But what if QUALCOMM's offer is not superior in some relatively small component of the intellectual property, but the buyer figures they might as well suffer the lesser quality because at least it's free?
I was afraid you'd ask a question along those lines. vbg
I think the answer is that there are presumably other aspects of the patent suite which are superior and which are in fact desirable. If they are presumably worth obtaining and using, then there is no harm.
But the above is simply my opinion. I have no idea how a court would look at Q's way of doing business. I don't know of any business models exactly like Q's so comparisons are difficult. I don't think any cases along these lines have been ever litigated.
Here's an excerpt from the Court of Appeals decision in Microsoft, which should keep your head spinning for some time. I interpret it to say that high-tech is a different animal, and that the Courts are going to look at it in not quite the black-and-white way you seem to suggest should be used: [NB: Q is a "first mover" for purposes of the decision.]
<<<<While the paucity of cases examining software bundling
suggests a high risk that per se analysis may produce inaccu-
rate results, the nature of the platform software market
affirmatively suggests that per se rules might stunt valuable
innovation. We have in mind two reasons.
First, as we explained in the previous section, the separate-
products test is a poor proxy for net efficiency from newly
integrated products. Under per se analysis the first firm to
merge previously distinct functionalities (e.g., the inclusion of
starter motors in automobiles) or to eliminate entirely the
need for a second function (e.g., the invention of the stain-
resistant carpet) risks being condemned as having tied two
separate products because at the moment of integration there
will appear to be a robust "distinct" market for the tied
product. See 10 Areeda et al., Antitrust Law p 1746, at 224.
Rule of reason analysis, however, affords the first mover an
opportunity to demonstrate that an efficiency gain from its
"tie" adequately offsets any distortion of consumer choice.
See Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d
792, 799 (1st Cir. 1988) (Breyer, J.); see also Town Sound &
Custom Tops, Inc. v. Chrysler Motor Corp., 959 F.2d 468, 482
(3d Cir. 1992); Kaiser Aluminum & Chem. Sales, Inc. v.
Avondale Shipyards, Inc., 677 F.2d 1045, 1048-49 n.5 (5th
Cir. 1982).
The failure of the separate-products test to screen out
certain cases of productive integration is particularly trou-
bling in platform software markets such as that in which the
defendant competes. Not only is integration common in such
markets, but it is common among firms without market
power. We have already reviewed evidence that nearly all
competitive OS vendors also bundle browsers. Moreover,
plaintiffs do not dispute that OS vendors can and do incorpo-
rate basic internet plumbing and other useful functionality
into their OSs. See Direct Testimony of Richard Schmalen-
see p 508, reprinted in 7 J.A. at 4462-64 (disk defragmenta-
tion, memory management, peer-to-peer networking or file
sharing); 11/19/98 am Tr. at 82-83 (trial testimony of Freder-
ick Warren-Boulton), reprinted in 10 J.A. at 6427-28
(TCP/IP stacks). Firms without market power have no in-
centive to package different pieces of software together un-
less there are efficiency gains from doing so. The ubiquity of
bundling in competitive platform software markets should
give courts reason to pause before condemning such behavior
in less competitive markets.
Second, because of the pervasively innovative character of
platform software markets, tying in such markets may pro-
duce efficiencies that courts have not previously encountered
and thus the Supreme Court had not factored into the per se
rule as originally conceived. For example, the bundling of a
browser with OSs enables an independent software developer
to count on the presence of the browser's APIs, if any, on
consumers' machines and thus to omit them from its own
package. See Direct Testimony of Richard Schmalensee
p p 230-31, 234, reprinted in 7 J.A. at 4309-11, 4312; Direct
Testimony of Michael Devlin p p 12-21, reprinted in 5 J.A. at
3525-29; see also Findings of Fact p 2. It is true that
software developers can bundle the browser APIs they need
with their own products, see id. p 193, but that may force
consumers to pay twice for the same API if it is bundled with
two different software programs. It is also true that OEMs
can include APIs with the computers they sell, id., but
diffusion of uniform APIs by that route may be inferior.
First, many OEMs serve special subsets of Windows consum-
ers, such as home or corporate or academic users. If just one
of these OEMs decides not to bundle an API because it does
not benefit enough of its clients, ISVs that use that API
might have to bundle it with every copy of their program.
