Europe Asserts Itself in Microsoft Ruling

The antitrust ruling highlights the decline of U.S. control over multinational companies.
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SAN FRANCISCO -- The Justice Department has voiced its concerns about a European court decision against Microsoft (MSFT) - Get Report.

But some observers say the U.S. government has already sidelined itself with regard to controlling the behavior of multinational corporations.

Thomas Barnett, U.S. assistant attorney general for antitrust, issued a statement late Monday saying the standard applied by the European Court of First Instance "may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition."

The decision on Monday upheld most of the European Commission's findings that Microsoft had stifled competition in PC-based media players by bundling its own Windows Media Player with the operating system -- and for server group software.

Barnett took issue with what he perceived as the tendency of European law to protect competitors rather than consumers.

U.S. courts see potential benefits for consumers when a company uses aggressive tactics, "for example, to add features to its popular products or license its intellectual property to rivals, or to refuse to do so," Barnett said.

Although the European Commission claims it has been acting on behalf of consumers, "I'm not sure that's the case," says Roger Kay, president of Endpoint Technologies. The beneficiaries are actually those competitors whose complaints underlie the EC's cases, he added.

However, the U.S. government ceded control over regulation of Microsoft by signing off on the original Justice Department settlement in its own antitrust case against the company, Kay says. That case dates back to 1998 and was settled in 2001. The Redmond, Wash., company's competitive behavior remains under U.S. court supervision as a result, at least until November.

To technology analyst Rob Enderle, the impact of the decision is the loss of U.S. control over regulating multinationals. The EC "is taking center stage in large commercial activities in the world market. In my experience, you don't see that," he said. In contrast to the U.S., the EC "is showing itself to be a much more avid believer in being a central power broker for commerce."

Because of the U.S. government's diplomatic work to maintain a coalition with European powers since the start of the Iraq War, the administration did not challenge the EC's authority over Microsoft's anticompetitive behavior, Enderle says.

If not for the political realities earlier in the decade, "the U.S. would have made a pretty good stink about this," Enderle says. "Now, other companies wanting to take on a dominant player will take their cases to Europe for litigation."

This poses the danger that "U.S. law becomes redundant and powerless, because this is a world-market action," Enderle says. "Once the

EC has established itself as the world body that's willing to do this," the U.S. will have difficulty retaking regulatory control over multinationals.

"The U.S. has not served itself well," says antitrust attorney Mark Ostrau, a partner at Mountain View, Calif.-based Fenwick & West. "People can differ about whether the U.S. approach to Microsoft was sufficient," but countries must respect each others' right to regulate corporate behavior, he adds.

"When the U.S. settled, I said this was totally ineffective," Ostrau says. Europe has been more effective at reining in Microsoft competitive dominance, and the company has to "expect that

its actions are going to get watched closely in other jurisdictions.

"If I were another dominant company, I'd be well advised to look closely at my activities, especially in Europe," he says.

Barnett noted the importance of cooperation between the U.S. and Europe in developing a common approach to antitrust, particularly in the high-tech sector. "The Justice Department will work with the EC to develop sound antitrust enforcement policies that benefit consumers on both sides of the Atlantic."

"Some companies may appreciate the big stick provided by European regulators, but consumers will see little benefit, and the business climate for American companies in the global marketplace just got tougher," Dick Armey, former U.S. House majority leader and chairman of the conservative lobbying group FreedomWorks, said on the group's Web site. The organization is a successor group to Citizens for a Sound Economy, which reportedly has received funding in the past from Microsoft.

"Not only does this stifle innovation and competition, it threatens every technology company doing business in Europe," Armey said. "These disputes are better settled in the marketplace than in the courtroom."

From a consumer perspective, the level of integration of products may be more important than having alternate suppliers, Kay says. For example,

Apple's

(AAPL) - Get Report

integration of the iPod with iTunes and its own accessories "has created a very good consumer experience. That's better than having four elements from four suppliers who have to match and make all their stuff work together."

Although the approach can lock out competitors in content and accessories, consumers would rather pay a high price and get a user-friendly experience, Kay added.

The European court precedent "creates the basis for the prosecution of other companies, for example, Apple saying they are dominating digital music," he says.

Dominant companies such as Microsoft and Apple can take a common sense approach to the issue, according to Ostrau, adding features to integrated products "that look like they are creating new markets and helping consumers is likely to be OK. Adding things that look more like they are inhibiting third-party competition are not likely to be OK."