THE ANTITRUST TYING LAW SCHISM: A CRITIQUE … ANTITRUST TYING LAW SCHISM: A CRITIQUE OFMICROSOFT...

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 isthe relevance of information asymmetries to a tie-in analysis. The courtof appeals’ en banc decision in United States v. Microsoft Corp. (MicosoftIII) 1 did not address the schism, yet that decision has charted a coursethat may describe tying law’s future path out of the abyss. The Hyltonand Salinger recent article on tying law and policy2 suggests a differentpath. The authors are critical of some aspects of Microsoft III, wouldlargely ignore information issues that could demonstrate anticompetitiveeffect, and urge a virtual per se legality for high-technology, product-integration tie-ins. In these comments, I offer a critique of the tying lawaspects of Microsoft III and of the Hylton and Salinger article. I explainwhy Microsoft III is largely true to empiricism and mainstream antitrust’srecognition that information asymmetries can be, and often are, pivotalto 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 shouldexist over antitrust law governing tie-ins. The fundamentals of tie-ins arestraightforward. A tie-in is a particular type of bundled sale that consti-tutes an abuse of seller power. Sellers bundle the sale of products thatmight be sold separately as a business strategy—to make money. If thedecision to bundle is disciplined by competition, the seller’s offeringcannot harm competition goals: either the seller’s bundled offering willbe profitable (if consumers want the bundled offering) or it will be abusiness failure (if consumers reject the offering). In neither case isantitrust 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 forcethe 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 tocircumvent, ignore, or suppress competition. What is the source of thispower? One source can be a seller’s dominant share in the tying productmarket. There is probably a consensus among antitrust theorists that abundled sale that maintains or extends the tying-product market domi-nance is anticompetitive. To be sure, courts and theorists continue tostruggle with important questions about when such a tie-in has occurred.For high-tech markets, networking efficiencies and the bundled sale’simpact on innovation become critical issues.

Chicago theorists have suggested that harmful tie-ins are rare.3 TheChicago critique is vulnerable, in part because its economic models arenot based on the oligopolistic conditions under which many (perhapsmost) challenged tie-ins occur.4 Nonetheless, if the only source of a tyingseller’s power to abuse lay in the seller’s dominant position in the tying-product market, there would be little basis for tying law enforced throughSection 1 of the Sherman Act and Section 3 of the Clayton Act. TheSherman Act’s monopoly provision (Section 2) might provide an ade-quate platform for addressing abusive tying practices.

There is a problem with this approach. It ignores an obvious andsalient characteristic of tying: a harmful tie-in complicates a buyer’schoice. A non-abusive bundling may simplify a buyer’s purchase (bycombining two efficiently bundled products), but a bundled sale thatruns against informed consumer demand (a tie-in) forces buyers to livewith second-best options. Buying choices are complicated and informa-tion voids may undermine the discipline that would channel seller behav-ior in the absence of the tie. A tying seller, even if it lacks dominancein the tying market, can exploit these voids to exercise additional powerover output and prices, perhaps raising the costs of rival firms or invitingthem to engage in a similarly exploitative tying practice. Although recog-nition 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 therare cases where power in the market for the tying product is used to create additionalmarket power in the market for the tied product.”).

4 For a summary and critique of the Chicago view, see Warren S. Grimes, Antitrust andthe Systemic Bias Against Small Business: Kodak, Strategic Conduct, and Leverage Theory, 22 CaseW. Res. L. Rev. 231, 253–61 (2001).

2002] Response to Hylton and Salinger 201

through more than a century of antitrust decisions,5 by far the mostdirect and thorough assessment of information problems in the tyingcontext 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 coreof the current schism over tying policy. Participants in the ongoingdebate can easily be classified based on their view of Kodak. On one sideof the chasm are Kodak skeptics who ignore, disavow, or construe narrowlythe decision. 7 For them, information problems associated with tie-insare inconsequential or not the province of antitrust law. Theorists associ-ated with this position tend to highlight the efficiencies associated withbundled sales. Working from this platform, Kodak critics would imposea heavy burden on plaintiffs seeking to establish an unlawful tie-in. Kodakskeptics also stress the importance of allowing firms with market powerthe freedom to compete and innovate, all of this in the interest ofdynamic change and progress. Hylton and Salinger associate themselvessquarely with this view. There is, the authors believe, substantial risk thatrules that condemn harmful bundling will overreach and deter beneficialbundling, a criticism that they apply to the Supreme Court’s modifiedper se rule governing tie-ins. Tying accomplished through product inte-gration, Hylton and Salinger conclude, is especially likely to be beneficialand should be accorded a wide berth under antitrust law.8

On the other side of the tying policy chasm are those theorists stressingthat information problems play a substantial role in a competitive analysisof 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) (suggestingthat a rule setting the price for after-hours trading of agricultural commodities was respon-sive to information inadequacies that confronted many traders); California Dental Ass’nv. FTC, 526 U.S. 755, 778 (1999) (“The existence of significant challenges to informaldecisionmaking by the customer for professional services suggests that advertising restric-tions arguably protecting patients from misleading or irrelevant advertising call for morethan 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, TheCostly 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: AntitrustPolicy and the Kodak Case, 40 UCLA L. Rev. 1447 (1993); Carl Shapiro, Aftermarkets andConsumer Welfare: Making Sense of Kodak, 63 Antitrust L.J. 483 (1993); George A. Hay, Isthe 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 anticompeti-tive harm is lower for product integration than for contractual tying).

9 Grimes, supra note 4; Steven C. Salop, The First Principles Approach to Antitrust, Kodakand Antitrust at the Millennium, 68 Antitrust L.J. 187 (2000); Rudolph J.R. Peritz, Theory


jurisprudence: a court is guided by economic theory but instructed by thecompetitive realities of the case before it. Rules of decision or economictheory deductively applied cannot force a judge to don blinders obscur-ing these realities. Kodak proponents point out that seller abuses, whetherbuilt upon traditional market power or the exploitation of informationvoids, will distort competition and the efficiency goals that competitionserves. Moreover, Kodak proponents point to circumstances in which atie-in will be used by a powerful seller to raise rivals’ costs, deterringentry and dynamic change. Thus, both sides in the debate invoke thecause of innovation and progress.

Kodak proponents will be strained to find supportive language in Micro-soft III, an opinion that in many ways follows the approach of Kodakskeptics. In Microsoft III, the court refused to apply the modified per serule that the Supreme Court applies to tie-ins and, citing the novelty ofthe issues and the possibility of procompetitive effects, imposed a ruleof reason to measure Microsoft’s software bundling practices.10 Thisapproach 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 thatissued it.11 Moreover, the force and logic underlying Kodak’s empiricismcannot be erased by lower court decisions that distinguish or ignore it.Perhaps in recognition of the underlying strength of this approach, afew courts addressing information issues have expressly followed Kodak.12

But a parallel development may more accurately forecast future develop-ments. The Microsoft III court did not embrace or expressly follow Kodak’sinformation theories, but several aspects of its holding accept, expresslyor tacitly, the importance of information issues to a competitive analysisof tying claims. As Microsoft III suggests, courts that do not expresslyinvoke Kodak may nonetheless find it necessary to address the impact of

and Fact in Antitrust Doctrine: Summary Judgment Standards, Single-Brand Aftermarkets and theClash of Microeconomic Models, Antitrust Bull. 887 (2000); Severin Borenstein et al.,Antitrust Policy in Aftermarkets, 63 Antitrust L.J. 455 (1995); Gordon B. Spivack & CarolynT. 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 Playa 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 onthe interaction of Brooke Group and Kodak, see Peritz, supra note 9, at 896 n.19 (discussinghow 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 note4, at 276–77.


information asymmetries in making careful competitive assessment. Thisshould surprise no one. Information problems are ubiquitous in realmarkets, have long been a part of antitrust analysis, and are central toassessing a tie-in’s competitive effects.

