AEI-Brookings Joint Center Policy Matters 04-11


The Microsoft Case: Lessons from Europe. Robert W. Hahn.  April 2004.

In the last few decades, American courts and policymakers have effectively decided that competition is a means to the end of protecting consumers from value-reducing market distortions. But as Brussels’ ruling in the Microsoft case illustrates, Europe still embraces the notion that competition is an end in itself – that competitors must be protected from the judgments of the market.  Indeed, in the name of competition, the Commission wants to keep competitors in the game at the price making Windows a far less reliable and versatile platform for all software.
 
Like other makers of modern computer operating systems, Microsoft added the capacity to capture and play audio and video to its recent versions of Windows. RealNetworks’ competing media software subsequently lost its place at the top of the heap, and the company turned to the European Commission for a helping hand. The Commission has now decided that bundling Windows Media Player with Windows violated the law, and ordered Microsoft to create a version of Windows without media functions – the better to tempt consumers to try alternatives from RealNetworks, Apple and others.
 
Now, even on the face of it, the decision is difficult to justify. Computer users currently have no difficulty obtaining media software from RealNetworks and a host of other software companies. Many computer makers already install competing media players along with Windows. And for buyers who don’t find such software ready to use on their computer desktops, RealNetworks and others offer free copies that are no more onerous to download from the Internet than a few tunes from the latest Britney Spears album.
 
But the Commission did more than level the playing field; it chose a remedy that advances the interests of Microsoft’s rivals at the expense of consumers as well as Microsoft. To see just how, consider the way the U.S. courts dealt with a parallel issue in Washington’s own antitrust case against the giant software company. Microsoft was required to give computer makers the right (and technical ability) to remove user access to a variety of Windows features so that the vendors could feature substitute software from Microsoft’s rivals.
 
By contrast, the European Commission is demanding that Microsoft literally remove the software code, a fix that has the seeming advantage of putting a stake through the Window Media Player’s metaphoric heart. That is deeply problematic, however, because Windows Media Player isn’t a component to be snapped off Windows like the chopping blade of a Cuisinart chopping blade, but an intricate collection of software commands that makes use of myriad parts of the operating system.
 
At best, then, meeting the Commission’s orders will require an expensive overhaul of Windows that will strand many existing software programs that depend on help from Windows Media Player code. At worst, it will make Windows far less reliable as a platform for applications software, and force independent software makers to write programs for Windows that are inherently slower and more complex. That’s why U.S. District Court Judge Kollar-Kotelly rejected the code-removal approach, ruling that it would “disrupt the industry, harming ISVs [Internet Service Vendors] and consumers.”
 
Wait; this gets worse. Media playing software is not intrinsically different from other sorts of software bundled with Windows. Thus while RealNetworks focused Brussels’ attention on media software, the Computer and Communications Industry Association, a trade group representing a host of Microsoft rivals, has filed parallel claims for software that browses the Internet, handles e-mail and instant messaging, and edits movies.
 
To be consistent, the Commission might well decide that computer makers should be able to install versions of Windows built from a long menu of functions. And to manage that feat – if, indeed, it could be managed – Microsoft would have to design a software platform on new principles that would probably require other software applications makers to redesign their programs from scratch.
 
Microsoft casts a long shadow over the software industry, one that has led antitrust policy enforcers on both sides of the Atlantic to take steps to keep the light shining through. But on the American side, officials accepted a settlement that put the interests of consumers first. Europe now seems in danger of seeking to destroy the village in order to save it.
 
Mr. Hahn is executive director of the American Enterprise Institute-Brookings Joint Center, which focuses on regulation and antitrust. He has consulted to Microsoft, but has not worked on this case.