Today, the WSJ reported that Adobe is threatening an antitrust lawsuit against Microsoft in Europe because Adobe doesn’t want Microsoft to use PDF in MS Office. So why is Adobe going to Europe?
They are both American companies, so it might seem pretty strange. That is, until you realize that the Europeans are much more sympathetic to such claims and seem to love to sick it to Microsoft and the Americans who run it. If Adobe really does complain in Europe, that will be a VERY obvious case of forum shopping. This is an unfortunate development for consumers and technology entrepreneurs.
Specifically, Adobe asked Microsoft to remove new PDF functions from Microsoft Office and to charge users for the service if it can be downloaded. Adobe gives the software away for free, and Apple and Open Office along with about 1800 companies, have already implemented the specs. So why can’t Microsoft do it? The argument that their bigness requires different rules just doesn’t hold. Microsoft is NOT a monopoly and is facing huge threats on a number of fronts such as from Google and Yahoo. Anyone who doesn’t realize that needs to wake up and smell the coffee.
Remember the last time MS faced antitrust charges here in the US? Charges of predatory pricing and tying were used and predictions that Internet Explorer (IE) would dominate forever abounded. Only a few short years later, IE has lost ground, being replaced by browsers like Mozilla, Safari, and Opera, and a bunch of others.
Government should not pick winners and losers in the marketplace and Adobe, who once welcomed Microsoft’s entry into the PDF space, would be better off spending its time innovating rather than litigating.
Intel has asked the judge to throw out AMD’s antitrust case against it. I find it hard to understand how a case like this is supposed to benefit anyone but antitrust lawyers. After all, the point of the law is to alter incentives so that people won’t do bad things. Yet that doesn’t seem to have happened in recent high-tech antitrust cases. Microsoft, for example, has adopted the strategy of ignoring the antitrust process entirely, and it’s worked pretty well for them. By the time all the appeals in its browser-tying case had been exhausted, the IE-Netscape battle was ancient history, and the courts had no appetite for aggressive punitive actions. Sure, it costs Microsoft some money in fines and legal fees, but that’s far preferable to neutering themselves by refusing to enter any new market where they might be branded monopolists. Likewise, the EU has levied some big fines against Microsoft, but they haven’t figured out any way to reverse Microsoft’s alllegedly anti-competitive behavior. Microsoft would likely be in much worse shape had they stayed out of the media player market out of fear of anti-trust prosecution.
This AMD-Intel dispute seems to have similar dynamics. The lawsuit concerns conduct by Intel that occurred in the first half of this decade, yet the trial won’t start until 2008 and likely won’t be resolved until a year or two later. Given how murky the law is concerning what is and isn’t legitimate conduct, the logical thing for Intel to do is to ignore the antitrust process completely. They should focus on competing in the marketplace and let the legal department do damage control after the fact.
Which calls into question what the point is in the first place. If companies are going to do what they would have done anyway, what are we getting for those millions of dollars in legal fees?
Below is my summary of last week’s Microsoft hearing at the CFI in Luxembourg. You can read the entire column here. The hearing has major implications for American businesses that depend on intellectual property protections.
[…]
The European Court of First Instance (CFI) buzzed with energy this week as Microsoft 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.
[…]
Google, who less than a year a go didn’t have an office in D.C., seems to have picked up the ways of Washington pretty quickly. The New York Times reports today that Google has gone to Justice Department and EU antitrust authorities to complain that the search box in Microsoft’s new Internet Explorer 7 browser uses MSN as the default search engine.
Google has informed the European antitrust authorities of its worry that “Microsoft’s approach to setting search defaults in Internet Explorer 7 benefits Microsoft while taking away choice from users,” said Steve Langdon, a spokesman for Google. … “We have spoken to the Justice Department generally about our business and the importance of preserving competition in the search market,” Mr. Langdon said.
Wow. This is deja vu all over again. According to Microsoft, it is simple to change the default search engine if you want to. Also, last time I checked, Firefox, Safari, Opera, and the AOL browser all have Google as the default–and Google paid cash to the latter two for the privilege.
It’s day 4 of the Microsoft European hearing and today the Judges asked some really great questions about interoperability. Judge Cooke, whose Irish accent comes and goes, really cut through the blather on both sides of the argument and got to the core of the issue. The basic issue is that in 2000, Microsoft figured out how to create a distributed computing cluster that would work really well with thousands of computers (in the Court proceedings everyone is calling this the “blue bubble” because it is a cluster of computers that can only talk with other computers using “identical logic” and Microsoft outlined it in a graph colored blue). This is in contrast to other vendors like Sun Microsystems that can only offer a solution using four computers and Novell that can only do it with 150. Microsoft’s competitors would really like to be able to see and copy Microsoft’s patented invention, as they have failed to find the secrets through reverse engineering. The European Commission in 2004 was convinced that servers made by companies such as Sun Microsystems and IBM have trouble “interoperating” with Microsoft servers because Microsoft is not sharing the essential language needed to talk between computers. This sounds like a convincing argument, but it’s not an accurate representation of the issue and completely ignores third-party products that already exist to facilitate server discussion. Indeed, as the Court heard, most of the complaining companies brag in marketing materials that their servers can interoperate with Microsoft.