Echoing Justice Scalia’s dissent in Kodak, some theorists have sug-gested that the ubiquity of information asymmetries could lead to openseason for antitrust enforcers, encouraging a deluge of frivolous orinconsequential antitrust claims. For example, an antitrust claim mightbe brought to challenge a simple case of price discrimination, oftenpracticed by sellers that can charge higher prices to less informed buyers.Leaving aside the Robinson-Patman Act, such conduct has, by itself, neverbeen considered an antitrust violation, notwithstanding the allocationdistortion and competitive injuries that may ensue. To avoid an onslaughtof such claims, antitrust might cast all information issues outside thecircle of competition analysis. But this solution would run counter tomore than a century of antitrust precedents, both within and outsidethe tying law domain, that do consider information issues. A fair observerwould have to conclude that information issues are sometimes consideredand 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 answeris to look to legislative mandate and judicial precedent. Although mostinformation imperfections may not warrant antitrust scrutiny, statute andprecedent can dictate otherwise. Section 3 of the Clayton Act provides ananswer for exclusionary practices. Section 3 proscribes all tie-ins andexclusive dealing that may substantially reduce competition, whether ornot the cause of competitive injury is rooted in consumer informationasymmetries. So, too, do decades of Supreme Court tying precedentsthat either tacitly or expressly account for information issues.13 Thequestion remains, however, whether the mandates of Congress and thejudiciary produce defensible doctrine. If not, Kodak critics would bewarranted in calling for repeal of Section 3 and the overturning, or thenarrow construction, of past precedent.

The use of tie-ins (as distinguished from benign or beneficialbundling) involves a forcing that runs counter to informed consumerdemand. The seller’s affirmative, forcing tactic is distinguishable froma more passive reliance on existing consumer information voids thatmay be evident in a simple price discrimination scheme (e.g., a retailchain that charges higher prices in neighborhoods where education

13 See infra note 75 and accompanying text.


levels and competition do not preclude this behavior). The borderbetween actionable and tolerable exploitation will continue to generatedisputes, but statute and precedent provide meaningful guidance.14 Inparticular, traditional antitrust claims that the Congress and the courtshave long recognized should be open to full competitive assessment.Information problems that either exacerbate anticompetitive effects orprovide an efficiency justification for the conduct are, and have longbeen, a part of an antitrust analysis of such claims.

The following two parts offer a review and critique of the Microsoft IIIopinion and the Hylton and Salinger article. A primary theme runningthrough these remarks is that it is not possible to separate competitiveeffects of tie-ins into two distinct categories—those that are caused byinformation problems and those that are not. Because information issuesare an integral part of the competitive assessment of a tie-in, particularlyin high-tech industries involving the sale of complex products, andbecause information voids may be used to show either the procompetitiveor the anticompetitive impact of a tie, excising these issues from acompetitive analysis is neither wise nor possible. Information issues docomplicate antitrust analysis, but their omission would lead to sterileand indefensible results. Courts have developed, and will continue todevelop, short-hand tools that will guide future judges and counselorsin 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 aninfluential precedent on Sherman Act claims, particularly those arisingin high-technology industries. Among the remarkable features of thislengthy opinion is its per curiam status (consider how rarely nine mem-bers of the Supreme Court find consensus in a lengthy and complexantitrust case) and the scholarship and craftsmanship evident in itsdrafting.15 Here, the focus is on the portion of that opinion that dealswith the government’s claims against Microsoft’s bundling behavior.

14 In disputed areas, courts and decision makers should be guided by the severity andubiquity of anticompetitive injury, by the intractability of the information problem, bythe degree to which a seller departs from conventional selling practices to achieve theexploitation, and by the extent that the seller can attain any countervailing benefits byreasonable, less-anticompetitive means.

15 One of the seven sitting judges was the Honorable Douglas Ginsburg, who teachesantitrust law and served as the head of the Justice Department’s Antitrust Division for aperiod during the 1980s, circumstances that have encouraged surmise that Judge Ginsburghad a prominent role in drafting the opinion.


A. The Rule of Reason Applies to Tying InvolvingPlatform Software Products

The district court found that Microsoft’s tying of its Web browser(Internet Explorer, “IE,” the tied product) with the Windows operatingsystem (the tying product) violated Section 1 of the Sherman Act underthe modified per se rule applicable to tie-ins. The court of appealsreversed this holding because it concluded that a rule of reason standard“should govern the legality of tying arrangements involving platformsoftware products.”16 The court reasoned that this case offered

the first up-close look at the technological integration of added func-tionality into software that serves as a platform for third-party applica-tions. There being no close parallel in prior antitrust cases, simplisticapplication of per se tying rules carries a serious risk of harm.17

In this aspect of its holding, the Microsoft III court seemed intent onrevisiting the Jefferson Parish debate over the appropriate tying standard.18

If the court favored Justice O’Connor’s concurring opinion (arguingfor a rule of reason standard), it still could not ignore the majority’sreaffirmation of the modified per se rule and that rule’s subsequentapplication in Kodak. The Microsoft III court chose to recognize an excep-tion to the rule, citing Supreme Court cases indicating that per se rulesare adopted only after adequate judicial experience. Each of the citedcases, however, involved an apparent choice between a full-blown ruleof reason or a naked per se rule.19 This stark choice did not confrontthe Microsoft III court because the modified per se rule, which has evolvedgradually from stricter per se treatment, substantially opens the inquiryfor a court assessing the legality of a tying arrangement.

As the per curiam opinion notes, the Supreme Court has instructedthat the modified per se rule governing tie-ins requires the plaintiff toestablish distinct elements: (1) a tying arrangement exists between twoseparate products; (2) the “seller has some special ability—usually called‘market power’—to force a purchaser to do something that he wouldnot do in a competitive market”; and (3) the tying arrangement forecloses

16 Microsoft III, 253 F.3d at 124.17 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-pricerestraint); United States v. Topco Assoc., 405 U.S. 596, 607–08 (1972) (horizontal non-price restraint); White Motor Co. v. United States, 372 U.S. 253, 263 (1963) (vertical non-price restraint).


a substantial volume of commerce.20 The requirement that a plaintiffdemonstrate that the tie exists between two separate products shouldallow inquiry into the efficiency of a bundled sale, but the court ofappeals was skeptical. Because the separate-products inquiry would focuson consumer demand (based on direct evidence of such demand orindustry-wide practices), the court found this inquiry would not permita full analysis of the efficiencies of a bundling practice. This was particu-larly so if Microsoft were a first-mover—the first firm in its industry toinitiate 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 evidenceof consumer demand for separate products, nor can it be instructed bythe practices of competitors. But the court of appeals had a number ofoptions for dealing with this problem. Instead of discarding the modifiedper se rule because it “may not give newly integrated products a fairshake,”22 the court could have acknowledged the prevailing view thatthe separate-products test does allow (if not require) inquiry into supply-side as well as demand-side efficiency. Thus, strong evidence of a bundledoffering’s supply-side efficiencies would tend to make that offering moreattractive to consumers. This broader view of the separate-products testis consistent with the Court’s statement in Jefferson Parish that consumerdemand will define a separate-product market only if “it is efficient” tooffer the product separately.23 The importance of supply side efficiencyin the separate-products test was also acknowledged by the SupremeCourt in Kodak,24 by a number of lower courts,25 and has obtained cur-

20 Jefferson Parish, 466 U.S. at 12–18. The Microsoft III court breaks down the secondfactor into two separate requirements (market power in the tying product and the forcedsale 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 separatefrom hospital services to identify a distinct product market in which it is efficient to offeranesthesiological services separately from hospital services”). Justice Stevens wrote thatthe 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 arrange-ment 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 andservices, 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 evidenceof 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


rency among antitrust commentators.26 Even if a first-mover could notestablish that its bundled sale was a single product, application of themodified per se rule could be defeated by establishing the quality controldefense available to a new or substantially modified product. The tyingseller could show that, absent the tie, consumers might purchase ill-suited tied products that would undermine the performance of the tyingproduct, damaging the goodwill of the seller.27

