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Abstract

As patent, copyright, and other intellectual property rights have assumed greater economic importance, the manner in which those rights are used has come under increased scrutiny. Recently filed antitrust litigation against Microsoft Corporation, for example, focuses on the terms under which Microsoft has licensed its Windows® operating system to computer manufacturers (generally referenced as OEMs, for Original Equipment Manufacturers). In particular, parties to the litigation complain about the license agreements' requirement that the first screen to appear when customers initially turn on ("boot up") a computer display certain features common across all Windows-based platforms. The "first screen provision" has been portrayed as evidence that Microsoft seeks to undermine competitors in the computer software market.... Microsoft does supply a very large proportion of operating systems for personal computers, having dramatically outdistanced the competition with its Windows operating system for Intel-compatible computers. All of those challenging Microsoft start with the predicate that its Windows system is the de facto standard for most types of personal computer in the U.S. Plaintiffs assume that Microsoft has monopoly power as a result of Windows' success and argue that Microsoft has misused the advantage it enjoys with the success of Windows by various actions, particularly provisions in contracts licensing others to use Windows. The plaintiffs do not claim that Microsoft is engaged in or is facilitating a horizontal conspiracy-as would occur if Microsoft agreed with competing software firms to restrain output in a given product line. Instead, plaintiffs allege that Microsoft's vertical relations with other firms-in which Microsoft contracts with others in a principal-agent relationship-improperly use the power of its copyright for Windows and that system's success in the marketplace. That is the essence of the complaint respecting the first screen provision: that the rights conferred by copyright do not permit Microsoft to ask its licensees to bind themselves in that way. That complaint is problematic in part because it seems on its face to stand copyright law on its head. Copyright law provides an exclusive right for the owner to decide when and how to allow the copyrighted material to be used. Antitrust law, consequently, long has applied different standards to ordinary vertical agreements and agreements licensing intellectual property rights. Unfortunately, court decisions have not followed a single, straight line respecting the relationship between antitrust and intellectual property right laws, as discussed below, and the Microsoft case requires delineation of the way antitrust law should deal with copyright licensing, if not with contract arrangements more generally. Even if that issue is resolved favorably to plaintiffs (who dispute Microsoft's contention that intellectual property laws trump antitrust), there is a second problem. Antitrust analysis of vertical relationships under the rule of reason would require evaluation of the efficiency gains and costs of the challenged actions. Although such evaluations are done in many different settings, the complaints' allegations of improper provisions in licensing contracts call for an analysis that parses particular contract terms. That analysis necessarily entails an artificial assignment of effects among contract terms and is likely to be distorted from the considerations informing parties to the contracts. This paper examines the first screen provision in the context of the law and practice respecting computer software licensing. The first section provides background on copyright. The second section explores the considerations relevant to licensing contracts. The third section addresses the intersection between antitrust and copyright licensing. The fourth section directly considers the first screen provision-what it does, what interests it serves, and what efficiencies it generates. A concluding section argues that, while the provision should pass antitrust muster, the process of examining such licensing provisions under the antitrust laws may do more harm than good.

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