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Microsoft and the EU Hubris and Nemesis

Hubris and Nemesis

by BINOY KAMPMARK

‘In his day,’ wrote Ralph Nader and James Love in Information Policy Notes (1998), ‘John D. Rockefeller tried to monopolize oil production, refining and distribution.’ Alcoa had a go at cornering aluminum manufacturing. AT&T, with its focus on local and long distance communications, sought to control the telephone handset market and devices compatible with telephone lines.

As the authors go on to point out, the ambitions of this modern Dutch East India Company pale in comparison to those of its predecessors, though the anti-trust format remains the same. Microsoft’s strategy is nothing less than global, a control of all software operating systems associated with electronic commerce. But the computer giant was not just concerned with controlling the associated technologies relating to transmission. It wanted to control the content itself.

Its means of doing so have been classic violations of anti-trust practices. Microsoft tends to work outside the barriers of competition law with the dedication of a vicious mercantilist. Rival products are countered with a huge research and development base that inevitably leads to the introduction of alternatives which are often free. The catch is the way an entire system is packaged. New features are bundled together with the Windows or Office systems.

Microsoft’s behavior has been partially successful. It faced a legal hurdle in a judgment by US District Court Judge Thomas Penfield Jackson in 2000 charging it with ‘predatory’ actions which had ‘trammeled the competitive process’. It was a decision the US Appeals Court upheld in part in June the following year. But a key feature of the trial judge’s previous ruling – that Microsoft be broken into two separate entities – was thrown out on appeal as ‘tainted’. The Clinton administration found the judge’s remedy attractive, but the succeeding Bush administration had little time for corporate punishment.

The rationale of the Department of Justice in 2001 was typical: uncontrollable corporate behavior was a good thing for the American consumer. By shortening court proceedings and refusing to break up the giant, the government was protecting US citizens. It was as if Bill Gates had been appointed Attorney-General: after all, a strong Microsoft, he always claimed, was good for customers. In an environment that ultimately led to the demise of Enron, Microsoft was let off the hook.

Three years after conquering the White House, an emboldened Microsoft found itself in the quagmire of European competition laws. The EU has been rather more diligent than its American counterparts in monitoring the computer giant’s indiscretions in the marketplace. No less than five years had gone into an investigation of the company.

The devil, as ever, lay in the operating system. The Commission subsequently ordered Microsoft in March 24 2004 to divulge programming codes to rivals in the server market. The aim of this move was simple enough: to give the products of rivals ‘full interoperability’ with computers running Windows. Microsoft was also given 90 days to make the European version of its Windows operating system to PC makers without the add-on features of media player. A fine of $600 million was also imposed.

Aghast, Microsoft officials sought a way that would flout the competition verdict while still giving the impression it was law-abiding. It refused to heed the EU’s previous judgment in 2004 by keeping the prices of disclosing interoperability information high. The EU response earlier this week was uncompromising: a $1.35 billion fine for a period between 2004 and 2007. Only in October 2007, when Microsoft offered a world wide patent license for 0.4 per cent of a licensee’s revenue and interoperability information for a flat fee of $15,000, could it be said to have complied with the 2004 ruling.

Microsoft, assures the Competition commissioner Neelie Kroes (nicknamed ‘Steelie’) tells us, is the only company in 50 years of European Competition policy to be fined for not complying with an antitrust verdict. The total fines imposed on Microsoft so far amount to something in the order of $2.5 billion.

These may only be pinpricks to the bank balance of Microsoft’s ongoing concern (a mere two weeks cash flow), but they demonstrate a necessary resolve by governments against corporate unaccountability. Neo-liberal free marketers have thankfully made themselves scarce on this one. ‘Steelie’ Kroes may be overly optimistic if she thinks that this will close ‘a dark chapter in Microsoft’s record of non-compliance.’ There is also much to be done as to what constitutes appropriate pricing for patent licenses. But at least the regulators are trying.

BINOY KAMPMARK was a Commonwealth Scholar at Selwyn College, Cambridge. He can be reached at bkampmark@gmail.com.