Why did the court of appeals abjure a narrow holding consistent withJefferson Parish in favor of creating an exception to the modified per serule? Perhaps the court favored a broader agenda (to undermine themodified per se rule)28; perhaps it sought to avoid drawing too sharp acontrast with its 1998 holding in Microsoft II ;29 perhaps it stretched orcompromised to achieve consensus among the seven participating judges;or perhaps it was merely unaware of the analytical flexibility of theseparate-products test. Ultimately, the court’s motivation is irrelevant. Amore important question is whether this newly minted exception, if itwere accepted by other courts, would measurably change the law. If theseparate-products inquiry under the modified per se rule already allowsa court to examine the efficiencies of a bundled sale, then applying therule of reason may not alter outcomes in particular cases in any meaning-ful way. Still, the exception recognized by the court could do significantmischief. Parties in tying litigation, unsure of whether the rule of reason

from other components of service.”); Grappone, Inc. v. Subaru of New England, 858F.2d 792, 799 (1st Cir. 1988) (Breyer, J.) (quoting the Jefferson Parish language requiringidentification of a separate market that is “efficient” and expressing doubt that the plaintiffcould 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 generallygive the plaintiff the threshold burden of proving (1) that some customers actually wantthe items separated and (2) that separating them is physically and economically possible”);Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and itsPractice § 10.5a–5b at 410 (2d ed. 1999) (indicating that a tying seller may establish thata bundled sale is a single product in a number of ways, including by showing that a newproduct must be bundled with a related product in order to ensure the new product’sproper performance); Lawrence A. Sullivan & Warren S. Grimes, The Law of Anti-trust: An Integrated Handbook § 7.2b1 (2000) (suggesting that the demand of“informed consumers” is most relevant to a separate-products inquiry, that informedconsumers might prefer a bundled package if the seller could provide it “more efficientlythan separate components,” and that, in any event, “no inquiry is complete withoutconsidering 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’dper curiam, 365 U.S. 567 (1961).

28 In their article and in their reply to these comments, Hylton and Salinger stronglyurge the elimination of the modified per se rule. Hylton & Salinger, supra note 2; KeithN. 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).


standard would change outcomes, may spend substantial resources oftheir own (and of the court) in litigating which standard should apply.Moreover, if the modified per se rule (which is sometimes aptly calleda structured rule of reason) adequately addresses the first-mover case,there is every reason to follow that rule. The modified per se rule providesstructure and focus to the judge’s and the counselor’s tasks, a welcomeresult that suggests similar rules might well be adopted to confine thescope of rule of reason analysis for vertical distribution restraints orother antitrust claims.

Another remarkable aspect of the appellate court’s holding is theapparent inconsistency in the treatment of certain Microsoft bundlingconduct under Sections 1 and 2 of the Sherman Act. The court reverseda judgment in favor of the government’s tie-in claims under Section 1of the Sherman Act, but, after careful and much more exhaustive analysis,upheld the judgment that the same conduct constituted unlawful mainte-nance of a monopoly in violation of the Section 2 of the ShermanAct.30 The particular tying conduct found to violate Section 2 was: (1)Microsoft’s refusal to allow computer manufacturers to uninstall IE orto remove it from the Windows desktop; and (2) Microsoft’s removal ofthe 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 thesepractices constituted Section 1 violations, the plaintiffs on remand wouldhave to demonstrate harmful effects in the “tied-product market” thatoutweighed any benefits of the tying arrangement.32 A focus on harmfuleffects in the tied-product market is a carryover from leverage theory.This focus finds support in language from Jefferson Parish.33 But an exclu-sive focus on competitive effects in the tied-product market cannot bejustified as a matter of economic theory. A compelling Chicago critique

30 Microsoft III, 253 F.3d at 50–80.31 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 bymerely enhancing the price of the tying product, on the one hand, and byattempting 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 inthe tying product market, where presumably its product enjoys some justifiableadvantage over its competitors, the competitive ideal of the Sherman Act is notnecessarily compromised. But if that power is used to impair competition on themerits in another market, a potentially inferior product may be insulated fromcompetitive pressures.

Jefferson Parish, 466 U.S. at 14–15.


of leverage theory has been that a tying seller might transfer marketpower from the tying-product market to the tied-product market withouteither increasing or decreasing the seller’s overall return. To determineif a tying arrangement harms competition, a competitive assessment(under either the modified per se rule or the rule of reason) mustinclude an overall analysis of competitive effects in both the tying- andtied-product markets.

The court of appeals had already done such an assessment in determin-ing that the specified tying practices violated Section 2. That assessment,which the court called “a similar balancing approach” to that appliedin Section 1 cases under the rule of reason,34 focused on competitiveeffects in both the operating software and the browser markets. Withrespect to browsers, the court of appeals was dealing with a record thatshowed only two firms were competing in the sale of browsers and thecourt’s own finding (in affirmation of the district court) that Microsofthad barred its rival from the most “cost efficient” methods of distribu-tion.35 Surely the court of appeals cannot have intended to cast doubton the completeness of its own competitive assessment of these tyingpractices under Section 2. The competitive analysis would not have beencomplete without considering the effect of the bundling practices onboth the tying- and tied-product markets—and the court, in its Section2 analysis, placed great emphasis on the impact of the Microsoft practiceson its Netscape rival’s efforts to distribute its browser program. Nor doesit seem likely that the court intended to suggest that a tying analysisunder Section 1 would require some greater evidentiary showing thanwould be required to establish that the same practice violated Section2.36 That being the case, it is difficult to see how further litigation onthese two tying practices, even under the rule of reason standard thatthe court adopted, could be more than a sterile exercise that repeatsthe balancing analysis already conducted.

B. The Court of Appeals’ Empirical Assessment ofMicrosoft Bundling Practices

The Microsoft III decision is clad in the rhetoric of a Chicago theoristskeptical of harmful tie-ins. At times, the court’s allegiance to this view

34 Microsoft III, 253 F.3d at 59.35 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’sconduct may be more likely to have anticompetitive effect. But an economically rationalantitrust must be rooted in analysis of competitive effects. If substantial anticompetitiveeffect is demonstrated, tying behavior should be unlawful under either section of the


goes beyond rhetoric, as when the court refuses to apply the modifiedper se rule. But in a number of critical respects the court’s carefulempirical analysis of Microsoft’s bundling conduct is consistent withevolving post-Chicago theories of exclusionary conduct. Thus, for exam-ple, in the portion of the court’s Section 2 analysis concluding thatMicrosoft deprived Netscape of the most cost-efficient methods of distrib-uting its browser program,37 the court is addressing classic exclusionaryconduct that raises rivals’ costs.38 As described below, the court’s treat-ment of information issues is also largely consistent with post-Chicagotheory.

In its analysis of the tying claims under Section 1 and Section 2 ofthe Sherman Act, the Microsoft III court dealt with information issuesexpressly and by implication. In assessing the Microsoft’s tying behaviorunder Section 2, the treatment of information issues was in one instanceopen and direct. The government had challenged Microsoft’s demandthat computer manufacturers not remove the IE icon from the boot-upscreen. Microsoft responded that manufacturers were free to add a sec-ond browser program on the display screen. The court, as did the districtcourt, discounted Microsoft’s argument because manufacturers had testi-fied to the costs of consumer confusion if the icons of two competingbrowsers were included on the screen. The manufacturer, the courtnoted, might have to spend additional funds on consumer assistance inresponding to the confusion that the two icons would generate.39 Thus,the Microsoft demand that a manufacturer not remove the IE icon wasconsequential—a manufacturer might resist adding a Netscape icon ifit would raise post-sale service costs.

