[A2k] [groklaw.net] Microsoft, antitrust and innovation, by Georg Greve

[Georg C. F. Greve]

[ http://www.groklaw.net/article.php?story=20070923170905803 ]

   Microsoft, antitrust and innovation, by Georg Greve
   Thursday, September 27 2007 @ 07:57 AM EDT

   If one were to believe Microsoft, antitrust law is for sore losers
   who are too lazy to innovate, and the decision of the European
   Court of Justice against Microsoft was to the detriment of consumers
   around the world. One might even believe that any company with large
   enough market share would now have to fear the wrath of the European
   Commission and its anti-innovation bloodhounds.
   At first the notion seemed ludicrous, but then more and more blogs
   repeated it and serious media started picking it up. Even
   representatives of the US government spoke out on behalf of
   Microsoft, to the annoyance of Neelie Kroes, the European Union's
   antitrust commissioner.

   When the European Court of First Instance announced its decision,
   the first reaction of Microsoft was to talk about compliance with the
   ruling and that it was only partially confirmed by the court. Then
   people read the decision.

   There was only one modification to the Commission's case, relating to
   the trustee provision. This was because the EC should not have asked
   an independent third party selected from a list provided by Microsoft
   to monitor compliance. It should have supervised this itself. In
   essence the Commission was told they had been too forthcoming with
   Microsoft. This was not a partial annulment by any means, it could
   rather be seen as going beyond what the Commission had decided.

   During the hearing, Microsoft had tried to attack the case on
   procedural and administrative grounds, no matter how likely or
   unlikely. None of this stuck, because the European Commission had
   done its homework, and done an extraordinarily thorough, careful and
   balanced investigation. It also showed extraordinary patience with
   Microsoft's attempts to delay.

   Declaring antitrust law to be "of the devil" and to distract from the
   situation by pointing fingers at others was really the last available
   option to distract from the facts of the case.

   This allegation does not hold up to examination though. Allow me to
   tell you why.

   1st Fallacy: That the Ruling Punishes Innovation

   The first fallacy was that this kind of ruling punished the
   innovator.  Who were the innovators? Real Inc. innovated the
   streaming media market, and Novell was the innovator in the
   workgroup server market. In both cases Microsoft unfairly
   leveraged its desktop monopoly to drive the innovator out of the
   market. That is why future innovators in Silicon Valley often do not
   receive venture capital if they do not have defensive strategies
   against Microsoft or at least a co-existence strategy. Quite often
   that strategy is to become successful enough to become an attractive
   purchase for Microsoft. Not much of a reward for innovation.

   One of the functions of antitrust law is to create an environment
   that is protective of the innovator. Microsoft has not been an
   innovator.

   2nd Fallacy: That Google, Apple and All Successful Companies Need to Fear

   The second claim, echoed widely by major media outfits, is that
   Google and Apple should now be worried about similar lawsuits because
   of their large market shares. But antitrust law is not about having
   large market shares. Antitrust law says nothing about offering a
   product and gaining monopolies. As long as there is no distortion of
   competition in neighboring markets, this is legitimate.

   What antitrust law cares about in this context is leveraging
   monopolies of one market into another through abusive practices. The
   Commission found Microsoft employing two abusive practices: bundling
   and the deliberate obstruction of interoperability.

   Horatio Gutierrez of Microsoft is quoted asking "If Microsoft
   can't bundle an audio player with Windows, why can Nokia bundle a
   camera with a phone?" -- the answer seems obvious.

   It is questionable whether Nokia has 95% market share in mobile
   phones, but even if that were the case: There is currently no
   separate market for mobile phone add-on cameras, so there is no
   neighboring market to be be distorted by monopoly abuse.

   If Nokia had 95% domination and if there were such a market, Nokia
   might find itself in conflict with antitrust authorities if it took
   active steps to ensure that a) all its phones always came with the
   camera included and there is no way to buy the phone separately; b)
   removal of the camera would be very difficult for a normal user and
   potentially end up damaging the phone; c) the phone would be built in
   ways to make sure cameras of other vendors would not work and it
   would be impossible to buy both together.

   Microsoft was found doing all of the above with its media player.
   Interoperability:

   The second abusive practice the Commission found Microsoft guilty of
   is the deliberate obstruction of interoperability, generally achieved
   through arbitrary and willful modification of Open Standards. This
   makes it impossible for competitors to write interoperable software.
   This is to the detriment of customers, who find themselves locked
   into the products of one vendor, the antithesis of competition.

   Microsoft is comparatively silent on this charge and for good
   reasons.  Vendor lock-in is precisely what public administrations
   around the world are concerned about. It is a driving force behind
   the growing momentum on Open Standards, and Microsoft's refusal to
   end the obstruction might not go down too well.

   It might look much worse in the light of public statements that
   Microsoft will not even commit to standards that it has proposed
   itself, such as the recent Microsoft OfficeOpenXML (OOXML) format it
   wants approved by ISO.

   The less people talk about the interoperability side of the case, the
   better for Microsoft. Otherwise people might connect MS-OOXML to the
   fact that Microsoft initiated the standardisation effort in the
   workgroup server area to open the market and later started
   obstruction of interoperability on its own standard to drive the
   innovator out of the market.

   As long as other companies avoid these practices they will have
   nothing to fear from the European Commission.

   Despite what Microsoft and its partners would have you believe,
   monopoly abuse is not good for you. It only benefits the monopolist
   at the expense of competition, innovation and society at
   large. Antitrust law was created to address this issue and to protect
   the interests of society.

   If a monopolist tells me that antitrust law harms innovation, I have
   to clearly state that I am not convinced.

   Neither should you be.

     _________________________________________________________________

   DISCLAIMER: The author is initiator and president of the Free
   Software Foundation Europe, a third party to the antitrust case in
   support of the European Commission representing that is working
   jointly with the Samba team to restore its ability to write
   interoperable software on a level playing field.