TCS Daily

Forget the Consumers

By Carlo Stagnaro - December 23, 2004 12:00 AM

Europeans will have to pay for what Americans may have for free.

A European court ruled that Microsoft must comply with sanctions imposed by former EU Commissioner Mario Monti in March on the basis that the corporation was abusing its dominant position.

Sanctions include a 497 million euros fine, the duty to share information about its software with its competitors, and -- most important -- produce a European version of Windows without its Media Player software. The ruling implies that the world's largest software corporation will have to "pay the bill" even though an appeal is pending.

Mr. Bo Vesterdorf, the president of the Court of First Instance in Luxembourg, said that "Microsoft has not demonstrated specifically that it might suffer serious and irreparable damage". Remarkably, little or no attention has been paid to the consumers.

"We continue to believe that the Commission's remedies will bring very few benefits to competitors and consumers in Europe," says an official Microsoft statement, "and will in fact harm many users of the Windows operating system and the thousands of companies across Europe who have built their businesses on the Windows platform. We believe that the code removal remedy, obliging Microsoft to release a degraded version of the Windows operating system, will be harmful to consumers and competition and undermines the technology integration that has been the backbone of the IT revolution over the past 3 decades."

"The ruling sends a message to the industry," adds Hugo Lueders, European Director of Public Policy for the Computing Technology Industry Association, an official third-party intervener in the Microsoft Court of First Instance Appeal, "that intense competition will be penalized, not rewarded. This 'level the playing field' approach to competition policy does not promote risk taking, nor encourage growth in the IT industry in the EC and around the globe. Additionally, today's ruling is inconsistent with rulings in U.S. courts that have also accorded substantial protection to intellectual property."

The ruling has several implications.

First, intellectual property rights are at stake: if Microsoft has to share its codes with competitors, the very idea of an exclusive right to the fruits of one's intellectual labor is in trouble. If this is the case, the EU is taking a serious step towards less competitiveness, less innovation, and less research & development -- again, the EU actual policy is very far from the rhetoric of the Lisbon Strategy, a commitment aimed at strengthening EU's ability to innovate and compete on global markets.

Moreover, there seems to be no such thing as presumption of innocence in Europe, at least for large corporations. Any other citizen, under any legal system, would be regarded as innocent until a reasonable certainty has been reached on her or his possible guilt. Things may be different if it is true one of the following: (a) the accused one might hide or destroy some evidence; or (b) the offence might be reiterated.

Now, (a) is obviously false: there is no way to hide or destroy what everybody know, i.e. that Media Player was freely given to those who bought Windows. Rather, somebody might object that (b) is true: in fact, if the part or all of the ruling is suspended, Microsoft would go on with its "bundling." Paradoxically, however, the question is not who did it -- Microsoft did it. The question is whether bundling may be a means to prevent competition. If there is presumption of innocence, Microsoft should be left free to sell its products until it is demonstrated beyond any reasonable doubt that this is a way to limit competition.

The question is not trivial, since Monti's ruling is based upon such a vision. Significantly, the decision was taken after a 5 years long investigation, which was undertaken as a result of strong pressures from the competitors -- including Sun, RealNetworks and Novell. It is clear, then, that the decision was made in order to protect competitors rather than competition itself.

The argument is even stronger as you take into account that on the one hand the appeal judgement will presumably take 3 to 5 years; on the other hand, Monti's ruling doesn't come from an independent judiciary, but from a political appointed officer (EU Commissioners are appointed by national governments). Also, it is possible if not probable that the ruling will be reversed: Mr. Monti has a long record of reversed decisions. Out of 8 mergers and takeovers that were vetoed by Monti before the Microsoft case, one had been withdrawn, 4 filed an appeal of which 3 have already been overturned (the 4th being GE-Honeywell).

As Alberto Mingardi and Paolo Zanetto recognize, Monti's decision was clear even far before the investigation. Monti himself declared that he aimed at "creating a precedent." "As the accuser is also the judge under European antitrust system," Mingardi and Zanetto write, "no one could contest the Commissioner's economic analysis." Actually, consumers should and are contesting it, since they realize they will have either to pay or to spend time to find an American version of Windows in order to enjoy the pleasure of listening to music or watching a movie. Apparently, former Commissioner Monti's idea of competition is a matter of numbers: you have to have as many companies as possible in any given field. But the real competition is something else: it's about process and freedom of entry -- and this is the only way how consumers may benefit from competition.

As a matter of fact, after Monti's decision and Vesterdorf's ruling consumers are worse off.


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