A tale of two cases

European regulators are going far beyond what U.S. prosecutors ultimately agreed to accept from Microsoft. How did similar antitrust philosophies lead to divergent courses?

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
5 min read
After five years of investigation, European antitrust regulators are seeking substantial changes in the way Microsoft does business, going far beyond what U.S. prosecutors ultimately agreed to accept from the company.

The decision would appear to indicate a wide gap between American and European legal and business practices, with economic consequences that could reach well beyond the case itself. But legal experts say the divergent courses stem largely from politics and entirely different evidence, not any serious disagreement in antitrust philosophy.

"The Europeans do take a tougher general approach," said Robert Lande, a University of Baltimore law professor who has written extensively on antitrust issues. "But I don't think that makes a difference in this case. These are fundamentally different cases, not two enforcers looking at the same violation."

Both cases were built on the central charge that Microsoft abused its overwhelming dominance in the software markets. It is in the penalty phase of the EU prosecution that their differences are manifesting themselves most clearly today.

The severity of that penalty reflects a precept of European antitrust law that focuses more heavily on monopolists' effects on competing businesses rather than on consumers. As a result, European authorities have placed more emphasis on the way Microsoft's behavior affected companies such as Sun Microsystems and RealNetworks than U.S. regulators did in their case.

Concerned about maintaining viable competition, European regulators have considered how Microsoft's packaging of its Media Player with Windows has impeded rivals in the multimedia software market. By contrast, when the U.S. Court of Appeals examined Microsoft's inclusion of its Internet Explorer browser with Windows as part of the Justice Department's case, the judges weighed consumer issues such as the potential for higher prices or poorer features.

Despite such variations, however, the cases are based on the same basic principles, with a goal of preserving a competitive marketplace that will ultimately benefit the consumer.

"The difference is overstated," a former EU Competition Commission official said. "The consumer is not going to benefit from competition, if there is nobody left in the market."

Still, when the stakes are high, even slight philosophical differences can be magnified into vastly different practical results. European regulators have made clear that they expect their ruling to serve as precedent for future issues, which could include new Windows features, such as search or voice recognition--areas the Justice Department has shown little interest in reviewing.

"This will be a precedent," the former EU official acknowledged. "Microsoft and other countries will now have it spelled out for them what the state of the law is."

The European Union's sanctions against Microsoft are:

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The European Union and the United States have worked for more than a decade to align their antitrust rules more closely. Businesses on both sides of the Atlantic say this is necessary to regulate mergers and other corporate actions in an increasingly global economy.

But concerns about Europe's perspective on antitrust issues arose in the United States in 2001, when the European Union rejected the merger of General Electric and Honeywell, which had been approved by federal authorities. The U.S. Justice Department issued a press release at the time, bemoaning a "significant point of divergence."

Since then, however, European regulators have said any differences on antitrust issues are often exaggerated by commentators in the United States. In February, European Commissioner for Competition Policy Mario Monti took pains to make that point in a speech in Los Angeles.

"Put simply, the EU and U.S. agree on what competition policy should be all about," he said, according to a posted copy of his speech. "We both agree that the ultimate purpose of our respective intervention in the marketplace should be to ensure that consumer welfare is not harmed."

U.S. antitrust experts also point out that the European prosecution hasn't progressed as far as the Justice Department's case did.

Federal prosecutors under the Democratic Clinton administration originally brought a forceful case that asked for Microsoft to be broken in two, after U.S. District Court judge Thomas Penfield Jackson ruled that the company had abused monopoly powers. Jackson approved the far-reaching penalty with little change.

"In the initial phase of Microsoft's U.S. trial, the government came out with its case, and the judge came up with a harsh remedy," said Stanley Liebowitz, a University of Texas at Dallas economics professor who co-authored a 1999 book on Microsoft. "If that had remained as it was, I don't think the European Union would appear to be all that out of line."

The proposed U.S. penalty was ultimately overturned by a federal court of appeals ruling, which also said Jackson had reasoned incorrectly on some key antitrust issues, though it agreed that Microsoft had illegally abused its monopoly. Monti's decision will face similar scrutiny from Europe's higher courts, which have previously blocked several of his rulings on mergers.

Critics conceded that the case had been weakened by the appeals court decision but said the pro-business philosophy of the new Republican White House played as large a role.

Rather than retry critical portions of the case after the appellate ruling, the Justice Department--now under the Bush administration--agreed to a settlement far more lenient than the initial court penalty. Microsoft did have to offer more information to its competitors, but it remained a whole company and was not required to make any substantial changes to its Windows operating system.

"In theory, the Democrats and Republicans were suing under the same standard," University of Baltimore's Lande said. But the Republicans, he added, "were very conservative enforcers who didn't believe in doing anything other than slapping Microsoft on the wrist: It's not corruption; it is just the way they view the world."

Political factors also may have shaped Monti's judgment. The Justice Department has closely monitored the process, and some say pressure from the United States could help limit any eventual restrictions on Microsoft to the European market, instead of the entire world.

Yet above all, legal analysts say, the European regulators and their American counterparts were simply looking at different facts.

The U.S. authorities were focusing on the Web browser market, stressing Microsoft's dealings with pioneering company Netscape Communications, whose business had been pummeled by the time the trial began. Monti is focusing on thriving companies such as RealNetworks and the media player market, which is still developing.

RealNetworks and Netscape do bear some striking parallels, particularly in their common status as scrappy underdogs against the Microsoft empire. But many details and evidence differed in their antitrust cases, ranging from the damning e-mails of the browser wars to the technical virtues of bundling different software with operating systems.

"The Microsoft case is unique," Fenwick & West attorney Emmett Stanton said. "It's a combination of different facts, circumstances and focus."