Antitrust extortion

Alan Reynolds
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Posted: Dec 29, 2005 12:05 AM

The European Union is a relative novice in using threats of antitrust enforcement to collect cash and dispense favors. But inexperience is no excuse for running amok.

 Fred McChesney of Northwestern University, writing in Regulation magazine, noted that "EU antitrust enforcement includes a permanent bureaucracy, largely unreachable by individual national authority, applying and enforcing its own dictates." This must be great fun for power-mad bureaucrats, and quite lucrative.

 The EU blocked a U.S.-approved merger between Boeing and McDonnell Douglas to the advantage of their European rival, Airbus. The EU blocked potentially useful mergers between GE and Honeywell, and between Sprint and MCI, to protect favored competitors -- not competition. Larry Lindsey, former director of the National Economic Council, has warned of "the use of EU's antitrust policies against challenging American firms."

 In March 2004, EU pen-pushers fined Microsoft $620 million. Now, they are threatening to levy more fines, as much as $2.4 million a day. Why? Because they can.

 This is starting to look like a discriminatory, extra-territorial tax. Imagine if the shoe were on the other foot. Suppose the United States concocted some antitrust complaint with a European firm like Airbus and claimed the authority to extract hundreds of millions of dollars in tribute. Would Europeans put up with that?

  The latest of the EU's ever-changing complaints has something to do with Microsoft not making it sufficiently cheap and easy for those who sell Linux servers to examine (and perhaps clone) the inner workings of Windows. Who owns Windows, anyway? But these complaints come and go. The only constant is that somebody always expects Microsoft stockholders to write another big check.

 As if to distract attention from the initial $620 million extortion, the EU also forced Microsoft to offer Windows without Media Player, which nobody wanted or bought. Everyone who buys an iPod gets Apple's QuickTime player, so Media Player has ample competition. "Don't like Windows Media Player?" asks PC Magazine columnist Michael Miller. "Run iTunes, Musicmatch, Napster, RealJukebox or Winamp. ... Don't like Internet Explorer? Run Firefox, Netscape or Opera."

 Where there are choices, there is no monopoly. Microsoft competes with Google and AOL for Internet ads, with Sony and Nintendo for gaming consoles, and with Blackberry and Palm for handheld Internet devices. IDC.com projects Linux alone (not counting UNIX) will account for 33 percent of all server operating systems by 2007. The February issue of Wired showed Microsoft software with a 62 percent share among application servers, but only 21 percent among Web servers, 19 percent among e-mail clients and 10 percent among mail servers.

 In defining the only market Microsoft allegedly monopolized -- desktop operating systems -- the U.S. Justice Department literally ignored computers from Apple and Sun solely because they were not "Intel-based." Ironically, Apple is about to switch to Intel chips, while Sun is promoting Intel-based servers.

 Meanwhile, handheld devices are displacing laptops for mobile Internet access, with the best sellers using browsers and operating systems from Blackberry or Palm. And the world's biggest retailer (Wal-Mart) is offering thousands of computers that use Xandros Linux, not Windows.

 The Justice Department wasted a huge amount of time and money taking sides in the so-called "browser war" between Netscape and Internet Explorer. But a couple of years ago, a 17-year-old named Blake Ross started work on the Firefox browser with David Hyatt (who also designed a new browser for Apple). In one year, Firefox had been downloaded 75 million times and captured about 10 percent of browser usage.

 So what? Microsoft doesn't care which browser you use, and neither does Netscape (AOL). The serious financial competition was always about portals or home pages -- where ad revenues depend on eyeballs per day. Portals are typically linked to search engines like Google or Yahoo, or to Internet service providers like AOL, MSN or Comcast.net. Which browser you use to get to those portals has been insignificant since the early days of Netscape, which steered users to the Netscape portal.

 Yet competition among browsers is the non-issue that allowed the U.S. government to label Microsoft a monopoly. And that, in turn, has invited endless U.S. and European litigation aimed at picking the company's deep pockets.

 The government accused Microsoft of trying to monopolize the "browser market," on the preposterous theory that Netscape's browser had some unique properties that, when combined with Sun's Java software, could allow web-based applications to run on any operating system. But web-based applications are inherently platform-independent (the website does not know if you're using an Apple, Sun or Linux machine) -- and they all work well with Internet Explorer, Opera or Firefox.

 Java was always irrelevant. As Wikipedia explains, "Java was initially promoted as a platform for client-side applets running inside the web browser. This positioning was never very successful and ... Java has never been an important part of the web-browser experience." But the government again took sides, so Microsoft ended up paying Sun nearly $1.6 billion in 2004, partly to get them to stop lobbying the EU antitrust cops.

 Microsoft likewise was held up for $761 million by Real Networks, for $750 million by AOL (buying Netscape meant buying the right to sue), for $536 million by Novell, etc. None of that, or the EU shakedown, would have happened if ambitious U.S. antitrust lawyers had not meddled in technical disputes they did not even begin to understand.

 In comparing costs and benefits of U.S. antitrust enforcement, I see only enormous costs and no benefits. The government went after AT&T for having a monopoly the government itself created. But the government's heavy-handed solution left AT&T so feeble it ended up abandoning the competition for long-distance service and being taken over by one of its siblings. The government went after IBM for selling too many of the personal computers it invented. But IBM recently abandoned the PC business and sold the remnants to a Chinese firm.

 The U.S. government went after Microsoft for providing a free browser that worked better than Netscape's. Today, nobody cares which browser you use. But Microsoft is still a valuable national asset, an important part of nearly every big mutual fund or pension fund.

  The only thing more stupid and wasteful than U.S. antitrust is European antitrust. What European bureaucrats do to hobble or pillage any European businesses is none of our business. What they do to pillage or hobble American businesses, on the other hand, is very literally our business. And our money.