Europe’s Prosecution of Microsoft Ignores a Changing Marketplace

Published October 1, 2007

Now that the European Union (EU) has ordered Microsoft to provide a special version of Microsoft Vista–one without a browser–nobody wants it, just as they didn’t want the browser-free Windows the company was forced to offer before.

EU bureaucrats can order a browser-free party, but they can’t make anyone show up.

It’s another example of how Europe’s economic policies, very successful in promoting the euro as a standard of value and producing (and exporting) quality products, nevertheless are running on twentieth-century fumes.

The European Commission’s (EC) endless prosecution of Microsoft seems set on a multi-decade trajectory, while the actual market for software products and services–even in Europe–is more competitive than ever.

EU Demands

In a recent twist, the Microsoft case has turned to how much the company is allowed to charge for access to its interoperability code, the specific lines of software language that provide an application (e.g., word processing, video playback, accounting) with instructions on how to work with the Windows operating system.

While Microsoft makes the code available to manufacturers of application software, the company has fought attempts by legislators and courts to force it to provide the code to its competitors. Noting that interoperable software does not mean identical software, Microsoft said the ruling would allow competitors to all but clone Windows.

The EC did not dispute that argument, but it found Microsoft’s decision to keep portions of its operating system code proprietary was key to the firm’s market dominance, and that the order to make its code available was a legitimate remedy.

False Definition

Just what dominance is that, though? Goldman Sachs, skeptical of future big gains for Microsoft as a market leader, notes software is increasingly Web-based, with freely downloadable and swappable code eroding the market for Microsoft products. That Microsoft’s competitors are flourishing in this environment contradicts the EU’s assertion that control of proprietary code automatically brings market dominance.

The reality is that the software market is evolving, fragmenting, and growing at the same time in ways that Microsoft didn’t choose and largely did not anticipate.

EC competition commissioner Neelie Kroes subscribes to the old economy idea that governments must manage competition for it to work. If Windows-based software runs the modern economy, goes the questionable reasoning, then everyone must have “equal” opportunity to design Windows-based products–even if means forcing Microsoft to give its secrets to direct competitors.

Unlike U.S. courts, the EC regards as legitimate the complaint that it’s unfair competition when one company’s products attract more buyers than its competition, one reason Microsoft’s competitors routinely take their cases overseas.

In Europe, the supposed “right” to compete trumps any right of Microsoft–or any company that creates markets with its own intellectual capital–to profit from its intellectual property.

Regulatory Ironies

As always with European regulatory policy, there are amusing ironies at work here.

The Economist reports the Eastern Europe members of the EU will receive the lion’s share of subsidies directed to sparking technological innovations that will make Europe more competitive, with special emphasis on information and communications technologies. Among the potential beneficiaries of this largesse are the dominant information technologies in the field today, including–you guessed it–Microsoft.

Vahé Torossian, vice president for Microsoft Europe, Middle East, and Africa, noted, “Together with our partners, we at Microsoft are optimistic about the potential of the [IT and telecom] sector in the new member states.”

One hopes someone in the EC power structure has the wit to earmark the fines Microsoft pays for its alleged anti-competitive sins, and directs those monies to Microsoft’s participation in Eastern Europe’s technology initiatives.

It would be a nice way to square the circle–and a healthy reminder that all too often government exists only to find new ways to justify its existence.

George A. Pieler ([email protected]) is a senior fellow with the Institute for Policy Innovation.