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Microsoft's European Hearing and America's Future
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By Sonia Arrison
TechNewsWorld
04/28/06 5:00 AM PT

http://www.technewsworld.com/story/50207.html

What many countries are calling "competition policy" is starting to look a lot like anti-Americanism that specifically targets successful U.S. companies. If so, that is a disastrous outcome that doesn't bode well for the future.


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The European Court of First Instance (CFI) buzzed with energy this week as Microsoft (Nasdaq: MSFT) and the European Commission squared off over a damaging 2004 ruling that, along with a fine of 497 million euros (US$613 million), creates a new Microsoft product and exposes the company's valuable intellectual property. The circus-like hearing holds wide-ranging implications for American businesses.

On the first day, news crews and a gaggle of reporters showed up to watch the attorneys, some in horsehair wigs, discuss whether or not Microsoft abused its market power in the media-player market. Although Microsoft demonstrated that other media players exist and many consumers are using them, the EC continued to insist that Microsoft needed to be reined in.

The remedy that the EC concocted ordered the removal of 200 files from Windows, and created a new product called "Windows XPN." In addition to naming the product and deciding which files to remove, the Commission also determined the size and font of the packaging. But consumers have not embraced this foray into software production by European bureaucrats.

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Success Can Be Dangerous
Since the EC's order, Microsoft sold 35 million units of regular Windows, but only 1,787 copies of Windows without media player (Windows XPN). Of those 1,787 copies that were sent to retail shops, no one knows if any consumers have even purchased a copy and zero Original Equipment Manufacturers have installed it. That's a huge failure on the EC's part and a clear signal to the judges at the CFI to reverse the ruling.

It's unclear how many American tech executives are watching this case, but the ones who are can't be happy. That's because control and ownership of intellectual property are key elements for a successful tech business. The message that the EU regulators sent to technology companies with their 2004 ruling seems to be that success is dangerous.

The EC not only forced Microsoft to remove operating system files but also told the company to share with rivals its IP for key server software. The reasoning from the bureaucrats seems convincing at first blush.

The idea is that servers made by companies such as Sun Microsystems (Nasdaq: SUNW) and IBM (NYSE: IBM) have trouble "interoperating" with Microsoft servers. Since they have trouble communicating, the theory goes, Microsoft should provide the language so all the servers can easily talk. That's not an accurate representation of the issue and completely ignores the fact that third-party products to facilitate server discussion already exist. Indeed, as CompTIA antitrust counsel Lars Liebeler pointed out, most of the complaining companies brag in marketing materials that their servers can interoperate with Microsoft. So what is really going on?

Attack of the Clones
As Microsoft's attorneys and other American representatives told the Court, the intellectual property in question does not act like a language, but rather like DNA. That would give Microsoft's rivals the ability not to talk with them, but to clone them -- a dangerous development that should be avoided. As Jim Prendergast of Americans for Technology Leadership noted, "This portion of the remedy should be titled 'attack of the clones.'"

Then there's the argument that sharing Microsoft's communication protocols would spur innovation. To this, Microsoft attorney Ian Forrester responded that "opening up the vaults of a bank will spur economic activity." He's right that it would, but it would also discourage anyone from putting their money there. In the same vein, exposing Microsoft's intellectual property will harm investment in that area. However, the case doesn't just affect Microsoft.

If Eurocrats can force Microsoft to give up significant chunks of its valuable IP, there's no stopping them from doing likewise to other successful American companies. The next target may be Apple Computer (Nasdaq: AAPL) , which recently got in a spat with French legislators when they passed a bill to force the sharing of iTunes code. And the problems don't end in Europe.

Korea, for instance, has already sicced its competition police on Qualcomm (Nasdaq: QCOM) , Microsoft and Intel (Nasdaq: INTC) and China is starting to re-examine its antitrust laws. What many countries are calling "competition policy" is starting to look a lot like anti-Americanism that specifically targets successful U.S. companies. If so, that is a disastrous outcome that doesn't bode well for the future. America's tech community and political leaders should sit up and take notice of these developments before it is too late.


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Sonia Arrison, a TechNewsWorld columnist, is director of technology studies at the California-based Pacific Research Institute and author of "Canning Spam: An Economic Solution to Unwanted E-mail."