Microsoft, antitrust and innovation
If one were to believe Microsoft, antitrust law is for
sore losers who are too lazy to innovate, and the decision
of the European Court of Justice against Microsoft was to the
detriment of consumers around the world. One might even believe that
any company with large enough market share would now have to fear the
wrath of the European Commission and its anti-innovation
-- by Georg C. F. Greve
At first the notion seemed ludicrous, but then more and more blogs
repeated it and serious media started picking it up. Even
representatives of the US government spoke out on behalf of Microsoft,
to the annoyance of Neelie Kroes, the European Union's antitrust commissioner.
When the European Court of
First Instance announced its decision, the first reaction of
Microsoft was to talk about compliance with the ruling and that it was
only partially confirmed by the court. Then people read the
There was only one modification to the Commission's case, relating to
the trustee provision. This was because the EC should not have asked
an independent third party selected from a list provided by Microsoft
to monitor compliance. It should have supervised this itself. In
essence the Commission was told they had been too forthcoming with
Microsoft. This was not a partial annulment by any means, it could
rather be seen as going beyond what the Commission had decided.
During the hearing, Microsoft had tried to attack the case on
procedural and administrative grounds, no matter how likely or
unlikely. None of this stuck, because the European Commission had done
its homework, and done an extraordinarily thorough, careful and
balanced investigation. It also showed extraordinary patience with
Microsoft's attempts to delay.
Declaring antitrust law to be "of the devil" and to distract from the
situation by pointing fingers at others was really the last available
option to distract from the facts of the case.
This allegation does not hold up to examination though. Allow me to
tell you why.
1st Fallacy: That the Ruling Punishes Innovation
The first fallacy was that this kind of ruling punished the
innovator. Who were the innovators? Real Inc. innovated the streaming
media market, and Novell was the innovator in the workgroup
server market. In both cases Microsoft unfairly leveraged its
desktop monopoly to drive the innovator out of the market. That is why
future innovators in Silicon Valley often do not receive venture
capital if they do not have defensive strategies against Microsoft or
at least a co-existence strategy. Quite often that strategy is to
become successful enough to become an attractive purchase for
Microsoft. Not much of a reward for innovation.
One of the functions of antitrust law is to create an environment that is
protective of the innovator. Microsoft has not been an innovator.
2nd Fallacy: That Google, Apple and All Successful Companies Need to Fear
The second claim, echoed widely by major media outfits, is that Google
and Apple should now be worried about similar lawsuits because of their
large market shares. But antitrust law is not about having large
market shares. Antitrust law says nothing about offering a product and
gaining monopolies. As long as there is no distortion of competition
in neighboring markets, this is legitimate.
What antitrust law cares about in this context is leveraging
monopolies of one market into another through abusive practices. The
Commission found Microsoft employing two abusive practices: bundling
and the deliberate obstruction of interoperability.
Horatio Gutierrez of Microsoft is
quoted asking "If Microsoft can't bundle an audio player with
Windows, why can Nokia bundle a camera with a phone?" -- the answer
It is questionable whether Nokia has 95% market share in mobile
phones, but even if that were the case: There is currently no separate
market for mobile phone add-on cameras, so there is no neighboring
market to be be distorted by monopoly abuse.
If Nokia had 95% domination and if there were such a market, Nokia
might find itself in conflict with antitrust authorities if it took
active steps to ensure that a) all its phones always came with the
camera included and there is no way to buy the phone separately; b)
removal of the camera would be very difficult for a normal user and
potentially end up damaging the phone; c) the phone would be built in
ways to make sure cameras of other vendors would not work and it would
be impossible to buy both together.
Microsoft was found doing all of the above with its media player.
The second abusive practice the Commission found Microsoft guilty of is the
deliberate obstruction of interoperability, generally achieved through
arbitrary and willful modification of Open Standards. This makes it
impossible for competitors to write interoperable software. This is to
the detriment of customers, who find themselves locked into the
products of one vendor, the antithesis of competition.
Microsoft is comparatively silent on this charge and for good reasons.
Vendor lock-in is precisely what public administrations around the
world are concerned about. It is a driving force behind the growing
momentum on Open Standards, and Microsoft's refusal to end the
obstruction might not go down too well.
It might look much worse in the light of public statements that
not even commit to standards that it has proposed itself, such as
the recent Microsoft
OfficeOpenXML (OOXML) format it wants approved by ISO.
The less people talk about the interoperability side of the case, the
better for Microsoft. Otherwise people might connect MS-OOXML to the
fact that Microsoft initiated the standardisation effort in the
workgroup server area to open the market and later started
obstruction of interoperability on its own standard to drive the
innovator out of the market.
As long as other companies avoid these practices they will have
nothing to fear from the European Commission.
Despite what Microsoft and its partners would have you believe,
monopoly abuse is not good for you. It only benefits the monopolist at
the expense of competition, innovation and society at large. Antitrust
law was created to address this issue and to protect the interests of
If a monopolist tells me that antitrust law harms innovation, I have
to clearly state that I am not convinced.
Neither should you be.
DISCLAIMER: The author is initiator and
president of the Free Software
Foundation Europe, a third party to the antitrust case in support
of the European Commission representing that is working jointly with the
Samba team to restore its ability
to write interoperable software on a level playing field.