Microsoft Again. Really? Why?

Josh Wright —  20 January 2009

DG Comp is after Microsoft. Again. Here is the EU’s press release which states the obvious about the basis of the Statement of Objections : the Commission’s decision in the Windows Media Player decision renders illegal virtually any tie by a firm with a “dominant” share under EU law. Therefore, Microsoft’s inclusion of Internet Explorer in Windows (yes, the same one that was the basis of the old U.S. DOJ case) is therefore clearly illegal. Here’s how the Commission puts it:

The SO is based on the legal and economic principles established in the judgment of the Court of First Instance of 17 September 2007 (case T-201/04), in which the Court of First Instance upheld the Commission’s decision of March 2004 (see IP/04/382), finding that Microsoft had abused its dominant position in the PC operating system market by tying Windows Media Player to its Windows PC operating system (see MEMO/07/359).

The evidence gathered during the investigation leads the Commission to believe that the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world’s PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match. The Commission is concerned that through the tying, Microsoft shields Internet Explorer from head to head competition with other browsers which is detrimental to the pace of product innovation and to the quality of products which consumers ultimately obtain. In addition, the Commission is concerned that the ubiquity of Internet Explorer creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer which ultimately risks undermining competition and innovation in the provision of services to consumers.

What’s going on here? Why Microsoft again when its share in the browser market is shrinking and its already paid the piper more than once? Let’s start with some obvious points by way of background. First, there is virtually no way that Microsoft can win if they fight this — in the sense that the liability determination is a foregone conclusion. Despite all the talk of evidence gathering in the press release, in the context of the analysis in the CFI Windows Media Player decision, I suspect that there is not any evidence that an investigation could generate (including evidence that the conduct significantly improves consumer outcomes) that would allow Microsoft to escape liability. Second, press reports indicate that Microsoft’s new strategy with the EU has been, not to put too fine a point on it, to lay down and wait until the beating stops. Third, the ubiquity of tying arrangements by firms with significant market shares (and those without) implies significant prosecutorial discretion for DG Comp. The presence of a significant number of US based firms in technology markets (e.g. Microsoft, Qualcomm, Intel) has led some to argue that there is some protectionist-based geographical discrimination in the selection of targets. Fifth, it seems quite obvious that DG Comp is trying to send some message with its selection of Microsoft as a target, again, in the same case that the US brought years ago. The interesting part is figuring out what the statement is.

Here are a few theories of what that statement might be:

  1. DG Comp is taking the lead as world antitrust enforcer — especially with respect to monopolization
  2. Relatedly, the US Section 2 approach and remedies) are insufficient to police global monopolists and, i.e. so weak that Microsoft was able to violate stricter EC law even after the consent decree
  3. Protectionism and Public choice: Microsoft is a high profile, U.S. company that will pay the fines (beware Intel, Qualcomm, and other large US firms selling globally with significant shares…)

What’s interesting to me is the timing relative to the incoming Obama antitrust regime. By all accounts, or at least my own (see also here), the U.S. is about to start its most active monopolization enforcement regime in decades. With Professor Elhauge at the controls of the DOJ, I suspect the change in course will be significant and visible. So if (1) is the story, one wonders what sort of competition this might engender, if any, between the US and EU enforcers. Or perhaps the story is not competition but convergence in the US towards EU-style monopolization enforcement? I do think there is something to all three stories. And with respect to (3), yes I know there has been Article 82 enforcement against non-US firms, but I’d like to see shares calculated on a dollar fine basis when the EU is through with Qualcomm and Intel. Mostly, given the prior scuffle between Tom Barnett and Neelie Kroes on the CFI Judgment in the Media Player case, its hard to think that (2) is not a significant part of the story. And perhaps rather than competition with the US, motivation for convergence.

2 responses to Microsoft Again. Really? Why?

  1. 

    More interesting news on this front: Apparantly MSFT is planning on not bundling a bunch of programs (email, photo gallery, movie maker, etc.) with Windows 7.

    http://online.wsj.com/article/SB123258632983004629.html

    Could this be a response to the EU’s antitrust actions? If so, it seems to be an error cost; I doubt that bundling Microsoft’s email program with Windows is anti-competitive.

  2. 

    Good comment. I guess the cynic in me would suggest that one motivation is cash: In effect, this case has already been tried and won at the CFI (just replace the words “Media Player” with “Internet Explorer” in the first part of the CFI decision. Because there’s no empirical and little economic analysis there, the substitution should work without changing many other words at all). If ever there were a state of affairs amenable to extracting a large cash settlement, this would be it. To me the question is why didn’t Kroes bring this case the day after Microsoft decided not to appeal the CFI decision to the ECJ. (Actually, I know the answer to this, but I can’t say.)