In another phase of its Section 2 analysis, the court gave weight tothe effects of Microsoft’s bundling practices on computer manufacturers.Because the practices of computer manufacturers would have substan-

Sherman Act. Requiring a greater showing of anticompetitive effect when a defendant isnot a monopolist would be at odds with the congressional intent behind enactment ofSection 3 of the Clayton Act. See Jefferson Parish, 466 U.S. at 10 (congressional findingmade 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 suggestedthat 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 increaseconsumer confusion and the computer manufacturer’s after-sale service costs. If thispremise is correct, Microsoft’s actions tend to preclude market access for rival browsers.


tially less impact on competition if computer purchasers had adequateinformation, the court appears tacitly to accept the underlying informa-tion problems that beset consumers. In a theoretical world of well-functioning markets, purchasers of personal computers (PCs) wouldhave adequate knowledge of both the hardware and the bundled softwarethat they purchase. If a particular bundled offering were unsatisfactory,a knowledgeable customer would purchase a rival’s more satisfactoryoffering. But this theoretical world does not exist. Both the hardwareand software that are included in the bundled sale are highly sophisti-cated and complex products. One would expect consumers to exercisesome competitive discipline by shopping for price, features, and qualityreputation. One would not expect, however, that consumers would alterpurchase decisions based upon the identity of the bundled middlewareprograms—programs, such as an Internet browser, that rely on operatingsystem software but themselves provide a platform for additional applica-tions software. Instead, most consumers would likely rely on the manufac-turer to supply reliable and workable middleware programs.

Under these conditions, the market may still function competitivelyif the manufacturer exercises independent judgment in choosing whichmiddleware programs to bundle with the computer. Just as a patientrelies on a doctor to provide independent professional advice, the PCbuyer trusts the manufacturer’s reputation to bundle the right mix ofefficient and productive middleware. There will be exceptions, just asthere are in healthcare. A few sophisticated buyers may pick and chooseamong computer offerings based on the bundled middleware package.For the bulk of purchasers, however, the nuances of middleware will beleft unexplored. The consumer will trust the computer manufacturer.

Whether one views the consumer’s relative ignorance in purchasinga bundled PC product as a market imperfection, or merely as a marketreality, it is a matter of consequence in any antitrust analysis of bundlingpractices of industry participants. The Microsoft III court accepted thekey role played by computer manufacturers in maintaining effectivecompetition in the sale of PCs and bundled software when it affirmedthe district court’s holding that Microsoft had violated Sherman 2 byprecluding manufacturers from removing the icon for Microsoft’s IEbrowser. To be sure, the court’s holding was premised on Microsoft’smonopoly power in the operating software market (Windows), powerthat might be exercised even in the absence of consumer information

If the lower courts’ factual premise is incorrect, there is still no evident reason whycomputer manufacturers, acting as a proxy for consumers and in a highly competitivemarket, should be denied the freedom to choose the identity and number of browsericons to appear on the boot-up screen.


voids. But consider whether the court could or would have reached thesame result if the average PC purchaser were actively involved in decidingwhich browser program to purchase. Under these conditions, Microsoft’smonopoly position in operating software could not easily have beenleveraged into the browser market. Entry and market penetration barrierswould have been lower for actual or potential browser rivals, pushingthe court to conclude that Microsoft’s exclusionary conduct was relativelyunthreatening to competition. Instead, as the court of appeals recog-nized, Microsoft’s bundling conduct deprived Netscape of one of themost “cost efficient” methods of distributing its browser program.40

In its treatment of Microsoft’s tying conduct under Section 1 of theSherman Act, the court of appeals’ approach to the first-mover issuealso reflects recognition of the role of information issues. The first firmin an industry to bundle a particular combination of products may doso because the firm possesses information not known or understoodamong rivals and buyers of the product. If consumers were alreadyaware of and anxiously anticipating the potential benefits of the bundledoffering, this fact could establish that the offering was not a bundlingof separate products. It is only when the bundled offering meets withconsumer resistance that the first-mover faces substantial risk of liabilityunder the modified per se rule. Assume that to preserve the goodwillof its offering, firm A bundles a primary product and a related productused with the primary product. Without the bundled sale, consumersmight purchase a rival’s related product that would not perform well.Of course, if all buyers knew which related products would function wellwith the primary good, the bundling would not be necessary. But, asBork has said, a bundled sale may be the least expensive way of addressingthe consumer information problem that confronts the seller of a primaryproduct.41 Bork’s view is consistent with a separate-products inquiry thatallows a full efficiency analysis or with a quality control defense thatallows 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 “didbar them from the cost efficient ones”).

As another theorist points out, it is not only the computer manufacturers, but also theInternet access providers and Internet service providers who are direct consumers ofbrowser programs for distribution to consumers. John J. Flynn, Standard Oil and Micro-soft—Intriguing Parallels or Limping Analogies? Antitrust Bull. 645, 719 (2001) (suggestingthe critical role of Microsoft’s exclusionary practices toward manufacturers, access provid-ers, and service providers).

41 Robert Bork, Antitrust Paradox 380 (1978) (Addressing a tie-in involving suppliesused in a leased manufacturing machine, Bork wrote: “The problem is one of informationand policing. The manufacturer is likely to understand the technical problems of hismachine better than the lessees.”).


the consumer’s inadequate information.42 The Microsoft III court did notaddress the nuances of how a first-mover might establish the efficiencyof its bundled sale. The court did, however, insist on a rule of reasonanalysis that presumably would allow a litigant like Microsoft to establishthat its bundled sale was an efficient response to consumer informationproblems. Here, again, the court has reached a result consistent withrecognition of the role that consumer information problems play in acompetitive analysis of tie-ins.

Despite the Microsoft III court’s express or tacit acknowledgment ofthe relevance of information issues, the court was not consistent in itsapproach. At one point, when explaining why the ubiquity of a tyingpractice in an industry demonstrates its procompetitive impact, the courtstates: “Firms without market power have no incentive to package differ-ent pieces of software together unless there are efficiency gains fromdoing so.”43 The statement ignores the real possibility that firms in theindustry have chosen to impose the tie-in to exploit the same or similarconsumer information deficiency. For example, the circumstance thatall automobile manufacturers impose certain contractual ties with respectto replacement parts can be explained either by the efficiencies inherentin such a tie or by the consumer’s difficulty in calculating life cycle pricesat the time the automobile is purchased. Faced with an opportunity toincrease profits by taking advantage of the information void, all firmsin an otherwise competitive industry may follow the same bundlingpractice. The facts in IBM Corp. v. United States showed tying behaviorby all rivals in the industry in a pattern that is consistent with parallelexploitative behavior.44 The Microsoft III court should have qualified itsstatement to indicate that in the absence of exploitable information asymmetriesor cartel-like behavior, firms lacking market power will have no incentiveto bundle pieces of software unless it is efficient to do so.

A strength of the court of appeals’ decision in Microsoft III is its carefuland methodical treatment of the issues and evidence that underlie thegovernment’s monopoly maintenance claims. The decision is partialvindication for those who believe that antitrust has a vital role in high-technology markets subject to rapid change. To be sure, the court’sdecision 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).43 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 andtied 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 casein Warren S. Grimes, Antitrust Tie-In Analysis After Kodak: Understanding the Role of MarketImperfections, 62 Antitrust L.J. 263, 299–300 (1994).


