to agree with that of course it's circular the definite right and what what it means to have monopoly power And he's rapidly evolving markets, which was a debate 10 years ago. It continues to be a debate today I think that's absolutely right and at least in my view If you end up with a highly popular platform for which technically there are alternatives Right, we can always move over to Friendster remember Friendster. I'm not so sure I think that when you have the network effects you had with the OS software customer Virtuous circle that kept it going you have the same thing going here It's awfully hard to evacuate your stuff out of Facebook and take it to Schmase book So even if it's only 50% of some market called social networking for that 50% They are captive in a way and the surplus goes to Facebook in a way rather than to the customer That sure sounds like not liquid meaningful competition, but I agree that is an open question Here's just an example of a new Facebook feature. That's just like slide had an app called top friends This was a third-party app slide ran it Facebook was like, that's a good idea So the next day Facebook comes out with top friends And why would you ever add a third-party app to do what Facebook has just replicated and here is An example of Facebook able to be much more refined. It's not just you kill it Do you let it live? But how much do you allow it to live? How much space does it get in the news feed when somebody doesn't action with respect to that program? Facebook gets to control all of that and here is basically saying you are in a long-term relationship with us developers Because if we don't like you we don't think your app is great. It's gonna maybe not get killed but get less visibility. Yes There was a line of cases that came out in the mid 90s following the Kodak case Yeah, that dealt with the ability of OEMs to change their policies in terms of what constituted integration Yeah, and I think it was stated most clearly and I believe it was an 8th Circuit case It was a Honeywell case. So 8th Circuit is a pretty good bet But Honeywell was producing circuit boards that contained some patent and some unpatented components Right and it always required that you bring the repairs to them Right rather than bringing it to a third-party, right and what the court there said was that As long as you never change your policy concerning these things you allow consumers to make life-cycle costs when they first get in Consumers who are so drooling that we know they are governed by what the startup screen says can actually project out Four or five years get their ROI in order and know whether they should do it Well, so if we like to pretend that consumers actually make rational choices and yet the heart of our case against Microsoft was these customers are so Stupid that it is a huge abuse of monopoly power to put IE here and that's gaping a folder there That's correct But part of the case there was also that Microsoft kept changing its policies to make them increasingly restrictive Yeah, whereas everything you've got here for example the Apple case, right jobs could stand up and say hey look He wanted his lesson the fine print we try doing this Well, we tried doing this with the Mac in the 80s and we got our clocks clean But we're gonna do it again here with the iPhone. Yes, and now he's made it less restrictive Yes, I think that's true. I think they have learned their lesson They've got good lawyers who have the lesson of the past ten years So they're writing the most protective language that may even not be in tune yet with the business model I don't think Facebook thinks that it's gonna end up making its money through charging app developers But it wants that option. Maybe it will I don't know It wasn't that long ago that Google thought that the money making potential of Google web search was it was a great Demo for a Google intranet in your own firm that you should buy now and it's like well That was what they thought in 2001 and that's turned out to be very different speaking of Google Google apps same sets of restrictions and requirements for those who build apps using this platform same sets of issues to me as To what counts is integrated in platform and if you keep the platform entirely closed No antitrust problem if you open it a little somehow Treating different people differently can run you into trouble with the idea of the set top box, right? The net neutrality people here in the room I don't think begrudge every decision that a cable box maker in conjunction with a cable provider would make to allocate more bandwidth to Cable TV rather than to internet service. Maybe they offer you no internet service. Sorry. We're not in that business We're in the cable TV business hundred percent goes to our branded gated community content zero percent to the internet No net neutrality problem, but then if they do allow any internet over that wire of theirs We start to yell at them when they discriminate and in my view rightly so But I need to solve this puzzle that if Comcast comes up with something called the internet channel where the internet channel is on your TV They give you a little keyboard It seems like a browser and it goes to Comcast's favored sites and only that If we think of it as just another channel that's a little more useful than like country music be Then it's fine if we think of it as brain damaged internet then we're like rods and network neutrality problem Really interesting set of things there. So what I see for the future Are two possible pads and I don't know which one we're gonna get it may be that the market while still Cavitating will end up punishing those who turn the screws too tightly the apples and the Facebook's in my story And we'll end up with phones like Android that allow completely Microsoft-like models of Generativity of openness to outside innovation with no gatekeeper in the way. That's the Microsoft XP Windows 98 95 message weird again that Microsoft turns out to be on the right side of this the right example and Maybe this will work, but maybe it'll be you turn on your Android phone You load up three apps and it doesn't work anymore and you're like get me Steve Jobs get me the gated community the other is Once you ask for that gated community. This is not just a story about phones Which is too easily analogized to a story about refrigerators or about odyssey video game consoles This is a story about the future of consumer information technology This model might work so well for the app store that will actually see it spread back into iPods and yes the Mac OS and then every other competing OS Now that we have ubiquitous bandwidth and the vendor can be tethered to the thing the platform Why wouldn't we want the vendor to exercise the very quality control that Microsoft in the slightest of ways Claimed they wanted to exercise in the composition of the desktop so 30 years ago Bill Gates was a carefree young poorly dressed smiley nerd being pulled over a traffic stop in Albuquerque and Was able to build an empire in part because this fabric was so generative and because the incumbents didn't even see The value of openness of generativity and Bill did I Wonder just how much that model that he and Steve Jobs and others instantiated into the computing environment that was the subject of all of these cases beginning with the very first one in The early 90s up through the contempt case and the contempt contempt in the new case How much that platform is going to be the one we enjoy tomorrow? My concern is we may have won a battle, but we'll actually lose the war. Thank you very much Phil says we have actually five minutes for questions by my filibuster was ineffective Anybody want to jump in or React yes, I mean isn't one of the big differences the power of the parties who have an interest in keeping the things general I mean The