Second, there may be a substantial lag before all OEMs
bundle the same set of APIs--a lag inevitably aggravated by
the first phenomenon. In a field where programs change
very rapidly, delays in the spread of a necessary element
(here, the APIs) may be very costly. Of course, these
arguments may not justify Microsoft's decision to bundle
APIs in this case, particularly because Microsoft did not
merely bundle with Windows the APIs from IE, but an entire
browser application (sometimes even without APIs, see id.).
A justification for bundling a component of software may not
be one for bundling the entire software package, especially
given the malleability of software code. See id. p p 162-63;
12/9/98 am Tr. at 17 (trial testimony of David Farber); 1/6/99
am Tr. at 6-7 (trial testimony of Franklin Fisher), reprinted
in 11 J.A. at 7192-93; Direct Testimony of Joachim Kempin
p 286, reprinted in 6 J.A. at 3749. Furthermore, the interest
in efficient API diffusion obviously supplies a far stronger
justification for simple price-bundling than for Microsoft's
contractual or technological bars to subsequent removal of
functionality. But our qualms about redefining the bound-
aries of a defendant's product and the possibility of consumer
gains from simplifying the work of applications developers
makes us question any hard and fast approach to tying in OS
software markets.
There may also be a number of efficiencies that, although
very real, have been ignored in the calculations underlying
the adoption of a per se rule for tying. We fear that these
efficiencies are common in technologically dynamic markets
where product development is especially unlikely to follow an
easily foreseen linear pattern. Take the following example
from ILC Peripherals, 448 F. Supp. 228, a case concerning
the evolution of disk drives for computers. When IBM first
introduced such drives in 1956, it sold an integrated product
that contained magnetic disks and disk heads that read and
wrote data onto disks. Id. at 231. Consumers of the drives
demanded two functions--to store data and to access it all at
once. In the first few years consumers' demand for storage
increased rapidly, outpacing the evolution of magnetic disk
technology. To satisfy that demand IBM made it possible for
consumers to remove the magnetic disks from drives, even
though that meant consumers would not have access to data
on disks removed from the drive. This componentization
enabled makers of computer peripherals to sell consumers
removable disks. Id. at 231-32. Over time, however, the
technology of magnetic disks caught up with demand for
capacity, so that consumers needed few removable disks to
store all their data. At this point IBM reintegrated disks
into their drives, enabling consumers to once again have
immediate access to all their data without a sacrifice in
capacity. Id. A manufacturer of removable disks sued. But
the District Court found the tie justified because it satisfied
consumer demand for immediate access to all data, and ruled
that disks and disk heads were one product. Id. at 233. A
court hewing more closely to the truncated analysis contem-
plated by Northern Pacific Railway would perhaps have
overlooked these consumer benefits.
These arguments all point to one conclusion: we cannot
comfortably say that bundling in platform software markets
has so little "redeeming virtue," N. Pac. Ry., 356 U.S. at 5,
and that there would be so "very little loss to society" from
its ban, that "an inquiry into its costs in the individual case
[can be] considered [ ] unnecessary." Jefferson Parish, 466
U.S. at 33-34 (O'Connor, J., concurring). We do not have
enough empirical evidence regarding the effect of Microsoft's
practice on the amount of consumer surplus created or con-
sumer choice foreclosed by the integration of added function-
ality into platform software to exercise sensible judgment
regarding that entire class of behavior. (For some issues we
have no data.) "We need to know more than we do about the
actual impact of these arrangements on competition to decide
whether they ... should be classified as per se violations of
the Sherman Act." White Motor, 372 U.S. at 263. Until
then, we will heed the wisdom that "easy labels do not always
supply ready answers," Broad. Music, 441 U.S. at 8, and
vacate the District Court's finding of per se tying liability
under Sherman Act s 1. We remand the case for evaluation
of Microsoft's tying arrangements under the rule of reason.
See Pullman-Standard v. Swint, 456 U.S. 273, 292 (1982)
("[W]here findings are infirm because of an erroneous view of
the law, a remand is the proper course unless the record
permits only one resolution of the factual issue."). That rule
more freely permits consideration of the benefits of bundling
in software markets, particularly those for OSs, and a balanc-
ing of these benefits against the costs to consumers whose
ability to make direct price/quality tradeoffs in the tied
market may have been impaired. See Jefferson Parish, 466
U.S. at 25 nn.41-42 (noting that per se rule does not broadly
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