for reasons suggested above. But viewed broadly, Microsoft III validatesan empirical competitive analysis that includes a careful assessment ofinformation issues. Indeed, the case demonstrates the futility of anyeffort to keep information issues out of the competitive assessment ofa tie-in. Under any standard short of per se legality, a seller accused ofunlawful tie-ins will occasionally be put to the test of explaining theefficiencies that underlie its bundling decision. In many cases, theseefficiencies will be linked to information that the seller possesses thatbuyers do not yet possess or could not adequately grasp. Even if thetying seller has a dominant position in the tying-product market, thecourt may still be compelled to address information issues. The courtof appeals directly parsed the parties’ consumer confusion argumentsin concluding that Microsoft’s browser-related conduct constituted anunlawful maintenance of a monopoly under Sherman Act Section 2.There is no evident reason why such information arguments should berelevant in assessing a tying arrangement under Section 2 but not berelevant 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 strongcriticism of, the Microsoft III court’s treatment of tying arrangements.The authors argue broadly that tying by product integration providesefficiency benefits for society and should be prohibited only if the plain-tiff has borne a heavy burden of establishing anticompetitive effect.Hylton and Salinger criticize the modified per se rule because theybelieve it likely deters procompetitive bundling practices, particularlyproduct-integration tying in high-technology industries. Thus, while theauthors might welcome any movement away from the modified per serule, they also reject the rule of reason that the Microsoft III court wouldsubstitute in its place. Instead, they favor a standard derived from a 1976Fifth Circuit opinion requiring that, as a prerequisite for establishingan unlawful tie, the integration be solely “for the purpose of tying theproducts, rather than to achieve some technologically beneficial result.”45

In operation, Hylton and Salinger suggest that this test “has proved to bea formidable barrier to plaintiffs.”46 The authors also favor the standardsuggested in the 1998 Microsoft opinion (Microsoft II): a technological tie-

45 Hylton & Salinger, supra note 2, at 479 (quoting Response of Carolina, Inc. v. LeascoResponse, Inc., 537 F.2d 1307, 1330 (5th Cir. 1976)).

46 Id. at 480.


in should be deemed lawful if “there is plausible claim that the tie-inbrings some advantage.”47

Hylton and Salinger have moved the tying debate forward. One mea-sure of progress in bridging the chasm between Kodak critics and Kodakproponents occurs when theorists on opposite sides reach agreementon a point formerly in contention. The authors at one point indicatethat the Chicago position on tying is vulnerable because Chicago models“did not address the situations that at least today seem to be the most likelyones for intervention”48—a tying seller with oligopoly (not monopoly)power, perhaps seeking to extend its power into another oligopolisticmarket. This has been a major point of criticism of the Chicago model.49

Hylton and Salinger also offer a theoretical model—“the decision-theo-retic approach”—for measuring the error rate of various legal rulesgoverning tying and determining which rule will maximize social welfare.Unfortunately, the authors offer only hypothesized data, with no evidentmeans for empirical verification.50

As a more ambitious effort to establish the soundness of virtual perse legality for product-integration tie-ins, the Hylton and Salinger articlefalls well short of the mark. The rationale supporting their model appearsto rest on three vulnerable propositions: (1) tying is ubiquitous andalmost always procompetitive or benign in its impact; (2) informationexploitation issues of the type raised in Kodak have been and (at thispoint their argument is implicit rather than express) should continueto be ignored by the courts; and (3) product-integration ties are morelikely to be efficiency-enhancing than contractual ties. Each of thesepremises is examined below.

A. Are Tie-ins Ubiquitous and Overwhelmingly Benignor Procompetitive?

Throughout their article, Hylton and Salinger use the term “tying” todescribe any bundled sale of products that might be sold separately.For the authors, bundling and tying are synonymous. This choice ofterminology can be confusing because the Supreme Court (albeit incon-

47 Id. at 483 (quoting United States v. Microsoft Corp., 147 F.3d 935, 950 (D.C. Cir. 1998)).48 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 assumptionsare realistic . . . .” Hylton & Salinger, supra note 2, at 522.


sistently)51 and many theorists52 have distinguished between bundled orpackaged sales of products, which are almost always procompetitive orbenign, and tied sales, which are a narrower subset of bundled sales farmore likely to be anticompetitive. Examples of harmless or beneficialbundlings include the sale of a right and a left shoe as a pair, the saleof 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 offeringsshould not be described as tie-ins.53

At what point does a bundled sale become a tie-in? Here, usage maydiffer, but a useful starting point is that a bundled sale does not becomea tie-in unless there is substantial demand for the sale of the bundledproducts as separate items and unless the seller is able to force thebundled sale on an unwilling buyer. These conditions are two out ofthe three that the Supreme Court, in Jefferson Parish, recognized forapplication 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 Parishlanguage distinguishing “package sales” from tie-ins. 504 U.S. at 479 n.27. In her concurringopinion in Jefferson Parish, Justice O’Connor uses the term “tie-in” to describe all bundledsales. 466 U.S. at 39 (describing the sale of “cars with engines or cameras with lenses” astie-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 consumertransaction costs.”).

52 Hovenkamp, supra note 26, § 10.2 (distinguishing between “package sales” and “tie-ins”); Sullivan & Grimes, supra note 26, § 7.2 at 388 (“tying is a subset of a much largergroup of bundled sales”). Areeda’s usage is not consistent, but volume 10 of his treatiseuses the term “packages” or “bundle” when describing combined sales that are clearlybenign 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 shoesor 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 twoexamples. At some length, they urge that the bundle of courses, testing, and pedagogicalservices offered in a law school degree program constitutes a tie-in because some studentswould prefer to mix and match their own courses and professors from a variety of lawschools. They suggest that under Jefferson Parish, the substantial supply side-efficienciesunderlying 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 JeffersonParish might be read to preclude a supply-side efficiency analysis as a part of the separate-products 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 marketresponsive to consumer demand can exist only where it is “efficient” to offer the productseparately. 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 supranotes 24–26.

54 See supra note 20 and accompanying text.


of a cold tablet that includes a pain killer, cough suppressant, anddecongestant in combination would be a tie-in if there were substantialconsumer demand for the separate purchase of these medications andthe consumer had no option for obtaining them separately. If the sepa-rate medications are available at competitive prices, the combinationcold tablet would not constitute a tie-in.

Hylton’s and Salinger’s choice to depart from this usage would be ofno moment but for their insistence, throughout the article, that tyingis ubiquitous and its prevalence proves that it provides “convenienceand lower costs.”55 If tying and bundling are synonymous, few woulddispute this conclusion. But the authors next use this as a premise forarguing that rules of decision that do not strongly favor the tying sellerare likely to deter much beneficial conduct.56 Of course, the SupremeCourt’s modified per se rule governing tying does not apply to theuniverse of bundled sales. It applies only to a narrow subset of bundledsales—tie-ins, understood as forced bundled sales that run against informedconsumer demand for separate products. A very high percentage of such tie-ins are likely to be anticompetitive.57

Whether the modified per se test, which the authors declare to haveno economic basis,58 serves to eliminate most meritless tying claims willof course depend on how one construes the separate-products test.Hylton and Salinger agree with the Microsoft III court that measuringconsumer demand for separate products will not adequately shield manybeneficial or efficient bundled sales from the modified per se rule.59 The

55 Hylton & Salinger, supra note 2, at 471, 486, 498, 500.56 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. at500. But if ties include only those bundled sales that fail the separate-products test andare forced on consumers, such ties would rarely be procompetitive or benign. A relativelyrare exception might be a tie that, despite failure to demonstrate sufficient efficienciesto 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 ofinformed consumers. Hylton & Salinger Reply, supra note 28, at 241. Tying sellers haveurged that weight be given to informed consumers because they are less susceptible toinformation asymmetries and can bring effective competitive discipline to a market. Thiswas, 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 downthe package price for all other customers.”). Although the argument has limits, as whenthe defendant can impose a tie in a manner that discriminates against less-informedconsumers, it should be considered. Another reason to pay attention to the demand ofinformed consumers is that such consumers are more likely to understand and takeadvantage of the supply-side efficiencies inherent in a bundling practice. The demand ofinformed consumers becomes an avenue for considering strong supply-side efficiencies.