browser war has stayed alive to a large degree because of Google who you know Who wants to make sure that consumers have the choice to pick Google whatever computer they're on It seemed like one of the concerns in the Microsoft case was that the world had gotten a little bit out of whack where there Was nobody with the clout to kind of push back and keep Microsoft honest That was sort of the concern and you see you know or in other cases you see IBM Pushing hard on Linux because they see that as a way yeah to keep Microsoft into check I mean isn't another way to think about it sort of who are the players who have an interest in making sure that the gated Communities don't become yes to authoritarian and and and and do they have enough power to do it? Yes Does anyone to react to that question? I'm happy to take it on to but I want to allow it to be a conversation of I Mean what you what your question made me think of was In the days of the Microsoft case people made a decision what every 18 months every five years about what piece of Hardware to buy and with that they were generally making a decision about what us to get and keep because transferring asses was such a hassle You might be right that in an era of cloud computing and such when everything's happening out there and in software And you've just got essentially a dumb terminal back here Just a browser that switching costs are so much lower that it makes it awfully hard to build a market that can't be contest Contested I think that's a pretty hopeful story But there are other ways there can be barriers other than having to shell out money at Kmart for a new box There's all your data is in Facebook and you can't extract it And you don't want to have eight different you know linked in and or but that's not new right? I mean quickens had your data forever And if you if you want to switch to Microsoft money from quick and then you you know you'll have to retype in Type in the past 12 years of receipts, you know an IRS returns or something but I mean Google has consistently and I think effectively argue that they don't have market power because all Anybody has to do to use a different practice type in a different I think that's certainly true for search And what we are left with on that is the weird claim That no there's a virtuous circle between Advertisers and search that all the advertisers go to Google because that's where the eyeballs are and if you go to a different search Engine there are no ads and so you'll go back to Google right not credible in my view The other claim would be that basically to do good search today because the semantic web never happened To do good search today requires the black hole that only Google has of billions of dollars Sucking up every single decent and half decent PhD to go work for them and the other search engines are like You know it's so hard to get good help these days and to be able to invest in the kinds of Serious AI needed to know the difference between a train timetable and Bomb-making instructions and other search engines just can't afford To do that, but I agree with you for search. It is as easy as typing a different URL And I didn't even in my own mind think of Google as a very sticky brand I think you know if there was some other website that you tried out that your grandma gave you that worked better like fine You would you would do that, but that's search. That's not the kind of ongoing relationship that you have with your Thought I had it with me my iPhone Or with something like Facebook where the data really does a crew. Yeah, I think I have the strongly disagree there And we saw from the release of AOL search records We actually got a glimpse of what people search for and an extremely large percentage of the searchers are for really simple things And it's surprisingly people go to Google and type in my space and then go to the first link Which is my space comm they actually use search engines in many cases back to the default screen the power of that startup screen Yes, but you know what fine let the wolves fight over the pigs So lame that they can you know, it's like that doesn't seem to be future of the internet Style battle even though you're right that Google gets a certain amount of Moe Which is why you see people cutting deals on browsers as to what will the start page be will it be a Google search or a Yahoo? Search kind of thing. Yes, sir The user is the advertiser That it's monopoly to the extent that it's going to have monopoly power once it does this Yahoo deal It's because it will have 90% of the search ads Yeah, and there are many many companies that live and die on whether or not They have access to ad word and ad sense and Google has my for death power Over how it ranks them and how it feels about them and they say it do it all algorithmic Lee But I would be willing to bet that if the Yahoo Google deal goes through a Year from now you're going to hear a lot of the same kind of complaints you once heard about Microsoft From companies that do business with Google not from users because there will be a monopoly power issue That will be very similar and and there will be be hate and you know It's about how companies behave Yeah, when they have monopoly power and I'll say they behave badly in that case You might be right that you know if I'm at the FTC trying to contemplate a merger I'd be skeptical of this on just a standard analysis It actually has nothing to do so much with the internet as just here's a company There's a market a market for sale of ads It's gonna end up with overwhelming market share that's gonna make it lazy and expensive and yeah That might that might well be so yes, why don't we maybe one more and then we'll stop there Sorry, I apologize for mentioning Google as well But my question was ready before I heard everybody else talking about Google. There's something here in the air It's only an apology. It was a redundant question. No, it's not redundant question. It's Your closing statement was somewhat pessimistic about the future possibly Be good returning to the closed model exemplified by the Apple's phone and my question was Was regarding Google's phone platform, which it announced in the spring Android Right that was right so Since that allows anybody. I mean, it's an open. Yeah System so what why do you make such a pessimistic thing at the end? We said there were two routes. This is one of them might work. Yep. I'm with you It might okay, so you're not as pessimistic as I thought correct. Okay. I'm only Troubled It's a great academic word, isn't it? But my worry here is that the model that works so well that this is basically taking up the PC model the Windows model right way back Has shown its age, too That the idea now that you can exploit those who run these systems where you click on the wrong link You're running code that you know kills you just today. I fell victim to this This AOL instant messenger thing because AOL instant messenger is quasi open thanks to the FTC getting involved there and It's called coho. Have you heard of this you get I get an I am from somebody called sublime coho that says hi And I'm like hmm, but you know this is research So I'm like hi and this person says why are you I am in me? I said no you I am to me and they said no you are injured coho What do you want from me and it turns out that there's some man in the middle Sending coho's out to each and then passing the messages back and initiating it for both for the simple purpose of chaos There is no like there's no like at some point Please write us a check and I just marveled at it This turned out to be some systems integrator in Virginia fascinating kind of thing that when you have these open Platforms they're cute, but when the platform is your phone and you're trying to call 911 and you're calling an injured coho instead You're like I'll take the the iPhone so