So, what is really going on? As Microsoft’s attorneys and other American representatives told the Court, the intellectual property that Microsoft’s rivals are trying to get their hands on 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 would be costly in terms of profits for Microsoft and for the future of any company that relies on intellectual property for its livelihood.
Yesterday, the CFI wrapped up its examination of the EC’s order to force Microsoft to remove 200 files from Windows to create the wildly unpopular Windows XPN. Now that the Court is done looking at the EC’s attempt to design software code, today everyone is focused on the issue of Microsoft’s intellectual property. Regulators have accused Microsoft of failing to provide rivals with enough information to develop software that could run as smoothly as its own on the Windows operating system. Microsoft countered that claim this morning by showing examples of client-server and server-server interoperability. Given how the different systems can talk with one another using translation-like programs, it seems rather draconian for the EC to force MS to give away their IP to rivals. Apple computer must be watching this with great interest given that they are facing similar pressure with iTunes. This case is not just about Microsoft, but about what regulators can do to any software company when rivals complain.
This is crossposted from www.soniaarrison.com.
I’m in Luxembourg today to watch the Microsoft hearing before the Court of First Instance. Two years ago, the European Commission found Microsoft guilty of abusing its dominant market position and imposed a record €497m ($613m) fine and ordered it to disclose key elements of its IP and offer a striped down version of Windows. The version of Windows that Microsoft was forced to put on the market hasn’t been popular and it will be interesting to see how that plays out this week. While this story is happening in Europe, it has broad implications for all American companies.
This is crossposted from www.soniaarrison.com where I am posting a bunch of comments from the hearings.
The article I discussed in my previous post also raises an interesting policy question:
While this may be good news for buyers of Vista, it is not for anyone who makes a living from selling anti-spyware software. The worldwide market has boomed recently, reaching $97 million in revenue in 2004, up 240.4 percent from a year earlier, according to IDC. However, companies such as Webroot Software and Sunbelt Software are in for tough times, analysts said.
“The aftermarket for Windows anti-spyware is going to dry up almost completely,” said Yankee Group analyst Andrew Jaquith. “Windows Defender is going to become the default anti-spyware engine, certainly for most consumers that have Vista machines.”
Should the Department of Justice prosecute Microsoft’s bundling of Windows Defender as an antitrust violation? I’m particularly curious to hear from those who supported the Department of Justice’s antitrust case in the 1990s. Because I assume that most of them would say “no,” but I’m having trouble seeing any relevant differences between the cases, aside from the fact that Netscape had better political connections than do Webroot and Sunbelt.
My oh my, how things change. Less than 10 years ago, FCC Chairman Reed Hundt preemptively declared that a rumored merger between AT&T and SBC would be, in his words, “unthinkable” under antitrust laws.
So I found it peculiar when I opened up the papers yesterday and today and read Reed Hundt’s analysis of the pending merger of AT&T–which has already taken over SBC–with Bell South. In yesterday’s Wall Street Journal he argued rather matter-of-factly that: “It’s like a marriage between a couple that’s been dating for a decade. It’s so predictable as to not attract a great deal of questioning.” And then I opened up the Washington Post business page today and read this from Hundt: “It’s a sport. It’s a competition. In this business, scale really matters. It’s like NFL linemen. You want ’em big, you want ’em fast, but most important, you want ’em big.”
Talk about your sudden changes of heart! Let me just reprint a bit more of what he said back in the summer of 1997 about such mergers:
“Combining the long distance market share of AT&T in any RBOC region (even as it may be reduced by RBOC entry) with the long distance market share that reasonably can be imputed to the RBOC yields a resulting concentration that is unthinkable. [If we impute] to AT&T even a modest percentage of [local] market share taken form the existing Bell incumbent in that Bell’s region, as we must do under our potential or precluded competitor doctrine, then under conventional and serviceable antitrust analysis, a merger between it and the Bell incumbent is unthinkable.”
So, in less than ten years, he’s gone from thinking such a combination was “unthinkable” because of the “resulting concentration” to now calling the move “predictable” since “scale really matters” and “[we] want ’em big.”
File this one under “The Re-Education of a Regulator”!
But seriously, I have to give Hundt credit for recognizing the changed competitive landscape since 1997. Long-distance has largely been canabalized by the rise of rigorous wireless competition and flat-rate, nationwide calling plans. The Internet is everywhere, which means IP-enable calling is a new threat to the old players. And the old Bell copper empire has now become a copper cage they are fighting their way out of. It’s all about fiber now to ensure they can compete against cable’s high-speed offerings and whatever else competitors might throw at them. The world has changed in amazing ways in just 10 short years. Reed Hundt’s changed thinking on this issue proves that.
The AT&T-Bell South deal will be approved, that much is certain. After approving the previous deal between T & SBC, regulators know it would be silly to oppose T’s deal for Bell South. The two firms don’t compete directly and the combination could offer significant scale economies as the telcos continue to dig in for full-fledged trench war with cable operators. On those grounds alone, the deal will get through. The only real question is: What conditions might regulators impose on the deal?
While the so-called “consumer groups” will ask for a litany of restrictions, I want to address just three here:
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