EU antitrust fines, Microsoft, and bears

Microsoft got "submarined" by the EU. However, of greater concern is the newly awakened tendency for government regulators to scrutinize software markets.

An antitrust regulator in his native habitat

Well, barring aliens suddenly appearing over major cities and announcing their intention "To Serve Man," the EU will announce today that they are fining Microsoft for "failure to comply" with their March, 2004 antitrust ruling. Never mind that "the Commission is the sole judge of whether Microsoft has complied." Also never mind that it appears that the Commission hasn't exactly been helping Microsoft to comply in the first place. After the Commission ruled the first time that Microsoft was out of compliance:

"Microsoft asked for guidelines on how to get into compliance, and six days before the deadline, Microsoft received draft comments from the Commission's monitoring trustee, Neil Barrett," said Tom Brookes, a Microsoft spokesman.

In April, Barrett met with Microsoft and developed a template for the software maker to enter the batches of protocols and a schedule for when the information was due, Brookes said. Seven milestones were established, six of which were to be delivered by June 30 and the seventh by July 18.

In other words, unless the Microsoft spokesman is just "making things up" (and remember, the EU Commission plus all complainants in the case have absolutely refused to disclose any communications they've had in this matter, which would be fishy to EVERYONE in ZDNet's Talkback forums if the wronged party wasn't Microsoft), Microsoft got "submarined." Tell Microsoft that they are out of compliance, don't tell them how to get back into compliance until 6 days before the imposed deadline, then declare them in violation for not having the miraculous ability to turn around those changes in 6 days. I call that a license to print money, and that isn't just a figure of speech given the likely size of the soon to be imposed fine.

I can't really get into a debate as to whether or not Microsoft was or was not in compliance, as I haven't seen the documentation originally lodged. As I've noted before, however, I'm strongly skeptical of the economic wisdom of an economic regulatory agency that presides over an area typified by heavily dirigiste economic policies and which insists on spending over half its union budget on farm subsidies. On the other hand, I also think that, if there is such a thing as "rational" antitrust policy, protocol documentation requirements are a central part of it.

So, in other words, my opinion on this matter is a bit more nuanced than some might think. As a message to those, however, who are generally pro-market except when the topic turns to Microsoft, a word of warning is in order.

That group includes, oddly enough, the Economist, a stance about which I've chastised them numerous times before. In a brief sidebar article in the July 8th edition of the magazine, the discussion turned to regulatory problems other well-known American software companies are facing in Europe. Google's new online payment service and PayPal competitor, marketed under the name "Checkout," raised regulatory eyebrows when they reduced merchant fees to those who also bought advertisements through Google's "AdWords" system. Google also is facing pressure from a judge in California who thinks a company named Kinderstart may have grounds to file an antitrust suit due to modifications Google made to its search algorithm which caused Kinderstart's web page to fall precipitously in search result rankings.

France recently passed a law that would force Apple to open it's "FairPlay" DRM to enable playback of iTunes-purchased content on non-iPod devices. Norway, Sweden and Denmark are considering similar rules.

Quoting the Economist:

None of these examples is in the same league as Microsoft's woes. Neither Apple nor Google has anything like the market dominance that Microsoft has in operating systems (JC: what about the market for music players, which pushes 90% in some markets?) But they are evidence of regulators' and legislators' readiness to mess around with new markets that would be better left alone -- and of competitors tendency to egg them on (JC:  my emphasis).

Imagine you have a dinner guest who you don't want in the house, but refuses to leave. Assume you have two options.  You and the other guests could band together to try to force him out. Alternatively, you could go out and lure inside a bear that is wandering around your backyard in hopes that he will drive the unwelcome guest out. With the first option, success means you and your guests can return to your dinner in peace. With the latter option, success means you have to contend with a bear roaming around your house.

Antitrust is that bear. If...if...if...if...antitrust regulators could limit themselves to what is SENSIBLE - namely, mitigating market power by maximizing information and access to markets for competitors versus DESIGNING the marketplace through regulatory control of product design or management of the structure of companies - I would have less complaint. I'm fully aware of the framework-building role government plays in the creation of market economies, a role understood as far back as Adam Smith (though he didn't believe in the need for antitrust regulations).

Unfortunately, government regulators have tremendous difficulties controlling themselves, and constitutions rarely provide anything which could serve as inviolable limits on the scope of their actions. The Sherman antitrust act is incredibly wide in its scope, as no attempt is made to define what, exactly, constitutes a relevant market by which to judge a monopoly, nor what limits are to be placed on regulators tasked with controlling them. This leads regulators to do things like dictate product design, which is a bit like me giving Eddie Van Halen guitar playing rules. They prevent mergers on the theory that regulators understand better the "right" structure of the market than the companies actually involved in the market and contemplating a merger. They sometimes opt to go nuclear, as happened in the breakup of AT&T. Even worse, in my opinion, is a tendency to be easy prey for competitors hoping to tie up a larger, more successful competitor in antitrust knots. That certainly seems to be the case with the EU, which is now the venue of choice for American competitors that still believe the path to success lies in government intervening on their behalf.  Good thing Apple didn't think that way.

The Economist laments a disturbing new tendency among regulators to target software markets for special attention. Well, you don't have to go to far to look for the cause. Blame competitors for bringing the bear indoors.