58 Id. at 470–71.59 Id. at 478.


separate-products test, they conclude, will not allow full inquiry into atie-in’s efficiencies. But the prevailing view is that a court can dismisstying claims if the bundled offering is efficient.60 Indeed, although therehas been criticism of lower court rulings that dismiss claims of tie-insthat are likely to have been anticompetitive,61 there is scant evidencethat the modified per se rule is spawning decisions that prohibit beneficialtie-ins. Hylton and Salinger point to only two post-Jefferson Parish casesthat they find objectionable.62 One of these cases is Microsoft III; theother is a district court ruling in a private suit against Microsoft.63 Ineach case, the authors criticize the legal standard applied by the courtbut make no mention of the separate-products analysis.64

Hylton and Salinger do criticize certain of the Supreme Court’s pre-Jefferson Parish holdings. They suggest that the Court, in cases like Interna-

60 See the sources cited supra note 44.61 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 (listingcommonly occurring “traps” that cause courts to ignore evidence of actual anticompeti-tive 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 & SalingerReply, supra note 28, at 238–39. Each is a pre-Jefferson Parish holding and, accordingly, oflimited value as an indicator of current separate-products analysis. In the first of thesecases, 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 apossibly unlawful tie-in involving the distributor’s requirement that dealers accept deliveryof vehicles on the distributor’s truck. The court, however, acknowledged that seller effi-ciencies and business justifications were relevant to the separate-products inquiry; it waspresumably the result, not the test, that Hylton and Salinger object to. In a second ofthese cases, Krehl v. Baskin-Robbins, 664 F.2d 1348 (9th Cir. 1982), the court concludedthat the ice cream and the trademark attached to it were an inseparable product. Thecase 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 heldthat the franchisor could not dictate packaging and supply choices to franchisees whenthe franchisor could exercise adequate control simply by specifying quality requirements.Hylton and Salinger say that the requirements imposed by the franchisor might have beena justifiable metering device. Hylton & Salinger Reply, supra note 28, at 239. But meteringcould more efficiently (and without exploiting information deficiencies) be accomplishedin 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 exampleof a case in which information deficiencies could have exacerbated anticompetitive injury.In response to the argument that a franchisee agreed to the franchisor’s requirementswhen the franchise contract was signed, the court noted that the franchisee signature “isclouded by the fact that [the franchisee] may well have been unaware of what the costwould come to in practice.” 448 F.2d 43, 52–53. For discussion of the competitive effectsof requirements tie-ins imposed upon franchisees, see Warren S. Grimes, When Do Franchi-sors Have Market Power? Antitrust Remedies for Franchisor Opportunism, 65 Antitrust L.J. 105,142–48 (1996).


tional Salt65 and Northern Pacific,66 was willing to “fudge the market powerand 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 arguedor decided on the same terms today. But it is far from clear that theresult would be different. A number of Supreme Court decisions thatcondemned tying arrangements (IBM Corp. v. United States,68 InternationalSalt, and Northern Pacific) involved deferred purchase of the tied product,a circumstance that is likely to enhance the difficulties of life cyclepricing.69 Indeed, in Northern Pacific, the railroad had imposed a contrac-tual tie of indefinite duration as a part of long-term leases and sales ofrailroad property. Two of the ties were imposed by sellers that madeexceptions for large and powerful buyers (IBM and Northern Pacific).70

Even if the ties had some efficiency benefits, the exceptions granted to thelargest and most knowledgeable buyers would undermine the benefits.71

A. Are Information Exploitation Issues Irrelevantto Tie-in Analysis?

After briefly summarizing Kodak’s holding, Hylton and Salinger findthat the case is not easily reconciled with Jefferson Parish, a case they

65 International Salt Co. v. United States, 332 U.S. 392 (1947).66 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 ofits large customers. F. Jay Cummings & Wayne L. Ruhter, The Northern Pacific Case, 22J.L. & Econ. 329, 344–45 (1979). Kodak did not impose its tie of spare parts and serviceagainst the most powerful class of buyers—those sufficiently large to service their ownmachines. 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 tominimize the average cost of rail service, the tie-in in Northern Pacific couldhave been designed to facilitate full or nearly full utilization of the railroad’sinfrastructure. This would have benefited the railroad’s consumers by loweringthe 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 runrailroad, this efficiency rationale, if accepted, could be used to justify cartel activity in anytransportation industry. Many monopolies and cartels are efficient—a circumstance thathas not been deemed sufficient cause for excusing monopoly or cartel violations. Inparticular, antitrust law has recognized that monopoly power may stifle innovation, suppressoutput, and raise prices—undesirable social results that may vastly outweigh the socialbenefits of efficient operation.

Based on their own analysis, two economists concluded that a cartel enhancement effect


deem to offer the most current statement of “classical tying doctrine.”72

The authors note that a number of lower courts have interpreted Kodakto apply only if the tying seller changes its marketing policy after a buyerhas purchased the original equipment.73 No assessment is offered of thecorrectness of these holdings; no mention is made of decisions that doapply Kodak; and Kodak is ignored for the remainder of the article.74

The Kodak decision has not been received with the acclamation thatmany of its proponents had anticipated or hoped. Still, it is naive tobelieve that, by ignoring or distinguishing Kodak, one can dispel theinformation issues that are an integral part of competition analysis.Information issues are central to understanding tying sales that com-plicate a buyer’s purchase decision. These issues were around wellbefore Kodak was decided. They would endure even if the decisionwere overturned.

On at least six occasions prior to Kodak, the Supreme Court ruled forthe plaintiff in tie-in cases involving deferred purchases of the tiedproduct,75 a circumstance likely to give rise to consumer informationissues. Hylton and Salinger cite Jefferson Parish as a decision that excludedinformation issues deemed irrelevant to tying analysis. Indeed, JusticeStevens wrote that while information gaps are market imperfectionsand “may generate ‘market power’ in some abstract sense, they do notgenerate the kind of market power that justifies condemnation oftying.”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, supranote 70, at 341–50. For analysis suggesting anticompetitive effects in both InternationalSalt 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 post-Chicago School’s tenuous influence, since its reach has been severely limited by lowercourts.” Id. at 515. For criticism of lower court holdings that Kodak applies only whenthere has been a change in seller marketing policy and for a summary of cases that doapply 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 PartsCorp., 392 U.S. 134 (1968) (franchise contract required franchisee to purchase MidasMuffler parts); Atlantic Ref. Co. v. FTC, 381 U.S. 357 (1965) (oil company tied the saleof 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 landsto exclusive use of its transport services); International Salt Co. v. United States, 332U.S. 392 (1947) (lease of salt-injection machinery conditioned on future purchase ofdefendant’s salt); IBM Corp. v. United States, 298 U.S. 131 (1936) (lease of tabulatingequipment conditioned on purchase of defendant’s punch cards).

76 Jefferson Parish, 466 U.S. at 28.


imperfections relied upon by the court of appeals were not relevantbecause neither “forces consumers to take anesthesiological services theywould not select in the absence of a tie.”77 Thus, the Court’s holdingcannot fairly be interpreted as a blanket rejection of the relevance ofinformation issues, but only as insistence that a “forcing” be demon-strated. This is made clear earlier in the opinion when, addressing theSherman Act’s treatment of ties, Justice Stevens wrote that tying mayharm a consumer because “the freedom to select the best bargain in thesecond market is impaired by his need to purchase the tying product,and perhaps by an inability to evaluate the true cost of either productwhen they are available only as a package.”78 In a footnote, Justice Stevenscontinued: “Especially where market imperfections exist, purchasers maynot be fully sensitive to the price or quality implications of a tyingarrangement, and hence it may impede competition on the merits.”79

Whatever one makes of Jefferson Parish’s treatment of informationissues, there is no doubt that information concerns were pivotal eightyears later in Kodak. And they were central to the court of appeals’analysis in Microsoft III. Without describing or directly applying Kodakteaching, the court of appeals addressed, either expressly or by implica-tion, many of the information issues surrounding Microsoft’s bundlingof its Windows operating software with the IE browser program.80

Hylton and Salinger do not address the pivotal role that informationissues play in understanding the competitive effects of Microsoft’s con-duct (some of those issues may work in Microsoft’s favor). The authors’survey of post-Chicago literature omits significant work that supportsthe critical role of raising rivals’ costs81 or information asymmetries82 inanalyzing tying conduct. Instead, they focus on theorists who, like theauthors, ignore or discount information issues. They critique the workof Whinston, and Carlton and Waldman, whose models assume thatbuyers have adequate information.83 By ignoring the literature that deals

77 Id.78 Id. at 1579 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 Courtin Kodak.

83 Hylton & Salinger, supra note 2, at 509–13. The authors correctly note that Whinston’sconclusion that tie-ins can generate anticompetitive effects is limited to a narrow set ofconditions unlikely to be duplicated in most tie-ins. But Whinston’s work is based on anarrowly defined model. It does not purport to be a broad survey of all potentiallyanticompetitive effects of tying and, in particular, does not address information issues


with the information aspects of tying, they bypass the single most salientfeature of many anticompetitive tie-ins.

