Monday, September 24, 2007


It's the hottest topic in Brussels right now - the shock judgement by the Court of First Instance against Microsoft in its long-running anti-trust battle with the European Commission. It's been analysed from all angles in the media already, but I think it's a topic I can't avoid (with some delay and a considerable break since my last posting - blame Summer holidays and workload).

I'll focus on some of the key questions:
First, was the judgement correct? I really have to leave that one to the competition lawyers, but for what it's worth I have very bright friends on both sides of the case, and I can't help feeling sympathetic to the Commission, primarily as a user and as someone who knows something about the difficulties of IT systems integration. One of the striking aspects is the size of the case in terms of the sums of money and numbers of companies and lawyers involved. That the world's biggest company can throw such vast resources into this fight and still lose in what is generally acknowledged to be an impartial court does warm the heart of even the most fervent capitalist.
Second, what of the bizarre reaction by the US Department of Justice? In a press release, the DoJ stated its view that the decision was pro-competitor but not pro-competition, and that it would end up harming consumers. This struck me as odd because you can hardly talk about a bias in favour of competitors and against competition in the same sentence as the word, "Microsoft" and keep a straight face, can you? I mean, honestly. Is 95% market share not sufficiently dominant that competition is virtually non-existent, regardless of how many or how worthy the competitors are? Every computer user I have ever spoken to has had some complaints about Microsoft applications. This is entirely normal and should not reflect badly on Microsoft, since the company's products are of exceptionally high quality. But it does emphasise the fact that dissatisfied or frustrated users really have no alternative. How it can be anti-consumer to provide such people with more choice, I don't know. I understand and accept that the theoretical incentive to innovate is lessened if you know you are going to have to share your intellectual property rights with competitors. But this is really something of a joke in this particular case, isn't it? What market share do these competitors have? Is sharing protocols with them really such a threat? Surely the resources pumped into the case, had they been employed in trying to steal a march on competitors, could actually have resulted in more innovation and not less? Isn't monopolistic behaviour inherently anti-innovative? Isn't it true that all the biggest and best innovators, especially in the IT world, have been start-ups? Microsoft, Apple, HP, Intel, AMD, Google... Big companies talk about innovation essentially as a defensive mechanism, to stave off the rise of more creative start-ups. Microsoft's innovations will all be based on the premise of the PC with a traditional operating system. They will simply be evolutions of what Microsoft already offers. The really innovative stuff will come from companies that can and must think outside this box.
Sooooo...all this goes to show what a load of rubbish the DoJ was spouting in its press release. But Commissioner Kroes' reaction was totally unnecessary, and in my view, unhelpful to her own cause. The DoJ statement was so transparently silly, both in substance and as a major diplomatic faux pas, that Kroes could have simply killed it with faint praise, smirking quietly while making a very polite but somewhat superior comment. Instead, she chose to get all defensive and lash out at this "foreign" jurisdiction, as if the EU was not in the habit of exporting its standards, regulations, policies, and court rulings around the world. She could have been 30-0 up, but is now stuck at 15-15. What a wasted opportunity.
Third, are there implications for Intel and other dominant firms that are already or soon to be in the Commission's sights? One of the most commonly cited examples is Apple, whose i-Pod has a huge market share in the US (somewhere around 80%). But if my sources are correct, the i-Pod's market share in Europe is much, much lower, hovering around 20% in Germany, and closer to 10% in France. This could conceivably give Apple Significant Market Power, but Dominance in Europe is just a pipe-dream for Steve Jobs right now. Moreover, the market for music players is really very new. Did anyone carry such things around five years ago? I don't think so. But I do recall Microsoft's products, and indeed its 90%-plus market share in PC OSs being much older news when the Commission started its investigation.
The other favourite comparison is Intel. But the behaviour that Intel is charged with is completely different from the behaviour that Microsoft is guilty of. Essentially, Intel is accused of putting unfair pressure on customers not to buy AMD products - something Microsoft has probably never really felt it needed to do. So I don't expect the Microsoft ruing to be anywhere near as historic as many of those involved might like it to be. In my mind, the judgement was the inevitable result of a blindingly clear case of abuse by a super-dominant player. If you read a textbook on EU law, it quickly becomes apparent that the most historic judgements are not those meted out to obvious villains, but those where defendants with strong cases have unexpectedly found themselves on the sharp end of an innovative treaty interpretation.
Lastly, what of the future for Microsoft? Has it learned any lessons? Will it appeal? Very few people really know the answers to those questions. I can only express my hopes: yes, and no.

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