Pittsburgh Tribune Review, October 21, 2007

A European appeals court has validated a 2004 antitrust ruling, ordering Microsoft Corp. to pay $690 million in fines, the largest ever levied by European Union (EU) regulators.

The court also ordered Microsoft to sell a version of Windows without its successful Media Player and share information about its operating system with competitors.

What great transgression did Microsoft commit to warrant this punishment? It created a successful product. EU bureaucrats proclaimed a victory for competition and consumer rights. But punishing success will only harm consumers.

In July, the European Commission (EC) charged Intel Corp. with monopoly abuse for offering consumers cash rebates and incentives. In other words, providing the customer with a good deal is considered anti-competitive in Europe.

The EC also held hearings on whether Apple should be allowed to market different products in different countries through its iTunes music store.

Who better than bureaucrats to define the listening preferences of 500 million Europeans?

In September, the EU took preliminary steps to challenge Google's proposed purchase of Web advertising company DoubleClick before Google had even filed paperwork with the EC.

These actions have little to do with protecting the consumer. There is no evidence that these companies have engaged in "price gouging," nor have they become unresponsive to customer demands. The complaints arise not from customers but from competing companies unable to provide a superior product at a competitive price.

In the European Commission, these competitors have found an accomplice to help them handicap the front-runner. The result is that inferior and pricier products are foisted on the consumer while arrogant regulators assure them this is for their own good.

As a reward for creating trailblazing inventions, the EC forces innovators and entrepreneurs to hand over technology secrets to rivals. In Microsoft's case, the EC ordered that innovative server protocols for delivering services to networks must be disclosed to competitors, allowing them to design competing server software.

In January 2006, Microsoft voluntarily exceeded EC demands and agreed to open the entire Windows Server source code for licensing. Though this should have ended the debate, the EC further claimed the authority, affirmed by the appeals court, to dictate the licensing fees which Microsoft can charge, thus rendering intellectual property worthless.

Patents provide a key incentive for innovation, and the EC's cavalier willingness to invalidate these protections will wield a chilling effect on the commercialization of future inventions.

The EC often justifies decreasing the market share of successful companies in the name of competition. Though the original EU constitution proclaimed a commitment to "an internal market where competition is free and undistorted," these words were quietly removed three months ago during a summit in Brussels.

The rationale for this move is clear, given that many European companies rely on anti-competitive government subsidies. In stark contrast to their stance against Microsoft and other American companies, the EC appears unwilling to challenge seriously these harmful practices in Europe.

In one egregious example from 2004, the EU competition commissioner approved a $4.36 billion state-funded bailout of the French engineering giant Alstom. In exchange, Alstom provided nothing more than a promise they would not abuse this gift, agreeing to form voluntary alliances with other private companies. Ironically, such policies actually create real monopolies.

Companies such as Microsoft, Google, Intel and Apple must constantly compete to remain competitive. Nothing demonstrates this more clearly than the evolution of Microsoft over the past decade. While still a dominant force, Microsoft's operating system faces increasing competition from Mac OS and Linux. In the exploding fields of Internet search and digital media, however, Microsoft finds itself playing catch-up with Google and Apple.

Now it must deal with the actions of the EU -- which have nothing to do with innovation and competition. The appeals court decision affirms the power of bureaucrats in Europe to strong-arm the American technology sector. That reckless ruling has the potential to chill innovation and economic growth worldwide.

Daniel R. Ballon, Ph.D., is a fellow in technology studies at the Pacific Research Institute in San Francisco.