B. Anticompetitive Risks Are Lower for Product IntegrationThan for Contract Ties

A central theme for Hylton and Salinger is that tie-ins achieved byproduct integration are less likely to harm competition than tie-inseffected by contract. The authors state at one point:

[T]here are good reasons to believe that the base-rate probability ofanticompetitive harm is lower for technological integration than forcontractual tying. . . . [T]echnological integration entails sunk coststhat are generally larger than those associated with contractual tying.The risks are larger for the technological integrator, and the marketis likely to impose relatively severe penalties for mistakes—in compari-son to contractual tying.84

Indeed, the stakes are likely to be higher when a seller makes a substan-tial investment in integrating two formerly separate products. Some ofthese costs may be sunk or non-recoverable if the strategy is unsuccessful.If there are networking efficiencies associated with the tied product, thestakes (potential benefits and potential losses) may be greater still. Atie-in implemented through product integration may also be more effi-cient to enforce. The customer has no choice but to purchase the tiedproduct, 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 itbe construed narrowly or overturned. Dennis W. Carlton, A General Analysis of ExclusionaryConduct 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 anticompetitiveeffects is formative, past contributions cannot be read to support or refute the premisethat most tying is benign or procompetitive. Michael D. Whinston, Exclusivity and Tyingin 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 onthe mechanism of denying rivals adequate scale. They describe the raising rivals’ costsliterature as dealing with vertical integration. Hylton & Salinger Reply, supra note 28, at234 n.20.

Denying a rival efficient scale may be one of the ways in which a dominant firm canraise its rivals’ costs. The seminal work on raising rivals’ costs dealt with a variety ofexclusionary 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 dealingarrangements, tie-ins, vertical mergers, refusals to deal, and boycotts. We present anantitrust theory that explains how a wide variety of exclusionary restraints can, under fairlystrict conditions, create or enhance market power.”). The Microsoft III court’s holdingthat Microsoft’s bundling practices deprived Netscape of the most efficient avenues ofdistributing its browser is consistent with this post-Chicago analysis.


contractual tie.85 But alone or collectively, these distinctions betweencontractual and product integration ties do not determine overall com-petitive effect. The distinctions simply show that both the costs andbenefits of a product-integration bundling are likely to be higher.

Higher risks mean only that a seller will consider product integrationif 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 arisefrom an anticompetitive market distortion. So higher stakes, by them-selves, do not support a policy to impose a more relaxed standard onproduct integration ties. Indeed, if product integration is treated moreleniently than contractual tying, a tying seller could be expected tochoose product integration precisely when it has reason to expect anantitrust challenge to its conduct.86

In addition, the high sunk costs involved in product integration maymake it less likely that a court will force a reversal of the integrationstrategy. Consider a judge who is confronted with two unlawful tie-ins.The first is effected by contract; the second by product integration. It isrelatively simple for a judge to enjoin future use of the contractual tie-in. There is probably little sunk investment in such a tie and little concernabout excessive interference with the defendant’s operations. In contrast,the same judge may be reluctant to order a redesign of an integratedproduct. Thus, even if the legal standards for tying by contract or byproduct integration were identical, a tying seller may perceive tacticaladvantage in proceeding by product integration. Once the integrationis accomplished, momentum favors the tying seller in any litigation thatmight ensue.

A judge’s reluctance to interfere with product integration decisionsis well founded. But the risk is that this reluctance will compromise theintegrity of tying law and encourage sellers to prefer product integration

85 Because product integration ties involve the simultaneous sale of the tying and tiedproducts, one substantial source of a tying seller’s power over under-informed consumersis 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 ofexploitable information asymmetries that is often present in high-tech industries: thecomplexity 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 andSalinger suggest that this criticism “is only valid to the extent that the effect underlyingit is sufficiently important empirically to outweigh other considerations.” Hylton & Salinger,supra note 2, at 525. Of course, all effects of suspect bundling activity, both anticompetitiveand procompetitive, should be subject to empirical testing. The authors do not offerempirical evidence that would either vindicate or negate the concern that relaxed tyingstandards for product integration would distort product design decisions.


tying over contractual tying, especially when they believe their conductmay have anticompetitive consequences. Some courts that have exam-ined product integration tying, including the Microsoft II court, havesignaled more lenient treatment of product integration tying.87 TheMicrosoft III court, although imposing a rule of reason test for “platformsoftware products,” wisely drew no distinction in the legal standardbetween contractual and product-integration tying. Nor did the court,in its analysis of Microsoft’s bundling conduct under Section 2, suggestthat different legal standards for contractual and product-integrationtying should apply in a monopolization claim.

An overall assessment of the competitive effects of high tech, product-integration tying is not complete without a careful examination of therole of networking efficiencies. A dominant firm is likely in industrieswith strong networking efficiencies. As in any industry, superior skill andforesight can lead to a firm earning a substantial market share. But oncea firm has become the largest in the industry, networking efficienciesmay create a momentum that leads to dominance. This momentum isdirectly linked to efficiency—the more people in the network, the moreuseful the network. So how is antitrust law to deal with such industries?The Microsoft III court, citing disagreements in the literature, drew nodefinitive conclusions. The court contrasted two views88—one that suchindustries deserved heightened antitrust scrutiny89—the other that anti-trust should move cautiously because the drive to obtain incumbency inan industry with networking efficiencies can encourage innovation.90

Assume that Firm M desires to become the incumbent provider ofoperating software for personal computers. Networking efficiencies are

87 In Caldera, Inc. v. Microsoft Corp., 72 F. Supp. 2d 1295, 1322–23 (D. Utah 1999), thecourt criticized the Microsoft II court’s suggestion that a product integration is lawful aslong as the seller offers a “plausible claim that it brings some advantage.” The Utahcourt said:

Certainly a company should be allowed to build a better mousetrap, and thecourts should not deprive a company of the opportunity to do so by hinderingtechnological innovation. Yet, antitrust law has developed for good reason, andjust as courts have the potential to stifle technological advancements by secondguessing product design, so too can product innovation be stifled if companiesare allowed to dampen competition by unlawfully tying products together andescape antitrust liability by simply claiming a “plausible” technologicaladvancement.

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) (heightenedscrutiny of exclusionary conduct in high-tech networked industries is necessary becausesuch conduct may deter innovation).

90 Ronald A. Cass & Keith N. Hylton, Preserving Competition: Economic Analysis, LegalStandards and Microsoft, 8 Geo. Mason L. Rev. 1, 36–39 (1999) (antitrust implications of


a powerful incentive for firm M to create an appealing product that willbecome the industry standard. But once dominance has been achieved,while Firm M still has an incentive to innovate (in order not to lose itsincumbent position to a rival offering), Firm M now has an obviousand effective avenue for anticompetitive conduct that will maintain itsincumbent position. Consider, for example, how Firm M might integratetwo formerly separate products (thereby raising the costs of rivals tooffer a substitute product); exercise leverage over writers of applicationssoftware not to write, or to write only on less favorable terms, softwarefor rival operating systems; or exercise leverage over computer hardwaremanufacturers not to load rival operating systems into its machines.The list is not exhaustive, but illustrative of the type of anticompetitiveconduct Firm M might be driven to employ in order to maintain itsdominant position.

