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Newspaper Article

    Europe vs. Microsoft

    BY Matt Kibbe
    08/04/2006
    by Matt Kibbe on 8/4/06.

    In the latest regulatory broadside against American firms, the European Commission (EC) recently fined Microsoft $357 million despite the fact that the underlying case has yet to be resolved. When faced with world-class competition from American firms, the Europeans have made it clear that they will use their regulatory apparatus as a tool to shield weaker companies. Instead of competing the old-fashioned way -- by providing consumers what they want at the best price -- companies are turning to apparatchiks in the EU bureaucracy.

    While some lagging companies may gain from the recent decision in Brussels, the consumer bears the burden of the decision, as investment and innovation decline for fear of falling victim to European regulators. Innovative firms that establish themselves as leaders in the market by providing consumers with new and more useful products can face charges of "abuse," and stiff fines as well.The Microsoft case may be just one instance of regulatory zeal, but the decision sends a clear warning to any American firm hoping to do business in Europe: In America, success breeds success, but in Europe, success breeds regulation.

    These concerns have been reinforced by recent comments from the European Commissioner of Competition, Neelie Kroes. Just days before fines were levied against Microsoft, Miss Kroes delivered a speech where she emphasized the importance of the Microsoft case because it will establish a "precedent for future cases of abuse in the IT industry." But Miss Kroes and the EC may be jumping the gun. The case is far from over, as it is on appeal before the European Court of First Instance. Indeed, the presiding judge noted that Microsoft's appeal does have merits; at the same time, however, the company was ordered to comply with the EC's sanctions because they would not impose "irreparable harm" to Microsoft.

    Yet a careful look at the alleged abuses by Microsoft raises serious questions about the fines, and, indeed, the case itself. Charges against Microsoft revolve around two particular issues. First, the addition of a media player to the Windows operating system was viewed as anticompetitive, despite the fact that consumers generally find it a useful addition to the features of the system and are free to install any additional media player of their own choosing. Second, Microsoft has been accused of failing to provide the technical information that allows other companies to design software that can work with its products.

    The most recent fine was imposed because European regulators accused Microsoft of being in noncompliance with the order to share its technical information with rivals. Yet Microsoft has clearly made a good-faith effort by establishing a technical licensing program and providing more than 12,000 pages of documentation. Foot-dragging and vague mandates by Europe's regulators have only made the process slower and compliance more difficult to define.

    Excessive regulation can have a significant impact on innovation and investment, something that was recognized in the Microsoft trial in the United States. The European actions against the company go well beyond the settlement in the United States, reaching the point where regulators are designing the products available to consumers. Like most government programs such efforts can fall short. Europeans regulators forced Microsoft to sell an operating system -- Windows N -- without audio-video playing capabilities in Europe. Virtually no one has bought it, and not a single computer manufacturer sells machines with this operating system.

    Looking beyond the recent fines against Microsoft, European regulators are taking an increasingly interventionist stance toward American companies. The French government has taken steps that may force Apple to open its iTunes technology to players other than iPods, and other European governments may follow suit. Google's growth is also stirring some concerns; despite the vast benefits it provides consumers and the fact that the market for search engines is open and competitive. More generally, a recent economic study found a protectionist bent to European competition policy; regulators were far more interventionist when European firms were threatened by firms from outside Europe.

    Technology has provided tremendous benefits for consumers and the U.S. economy as a whole. In an increasingly global market, American technology companies have been leaders in innovation that has spawned a wide array of new products while improving productivity. European mandates that force companies to share products with rivals reduce incentives to innovate and invest in risky new ventures. In a sense, such actions are simply a transfer of wealth from successful firms to others by government fiat. Such transfers do nothing to help consumers, but go far to prop up weaker companies that find it difficult to attract customers in the marketplace.

    Matt Kibbe is president and CEO of FreedomWorks.