Commentary

Europe’s Dabbling Hands in U.S. Business Affairs

This article was published in the Washington Times, Aug. 17, 2003.

As if it wasn’t bad enough to have both state and federal prosecutors trying to fine and regulate American business to death by whim, the European Union is now getting into that game. Microsoft’s deep pockets are, of course, an even more tempting target than Wall Street’s. And any European pickpocket’s best friend is antitrust — a sport where government officials bet with other people’s money and make up the rules as the game progresses.

The new European version of the old Microsoft antitrust game has gone on nearly five years, so far. EU Competition Commissioner Mario Monte finally got around to accusing Microsoft of doing something terribly naughty by: (1) giving consumers for free Media Player with Windows, and (2) not giving competitors a free tour of the inner workings of Windows. Those odd complaints were accompanied by threats of big fines, which could theoretically top $3 billion. The stock market took one look at the evident absurdity of the charges and yawned, dropping Microsoft stock by one penny.

In the real world of political influence-peddling, any theoretical virtues of antitrust soon turn to vice — protecting competitors rather than protecting competition. Europeans are not even shy or subtle about their intentions. The EU Commission claims to have gathered “evidence from a wide variety of consumers, suppliers and competitors.” The comment about competitors is certainly true. The commission has been heavily lobbied by the Computer and Communications Industry Association, which represents the likes of Sun Microsystems, Oracle and AOL. As Brad Hill remarked in E-Commerce Times, the unseemly sight of watching U.S. companies go after another U.S. company in Europe is “an unusual and perhaps unique precedent.”

One of the EU’s two complaints is that Microsoft has an advantage in relatively inexpensive servers, those that link office PCs or workstations, because servers based on UNIX or Linux supposedly have trouble communicating with desktops using Windows. If that was a real problem with cheap servers, why would it not also be a problem with costly servers? If big UNIX and Linux servers also had trouble talking to Windows desktops, then Windows desktops would not work well on the Internet, which is dominated by UNIX-Linux servers.

These complaints about low-end servers emulate the U.S. government’s previous efforts to define markets in ridiculously narrow ways. When our Justice Department claimed Microsoft had a monopoly of “Intel-based” personal computers, that excluded by definition all computers made by Apple, Sun Microsystems and Palm. Today, even that bogus distinction is breaking down because Sun is selling Intel-based servers. In the U.S. case, unlike Europe’s, prosecutors prudently spoke only of “personal” computers because they knew Windows faces huge competition from servers and workstations using UNIX or Linux.

First quarter sales of Windows-based servers were up 10 percent from a year earlier, according to IDC, but Linux servers were up 35 percent. The IDC predicts sales of Windows-based servers may rise to $19 billion by 2006, but combined sales of UNIX and Linux servers would still top $34 billion. Such dominance of UNIX and Linux is why Mr. Monti is careful to confine his complaints to only low-end servers where Windows machines do well precisely because they’re low-end (i.e., cheap). That is like defining low-end automobiles as a separate market and then complaining that market is unfairly dominated by Kia.

Among “vendors of low-end servers,” as the EU puts it, Sun has been losing market share to both Windows and Linux hardware. Sun had to offer an Intel processor and Linux software to compete on price. Blaming compatibility with Windows would be an unlikely excuse because: (1) Compaq, Dell and IBM sold plenty of low-end Linux servers, and (2) Sun has long offered a card and software to read or use Windows applications and also sells Star Office for both its own operating system and Windows.

European gripes about media players are almost as technologically illiterate as our Justice Department’s previous obsession with browsers. Apple just came out with a fabulous new Safari browser that will likely be available for Windows before long. But nobody still believes it makes any commercial difference which free browser people prefer. The only reason it made a difference to Netscape was that Netscape was trying to charge a lot of money for the browser and because it was then tied to the leading home page, or portal, where ads were sold. The only reason Netscape later mattered to AOL (which never used it) is that buying that company amounted to buying the valuable right to sue Microsoft.

A year ago, Nielsen/Net Ratings figured Real Media reached 17 million home viewers through streaming or downloads, Windows Media 15.1 million and QuickTime 7.3 million. But that involved counting by format (which ignores even MP3 music), and all three players can read rival formats. Besides, there are many other media players, including AOL’s Winamp, QCD, Sonique and UltraPlayer. As more of us rip and burn CDs and DVDs, we use that same software for playback, such as Musicmatch Jukebox or Roxio Easy CD&DVD Creator. Some skip media players altogether and download music files to a portable player.

The big three media players still have advantages for streaming media — watching or listening to something as it happens. Real dominates streaming, but there are new contenders including Macromedia Flash MX.

Microsoft, Apple and Real give away media players because they want to sell related software that produces content. No company can push its proprietary formats because consumers insist on a media player that can play all leading formats (such as MP3, mpeg and avi). Any archaic notion that consumers won’t bother with downloading is nonsense: Apple boasts of 100 million downloads of QuickTime 6 in less than 10 months.

Europe’s case is just all about pleasing Microsoft’s competitors at the expense of ordinary consumers. When EU officials speak of evidence from “consumers,” they mean an opinion poll from 157 corporations using server or audiovisual software. No ordinary consumer objects to having more useful features in Windows rather than fewer.

EU Commission spokesman Tilman Lauder explained his boss’s threats as “yet another invitation” for a settlement. Invitation for a payoff sounds more like it. Mr. Lauder added that any fine would be based on the “gravity” of the accusations, not on any demonstrable damage to competitors (much less to consumers). They may be eager to settle since “Super Mario” has not been looking so super lately, after losing several cases in the Court of First Instance in Luxembourg. Australia’s Financial Review recalled that court president “Bo Vestereforf has severely chastised Commission officials for sloppy casework and trampling on the rights of defendants.” Looks like they’re doing it again.

In England, the Economist warns of a danger that this European meddling with a hugely important U.S. company “could trigger a trans-Atlantic conflict of the sort that was widely discussed when General Electric’s takeover of Honeywell was blocked by Monti after it had cleared regulatory hurdles in America.”

Unless we have lost all sense of national pride and moral outrage, that seems the least the EU should expect.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.