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Deja vu: Microsoft's antitrust defense

Antitrust expert Richard Donovan says the software maker's defense before the European Commission against anticompetition charges has a familiar ring to it.

Does it all sound familiar?

Once again, Microsoft has responded to charges of anticompetitive behavior, this time before the European Commission, which late last year conducted closed-door hearings in Brussels, Belgium. Microsoft is accused of illegally using its dominance in the operating system market to influence the low-end server market and illegally tying Windows Media Player to the Windows operating system.

In press releases, the commission has pointed out that the European charges are different from those brought by the U.S. Department of Justice, primarily because the investigation in Europe concerns different products. However, the underlying conduct is very similar.

First, Microsoft is again accused of using its advantage to block competitors from developing and marketing products that interoperate with Windows by adding similar new features to the Windows software, as well as refusing to disclose interoperability information that would assist rival server products. Second, the U.S. litigation involved a charge that Microsoft tied its Internet Explorer Web browser to Windows, while the European investigation is focused on whether Microsoft is attempting to monopolize the digital media software market by tying its Media Player to Windows.

The settlement of the U.S. litigation, still on appeal, has, to date, done little to enhance competition in the Internet browser market, largely because the remedies were narrowly circumscribed, and Microsoft was allowed a great deal of discretion in its compliance requirements.

The European Commission would have the best opportunity to level the playing field if it requires Microsoft to separate (untie) Media Player from Windows.
Furthermore, the relatively slow pace of the litigation process, combined with the rapidly changing technology industry, has relegated the case to an academic exercise of little practical value--competing Web browsers from Netscape Communications, The Mozilla Organization and Opera Software occupy a small part of the market, whereas IE is still included with every copy of Windows.

The European proceeding has the potential to have much more significant, procompetitive consequences. A brief comparison of the remedies the commission proposed and those negotiated in the U.S. settlement is illustrative.

Media Player and Web browser remedies
The U.S. settlement required Microsoft to include a mechanism by which PC manufacturers or users could hide the icon for IE; by contrast, the European Commission may require Microsoft to offer a version of Windows without Media Player or, alternatively, require Microsoft to include competing digital media players with its Windows software. The purpose of all three provisions of the settlement is to encourage content providers to write for whichever product is more suitable to their needs, that is, the product that most successfully competes for their business and consumer preference.

The U.S. settlement did not go far enough, because content providers continue to write predominantly for IE, since they were assured of its ubiquity, as it remained linked to Windows. Industry feedback indicates that the settlement has not forced Microsoft's browser to compete on the basis of quality. The commission would have the best opportunity to level the playing field if it requires Microsoft to separate (untie) Media Player from Windows. This remedy would be preferable, because it would remove from Microsoft's discretion the choice of which rival media-playing software to include.

Despite the potential for a toothier resolution of the media software problem, it is possible that the remedy will come too late, because Microsoft has already tipped the market. The critical mass of content providers may already have committed their resources toward writing content compatible with Windows Media Player, thereby dooming RealNetworks' Real Player and other competitors to the same fate as those Internet browsers less tenacious than America Online's Netscape.

Interoperability remedies
As a remedy to charges that Microsoft refused to make key interoperability information available to producers of related software, the U.S. settlement imposed vague disclosure requirements. Microsoft was given "sole discretion" to decide which software protocols were applicable to the decree and was permitted to cease compliance with the settlement's disclosure requirements, if disclosure would compromise the security of its products.

By contrast, the European Commission may impose certain specific disclosure obligations that would allow Microsoft's competitors in the low-end server market to achieve full interoperability with Windows PCs and servers. Depending on the extent of the disclosure requirements, producers of other related software products may also gain the opportunity to compete effectively, before the situation becomes critical.

The litigation in the United States, which has lasted for six years, and the investigation in Europe, already four years old, suggest that the deliberative litigation process--with the need to give the defendant due process--may not always provide timely justice in rapidly moving technology industries. Antitrust laws may be of limited effect, if the piecemeal, late-in-the-game remedies the U.S. settlement adopted become the standard for antitrust violations in the information technology field.

European Union Competition Commissioner Mario Monti and the commission have shown a willingness to move out in front of other nations in enforcing competition law. Time will tell whether the commission is any more effective in keeping Microsoft from abusing its monopoly power without stifling its ability and incentive to innovate.