TCS Daily

Feeding the Frenzy

By Joel Bucher - March 23, 2004 12:00 AM

As Mario Monti prepares to slap Microsoft with a €500 million fine -- or as much as 10 percent of Microsoft's global sales as permitted under European Union (EU) competition law -- he should also consider the words of F.A. Hayek: "Every raid on the gains of monopoly, be it in the interest of particular groups or of the state as a whole, tends to create new vested interests which will help to bolster up monopoly."

Hayek believed that controlling monopolies further concentrated power into the hands of "a few." Although the long term effects of the American suit on the software industry are uncertain, the EU's actions suggest that Hayek's assertions, fomented over decades of watching Europe centralize its nation states, were right.

In the US, Microsoft's competitors (Sun Microsystems, AOL, Red Hat and others) were mostly unsuccessful in their attempt to steal the Windows code. The alternative settlement they proposed to the Justice Department's suit would have made Windows software a virtual public utility. Had they succeeded, the US government and entrepreneurs in the American legal industry would have unprecedented influence over the software industry.

Thankfully, Judge Kollar-Kotelly saw through this attempt of corporate thievery, reprimanding the states for seeking punishments outside the bounds of an earlier decision in the Court of Appeals. Judge Kollar-Kotelly's sole responsibility was to approve any settlement between Microsoft and the government based on the earlier decision lest the court hand out its own punishment.

The final settlement approved by the judge stopped Microsoft from making exclusionary contracts with computer manufacturers that required exclusive use of its "middleware" products. Middleware, which includes the media player now under scrutiny by the EU government, escapes clear definition, but it is generally associated with software programs that help operating systems use the Internet.

Microsoft's enemies largely failed in the US, but the damage to America's fragile legal institutions, which were never designed to reorganize technical industries, has yet to be determined. Depending on how many suits are yet to come, intellectual property may need clearer definition so courts don't get bogged down.

Unfortunately, the suits against Microsoft may have inadvertently created a new corporate legal weapon for international technology companies. Should a company now feel justified in crafting lawsuits with the sole purpose of destroying competitors' intellectual property?

In his landmark work "The Road to Serfdom," F.A. Hayek warned that "A system in which large privileged groups profit from the gains of monopoly may be politically much more dangerous, and monopoly in such a system certainly is much more powerful, than in one where the profits go to a limited few." If anything, the twisted result of the suit against Microsoft in the States was the politicization of the American software industry.

The EU's far more chilling action against Microsoft will send a clear message to the world that the intellectual property of any so-called corporate giant is now fair game. EU consumers will feel the consequences if Brussels starts an international feeding frenzy over intellectual property.

Helmut Schmidt, the former Chancellor of Germany, once said that all social diseases come from America. But Europe has thus far remained immune to the "legal lottery" mentality so pervasive in America. Mario Monti should consider the greater threat of bringing this legal, economic and social disease to his shores.

Joel Bucher is Editor of Laissez Faire, a publication of the Institute for Free Enterprise in Berlin, Germany.


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