[Ecommerce] Wall Street Journal editorial: Microsoft's Waterloo

[Thiru Balasubramaniam]

http://online.wsj.com/article/SB119006353224130214.html

Microsoft's Waterloo
September 18, 2007; Page A14

Lawyers are often the biggest winners in big court cases, and the
climax of the EU-Microsoft saga proves the rule. Yesterday's appeals
court decision against the U.S. software giant will open the way to a
legal bonanza in Brussels. The European regulators and Microsoft's
rivals who rushed to declare victory may rue the day they got what they
wished for.

The ruling by the European Union's second most powerful court was a
judicial slam dunk for Brussels. The court upheld the European
Commission's 2004 judgment that Microsoft had abused the dominance of
its Windows operating system. The company illegally "bundled" its Media
Player program with Windows and refused to provide rivals with the
information they needed to create software that worked with Microsoft
programs. The court agreed with the Commission's argument that
Microsoft limited competition and affirmed the record =80497 million fine
that Brussels levied on the company.

The decision was clear and emphatic, leaving global companies with
little doubt about where the EU stands on policing the technology
industry. We can't think of anything else good to say about this
outcome.

In their campaign against Microsoft, European regulators have put
technology companies on notice about daring to improve their products.
Microsoft itself felt compelled to consult the Commission last year
about add-ons to its new Vista program before bringing it to market.
This hardly encourages innovation or benefits consumers. But then again
that's not the point of EU antitrust law. Brussels' main concern is the
well-being of Bill Gates's competitors.

Yesterday's legal rout will surely be felt, and closely studied,
elsewhere along America's West Coast. If Europe can bring mighty
Microsoft to heel, then no one's immune. The Brussels antitrust cops
are already investigating Intel and might find good reasons in
yesterday's decision to check in on those innovative folks at Google
and Apple, too.

The EU's competition chief, Neelie Kroes, discounts "scare stories
about the supposed negative consequences of this ruling for other
companies." She also says that she is "not expecting a number of
companies to come for coffee" and a chat about how their rival is
hurting their business, though such firms would be "quite welcome."

All of which suggests this could get out of hand faster than the click
of a mouse. Microsoft's general counsel, Brad Smith, points out that
Apple's iPod dominates the MP3 player market, in which Microsoft's Zune
is the underdog, and that Google's search engine has whipped
Microsoft's MSN and all other comers. Not to mention the near-monopoly
in some mainframe-computer markets held by IBM, which joined Sun
Microsystems in pushing Brussels to take on Microsoft in 1998. Mr.
Smith seems to be implying that two can play at this game of making
"strategic complaints."

Firms that do so risk little of their own time, energy or money. Once
it takes up a case, the Commission does the heavy lifting. The targeted
companies incur huge costs to defend themselves. European regulators,
and now judges, apparently believe that the proper venue for
competition among technology companies is in the courtrooms rather than
research labs. Everyone will be worse off, except, of course, lawyers.

The court yesterday concluded that Microsoft hadn't proved that sharing
its technology with rivals would "have a significant negative effect on
its incentives to innovate." The Commission may have followed the
letter of the law here, though the way it was applied still seems
questionable. In any case, the law is out of tune with today's high
speed of technological innovation and should be changed. The U.S.
Justice Department yesterday noted the outcome could "harm consumers by
chilling innovation and discouraging competition."

The technology industry has shown itself able to regulate itself
through competition. But the judges in Luxembourg yesterday put
Brussels at the center of the action. The regulators and the industry
may come to realize this news isn't worth cheering.
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---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org