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Condemning big firms the EU way

Condemning big firms the EU way
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First Published: Thu, Sep 20 2007. 01 18 AM IST

Updated: Thu, Sep 20 2007. 01 18 AM IST
Europe’s Court of First Instance (CFI) has taken a giant step backward for consumers and businesses around the world. By upholding most of the European Commission’s decision that found Microsoft abusing its dominant position in segments of the computing software market, the court rewards forum-shopping by American competitors seeking to cripple the US market leaders. The case, it’s worth remembering, began on a complaint by rival Sun Microsystems and was pushed vigorously by IBM and RealNetworks. The CFI has taken the Commission’s “litigate here” sign and added flashing neon lights.
While the US antitrust law has been increasingly interpreted to protect consumers rather than competitors, Europe’s law has always had a strand that shields less successful firms from dominant rivals. Monday’s decision weaves a whole tapestry from that strand. It condemns dominant firms that bundle new features into their products if those features could be supplied independently by other firms—even though bundling is a common way for all firms, dominant or not, to improve their products. At issue was Microsoft’s inclusion of a streaming media player in its Windows operating system in the late 1990s.
Consumers around the world today use a greater variety of media players from more firms than before Microsoft included its version in Windows. But the court upheld Brussels’ reasoning that by adding this feature to Windows, Microsoft “foreclosed” competition. If that part of the decision stands, bundling law will become an easy vehicle for stopping the evolution of complex business products.
The CFI also accepted the Commission’s conclusion that Microsoft violated EU law by failing to supply competitors in the “server” market with enough information to help them create substitutes for Microsoft’s own products.
There is no shortage of rival products that work with Microsoft’s Windows software, and server computers running software from IBM, Sun or RedHat/Linux are frequently used in combination with computers running Windows. Yet these competitors complained that they didn’t have enough access to information about Windows that would allow them to roll out competitive software in time with Microsoft’s own releases of new products.
By accepting these arguments the CFI adopts a view of the law that essentially turns dominant firms into regulated utilities. It changes the rules on compulsory licensing of intellectual property, forcing innovators to share the fruits of their investments with rivals to an unprecedented degree. Following the CFI decision, it might become more productive to invest in lawyers and lobbyists than in research and development (R&D). Europe’s competition law increasingly treats rival firms as business partners, entitled to profit from each new, successful investment by a market leader.
While market leaders have emerged dominating certain segments, the technology sector remains a vibrant part of the economy. That is especially true in the US, but also in Europe. The pace of change in technology and the businesses based on it has been breathtaking. Take Google, for example. The €115 billion company was created as recently as 1998, just two months before the complaint in the Microsoft case was filed in Europe.
European trade commissioner Peter Mandelson showed that he understands the importance of supporting innovative firms by protecting their intellectual property rights. His strongly worded rebuke of Thailand’s efforts to impose compulsory licences on pharmaceuticals defended European businesses against threats to their own property rights. Brussels’ demand, now blessed by the CFI, that high-technology firms share their intellectual property with rivals is not so different from the Thai government’s assault on pharmaceuticals, though. The effects on investment incentives will certainly be the same.
If unchecked, the ultimate legacy of this decision will not only be an increase in litigation in Europe, but a decrease in investment that could lead to world-class products. Microsoft no doubt will appeal the CFI decision to the European Court of Justice. But even before that court acts, Europe’s public should recognize the threat the decision poses to the development of innovative businesses on a continent that fancies itself a global technology leader. Europe’s citizens should demand that their lawmakers respond by amending the legislation to keep their own regulatory bureaucracy in check.
Europe’s bundling law, like America’s, should allow firms to add new features when there is a legitimate business reason for doing so, when it improves production efficiency or product operation. And Europe’s law should protect even dominant competitors from having to disclose critical information about their product designs simply to facilitate their rivals’ market success. These changes would make Europe’s law conducive to investment and vigorous competition.
Edited excerpts fromThe Wall Street Journal. Ronald A. Cass is chairman of the Center for the Rule of Law, dean emeritus of Boston University School of Law and former commissioner and vice- chairman of the US International Trade Commission. Comment at theirview@livemint.com
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First Published: Thu, Sep 20 2007. 01 18 AM IST