TCS Daily


Rewind, Repeat

By Mark Schmidt - March 25, 2004 12:00 AM

History is repeating itself. After spending several years and millions of dollars defending itself against a domestic antitrust suit, Microsoft became the target of a European Union antitrust probe that has lasted five years and cost the company millions in legal fees and its shareholders billions in lost market value.

Just as American regulators bullied Microsoft with threats of a break-up, "source code sharing," and onerous financial penalties to fatten government coffers, officials overseas are taking out their own brass knuckles. European antitrust honchos led by aggressive European Union Competition Commissioner Mario Monti recently commanded Microsoft to pay a huge $613 million fine. The Eurocrats have also ordered Microsoft to remove the Windows Media Player from its desktop software and to hand over to competitors the source code to Microsoft network server software.

Just as the U.S. litigation was largely about protecting the Netscape browser, the European lawsuit appears to be motivated by a desire to shelter the RealNetworks media player, which controls three-quarters of the market with 300 million users worldwide.

In antitrust jargon, Microsoft's policy of giving consumers more for their money is derisively called "bundling" or "tying." Of course, most consumers prefer to get a product that features integrated functions. In fact, platform integration -- like offering word processing, spreadsheets, and presentation slides in a single package -- is one of the main reasons Windows became so popular in the first place.

Yet Mr. Monti and the European Commission (EC) demand that Microsoft remove Media Player from its software. Considering that consumers want software with broad capabilities, this is akin to ordering a company to sell shoes without laces, cars without tires, or a banana split without the banana.

Prodded on by Microsoft competitor Sun Microsystems, the Europeans are also insisting that Microsoft share its source code. This forces Microsoft to convey its intellectual property to competitors. The Eurocrats might as well require Coke to share its secret formula with Pepsi.

Although the ostensible purpose of U.S. antitrust law is to protect consumers, the Europeans are guided by a focus on defending companies from the rigors of market competition. As the European Commission candidly admitted, it chose remedies "that would be indispensable for Microsoft's competitors." One wonders if the Eurocrats are just flexing their muscles. Monti has stated that he wants the EC to be "more firmly on the world map as a key player in antitrust."

And despite major concessions from Microsoft, Eurocrats demanded veto power over all future versions of Windows. Europe would be better served by focusing on playing full court in the economic game itself rather than on changing the rules mid-way.

The European Commission's decision is simply bad policy. First, there is a good deal of evidence to suggest that this litigation was pushed by special interests seeking to compete in the courts rather than in the marketplace. Second, the Europeans' grasping "borderless bureaucracy" could trigger a transatlantic trade conflict if U.S. regulatory authorities seek to respond in kind against big European companies like Nestlé or Airbus. Finally, the continued litigation stifles incentives to compete and innovate. As The New York Times editorialized, if the Europeans have their way, the computer operating system "would essentially be frozen where it is today."

Microsoft has stated that it will appeal to Europe's Court of First Instance. This court has thrown out a number of Mr. Monti's decisions lately, and we can only hope that history will repeat itself -- this time for the better.

Mark Schmidt is Director of Programs for the National Taxpayers Union Foundation.


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