Applied Economic Consultants

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Case Studies

Datel Holdings Ltd. et al. v. Microsoft Corporation

Antitrust, Liability
U.S. District Court for the Northern District of California

Gamers will retain access to aftermarket peripheral devices for Microsoft’s Xbox 360 video game console as a result of a settlement between Microsoft and Datel. Owners of Datel memory units were surprised to find, that a required software patch for Xbox 360 rendered their Datel gaming peripherals inoperable. Datel deferred introduction of three other devices that would also have been blocked by Microsoft’s software upgrade. Over 20 million Xbox 360 users were left with little alternative to Microsoft for aftermarket controllers, memory units, headsets, and network adaptors similar to those provided by Datel.

Datel alleged that Microsoft monopolized the aftermarket for Xbox 360 peripheral devices, and retained applEcon to perform the case-related economic analyses. This case lies at the intersection of three of applEcon’s strengths: tech industries, fact-intensive preparation, and aftermarket monopolization cases. While the terms of the settlement are confidential, one positive outcome can be readily observed: Datel continues to offer gamers an alternative to Microsoft’s Xbox peripheral devices.

Aftermarket monopolization cases are at the foundation of our expertise: one of our partners laid the economic groundwork for the precedent-setting case ITS v. Kodak, and much of our senior staff supported his testimony in Kodak and other aftermarket monopolization cases. We approached Datel the same way we did Kodak: each case requires acquiring command of a new set of facts, and liability theories tailored to case-specific facts; cookie-cutter analyses can leave gaps that ultimately prove fatal. So while our familiarity with the Kodak framework allowed us to efficiently assemble a compelling analysis that covered most of the bases, the facts in Datel also presented new issues that called for unique analyses. For example, to respond to a claim by Microsoft that its exclusionary conduct in aftermarkets was justified by pro-competitive effects in the primary (console) market, we presented evidence drawn from video game message boards that showed the claimed justification to be inconsistent with real-world consumer behavior.

With five related products at issue, market definition was particularly important in Datel, and called for two of our strengths in tandem: an insistence on mastery of case-specific facts and a deep understanding of technology. Our command of the facts permitted us to identify products that can substitute for products at issue, but it is consumers’ preferences among those products that ultimately determine the boundaries of a product market, and our decades of experience in technology-related cases gave us insight into consumers’ perspectives on substitutability. We defined five relevant antitrust markets that we are confident would have withstood scrutiny at trial and on appeal, had Datel and Microsoft not reached a settlement agreement.