Before Firm M became the dominant firm in the industry, heightenedantitrust scrutiny of its conduct would be inappropriate. The pre-domi-nance firm has no heightened ability to engage in anticompetitive con-duct and, at this stage, the potential benefits of innovative change inproduct offerings are substantial. However, once dominance has beenachieved, Firm M will have heightened opportunity (and no reducedincentive) to engage in anticompetitive conduct because of the likelyabsence of significant competitive discipline. The most likely conditionsthat lead to reduced competitive discipline are: (1) market dominance(a likely result in networked industries) and (2) exploitable informationasymmetries (possible, for example, when complex and sophisticatedproducts are being bundled). The traditional analyses employed in tyingcases, then, are very much relevant to the actions of Firm M. If it isdemonstrated that the seller’s conduct is taken when one or both ofthese underlying conditions are present, heightened antitrust scrutinyis warranted.91

IV. SYNTHESIS AND CONCLUSION: MICROSOFT III AS APARADIGM FOR POST-SCHISM TY ING LAW

A harmful tie-in, by forcing an informed buyer to purchase an unde-sired bundled product, complicates the purchasing decision. Excluding

networking are unclear because efficiencies of networks may encourage innovation byproviding a more durable monopoly to innovating winners).

91 Based upon their premise that a great deal of tying conduct is benign or procompeti-tive, Hylton and Salinger would disagree with heightened antitrust scrutiny for tyingconduct in the context of network efficiencies. But their premise, as previously pointedout, is vulnerable because the modified per se rule is likely to screen out almost allbeneficial bundling arrangements.


this intuitively obvious and striking feature of tie-ins from a competitiveanalysis leads to a sterile exercise that has little to do with marketplacerealities, is inconsistent with fundamental competition principles, anddishonors congressional intent underlying Section 3 of the Clayton Act.It is unclear to what extent Hylton and Salinger genuinely disputethese propositions.

In their reply to these comments, Hylton and Salinger questionwhether the information issues raised in Kodak are appropriate fodderfor antitrust. Market power generated by information asymmetries, theysuggest, would be limited by the seller’s need to protect its reputation andby the buyer’s ability to seek contractual protection against opportunisticbehavior.92 These arguments have been thoroughly ventilated in theliterature addressing Kodak.93 Whatever one’s view of the propriety orimpropriety of including information analysis in antitrust cases, I wouldthink the issue has been long settled in favor of inclusion. Certainly thetreatment of information issues in Microsoft III suggests this. So too doHylton and Salinger when they affirm that “informational asymmetriessometimes play a role in tying” and criticize unnamed Kodak proponentswho 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 procompetitiveor anticompetitive bundling. Sellers would not need to bundle to protectthe goodwill of their products (because consumers could be easily edu-cated about which ancillary products are appropriate); nor would sellershave significant incentive to exploit information problems through tie-ins (because consumers could easily obtain needed information andsidestep the problem). In fact, many information problems are intracta-ble, a fact evidenced by numerous consumer protection statutes, the stateand federal securities laws, usury laws, and numerous FTC regulationsaddressing topics from franchising to funeral homes. It is precisely wheninformation problems are intractable that their anticompetitive potentialwill be greatest. Antitrust has only a small role in addressing these infor-mation problems. But it is a well-established role, one confined to tradi-tional claims that threaten exploitation of information asymmetries atthe same time as raising other competitive concerns. Tie-ins are aprime example.

92 Id. at 243.93 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 Hyltonand Salinger criticism is well taken.


The Hylton and Salinger reply carries the argument one step further.They urge that where information is relevant, “the vast majority of tie-ins are designed with a procompetitive purpose, to enhance the provisionof information to uninformed customers.”95 That bundled sales mayserve this procompetitive end is not disputed, but there is no empiricaldata base to support or refute their contention about relative frequency.What we do know is that there are some cases in which a tying selleruses a tie abusively to exploit information asymmetries96 and some inwhich the seller bundles procompetitively, perhaps to overcome goodwillrisks associated with information asymmetries. So the relevant questionis whether antitrust can parse information issues to separate a procompet-itive bundling from an anticompetitive tie-in. Microsoft III is testimonythat courts have been and will be able to make these distinctions.

The future of tying law may lie with decisions like Microsoft III. To besure, that decision seems a strange model for resolving the role ofinformation asymmetries in tying analysis. The court of appeals did notaddress the Kodak controversy, offered no generalized rules for address-ing information issues, and spoke in terms reflecting skepticism abouta tie-in’s potential for competitive harm. Still, Microsoft III is a paradigmfor tying analysis because of what the court did. The opinion set aboutin disciplined and scholarly fashion to resolve the issues before it. Inthe course of performing this task, the court found it necessary to deal,either expressly or by implication, with various information issues thatwere relevant to a full competitive analysis of Microsoft’s bundlingconduct.

If analysis of information issues is pivotal and unavoidable in Section1 tying cases, what does this portend for a market power screening testthat some courts and theorists favor? Under this approach, a tying sellerthat lacked the requisite market power in the tying-product market wouldnot be subject to the modified per se rule announced in Jefferson Parish.97

Following this approach, some lower courts have dismissed tie-in claimsbecause the seller was deemed to have insufficient market share in thetying product.98 But a rote application of a market power screening test

95 Id. at 241.96 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’tof 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 con-tinue to dismiss the claims because the claimant has failed to demonstrate a high marketshare in the tying product. E.g., Queen City Pizza v. Domino’s Pizza, Inc., 124 F.3d 430


is difficult to reconcile with the empiricism of Kodak. Indeed, even JeffersonParish, a case that Hylton and Salinger deem to embody classic SupremeCourt tying law, allows room for circumstances in which a seller’s poweris not linked to market share. As Justice Stevens wrote for the Court, themodified per se rule would not apply unless the “seller has some specialability—usually called ‘market power’—to force a purchaser to do some-thing that he would not do in a competitive market.”99 This formulationsuggests that a seller’s power to coerce can be based on circumstancesother than the seller’s market share in the tying-product market.100 Theplaintiff advancing a tie-in claim still would have the burden of showingthat the tying conduct was coercive, but the burden could be met byshowing market power in the tying-product market, information asym-metries that would be exploited by the tie-in, or (as occurred in MicrosoftIII) some combination of the two factors.

A strict market share screen could lead to a perverse result in casesin which the oligopolists in a market adopt the same harmful tie-in. Ifthe tying seller can coerce a buyer because of a lock-in, the plaintiffcould still sustain a tying claim by asserting a market definition confinedto a single brand, as the Supreme Court allowed in Kodak. But thisapproach would not work if there is no lock-in. A strict market sharescreen could leave uncovered cases of anticompetitive parallel tie-ins,no matter how coercive and harmful to the consumer. Such a resultwould be inconsistent with text and the intent behind Section 3 of theClayton 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 incorporatea policy bias, but they are helpful and necessary guides to counselorsand courts confronted with complex competition issues. Still, the roteapplication of such rules in disregard of the facts produces perverseresults. During the populist era, Chicago critics rightfully cited theexcesses of mechanical applications that favored plaintiffs. More recently,post-Chicago critics have taken aim at rote applications that favor defen-dants. The best protection against perverse results is the Kodak preceptthat 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 argu-ment because the defendant had only a 30% market share in the tying product (hospitalservice) market. Id. at 28.


this approach is “casual empiricism,”101 presumably because there is noauthoritative data base used to guide the decision. But the factual analysis(guided by economic theory) that occurs in cases like Microsoft III isanything but casual. We do not have, and for the foreseeable future willnot have, authoritative data bases for establishing ex ante rules with theprecision expected of a natural scientist. What we do have is the labora-tory of common law experience. The rules that evolve from that labora-tory should be guided by economic theory (Chicago’s emphasis) and bythe facts of each case (post-Chicago’s emphasis). Three cheers for thatkind of “casual empiricism.”

101 Hylton & Salinger Reply, supra note 28, at 245.

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