The Challenges of IP Protection and Competition Enforcement: An Analysis of the Microsoft Decisions (US and EU) and Their Implications for South African IP and Competition Law: Lex Informatica Conference, 21st-23rd May 2008 Pretoria, South Africa

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1. Introduction

Microsoft Corporation's (Microsoft) pervasive influence in contemporary life, especially in the software industry, is beyond question. (1) A great majority of the papers presented at this conference were produced through various Microsoft software products. Those who had the occasion to undertake Internet research most likely used Internet Explorer which came as part of the operating system bought with their computers. Indeed, many attending this conference may be forgiven for thinking that only Microsoft operating systems and programmes are readily available for use in the business world today. This is far from the truth.

As a result of this growth in influence and importance, software developers have sought to protect their control over their products. In this connection, protection is achieved through a variety of means, including intellectual property law (patents and copyrights). As a measure of control, software developers preclude those who purchase their software either as Original Equipment Manufacturers (OEMs), direct consumers or competitors from reverse engineering the software. Even in terms of use, those who purchase software only acquire the licence to use the software, which comes with a plethora of limitations on the way in which the software could be used. Importantly, software developers are particularly careful to shield the details of their creations from competitors or potential competitors.

The enforcement actions taken by the anti-trust agencies in the United States of America (US) and the European Union (EU) in the last few years underscore Microsoft's influence over the software industry and the quest by the aforementioned agencies to preserve and/or maintain competition. What is, however, intriguing is that the Anti-trust Division of the Department of Justice in the US and the European Competition Commission (EC) in the European Union (EU) took divergent decisions in relation to essentially the same competition issues that arose in their respective jurisdictions, especially in respect of the remedies that were prescribed. The question is whether these differences flowed from mere jurisdictional approaches to these matters, or on the contrary, reflected deep seated ideological differences.

Given the stature and influence of both institutions in competition enforcement generally, and their influence over the enforcement approaches and policies of emerging markets such as South Africa, the question that arises is which enforcement policies are more suitable for South Africa. (2) The answer to this question will not only be dictated by the policy choices that South Africa may want to make, but are likely to be strongly influenced by the structure of the South African Competition Act itself. (3) Further, a number of regional developments could find South Africa looking to Europe for guidance on these matters.

April 2008 saw the inauguration of a regional competition authority in Africa, the COMESA Competition Commission. Although South Africa is not a member of COMESA, there is no doubt that its regulatory oversight will have a profound influence on South African companies doing business in Africa as well as on the South African Competition Commission. (4) More importantly, COMESA's competition regime draws heavily from the EC model. For this reason, it must be expected that its enforcement policies, especially around IP and Competition issues are likely to be influenced by EC jurisprudence.

At a national level, South Africa has always had competition regulation from as early as 1955. However, the last piece of legislation that is probably most familiar to some is the Maintenance and Promotion of Competition Act of 1979. This is the legislation that was replaced by the current Competition Act, No. 89 of 1998. The review of the South African competition regime came at a time when the whole SADC region was adorning itself with competition legislation. The emergence of competition legislation in SADC gained momentum in the early 1990s. This was largely sponsored by the international lending institutions such as the World Bank and the International Monetary Fund. Consequently, Kenya, Tanzania and Zambia came up with competition legislation between 1993 and 1994. They were subsequently joined by Zimbabwe in 1996 and then Malawi and South Africa in 1998.

More recent converts include Namibia, 2003 and Swaziland 2007 and Botswana, which already has a Competition Bill. Although Namibia's Competition Act went through Parliament in 2003, it only came into force on 3 March 2008. Lesotho is apparently still in the process of drafting its legislation which is likely to be passed within the next two or so years. Angola, the Democratic Republic of Congo and Mozambique have individually expressed an interest in drafting competition legislation for their respective jurisdictions. Whilst all this was happening, both Tanzania and Zimbabwe had the chance to review their legislation. While the Zimbabwean review was limited to a number of piece meal amendments, the Tanzanian review was far more extensive. In South Africa, there are clear indications that the current legislation will undergo a major review within the next few months. Government appears to be more concerned with what it calls 'complex monopolies' which are apparently responsible for some 'uncompetitive outcomes' in some markets. It is conceivable that one or both of these classifications may apply to IP related industries.

Of course, IP has assumed an increasingly important role in modern economies because of the significant technological advancements fuelled by innovation and creativity. This development prompts concerns about how the intellectual fruits of those who have taken the trouble to invest vast resources into Research and Development (R&D) in order to invent new products or discover new ways of doing things through the exploitation of their creative faculties are to be protected from the threat of free-riders and the demands of competition enforcement in its quest to advance consumer welfare through low or competitive prices.

Historically, those in possession of intellectual property rights (IPRs) have always insisted that the monopoly and exclusivity granted to them by law is beyond the reach of anti-trust enforcement. At a minimum this involved granting access rights to whoever they chose as well as the enforcement of their exclusive rights against anyone who attempted to use those rights without their express permission. This has created a private licensing regime in which private parties licence others to use their IP. This argument was set out in Microsoft's case in the US in these words:

'[T]o promote creativity, innovation, and competition, the federal copyright laws provide copyright holders such as Microsoft with broad and well recognised rights, rooted in the Constitution, to license their intellectual property as they see fit ...' (5)

In fact, this is at the heart of the debate between IPRs holders and competition enforcement agents. This view was well articulated by the Chairman and founder of Microsoft, Bill Gates, when he said:

'Microsoft is an intellectual property company. We have no factories of any consequence or natural resources. Indeed, we have no physical assets of any kind that are important to the success of the company. Our products instead consist almost entirely of information we create...Absent protection for intellectual property, there exists little reason to invest in developing software'. (6)

2. The Microsoft Cases in the US

In order to appreciate the differences in enforcement policy between the EU and the US when it comes to IP, we have decided to look at the Microsoft cases. We start with Microsoft's enforcement problems in the US. To be fair, Microsoft has faced an avalanche of law suits and investigations in its home country. In 1988, Microsoft faced a law suit from Apple about the look and feel …