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Fined if You Do, Fined if You Don’t – Pacific Research Institute

Fined if You Do, Fined if You Don’t

The European Union recently slapped Microsoft with a penalty of $1.3 billion, the largest fine ever levied against a single company. The timing is curious because the penalty was issued just a week after Microsoft posted on the Internet over 30,000 pages of its most closely held trade secrets.

This disclosure signaled the beginning of a radical strategy to open the gates to the company’s programs and let innovators flood the market with compatible products. Why would the EU discourage innovation and punish successful firms for their ingenuity?

Microsoft’s latest initiatives may empower startups and independent developers, but this does not stop the company’s largest corporate rivals from lobbying governments around the world to handicap their dominant competitor, limit choices and force inferior products on the consumer.

For more than a decade, rivals have argued that the popularity of the Windows operating system renders competition impossible without government assistance. To level the playing field, regulators in both the U.S. and Europe force Microsoft to help its competitors design software for Windows which functions as well as the company’s own products. Microsoft’s latest announcement, however, far exceeds these obligations and should nullify any rationale for continued government scrutiny.

According to its new “interoperability principles,” Microsoft will openly distribute all of the information required to interface with its popular products. Just as an electrical socket allows countless devices to access the power grid, any software developer can now “plug in” to programs like Windows, Office, and Outlook. Not only will this information be available free of charge, but innovators can distribute their creations for free without paying royalties to Microsoft. As a result, consumers will soon have access to a nearly limitless supply of applications enabling them seamlessly to customize their desktops.

Why would Microsoft voluntarily relinquish the keys to its most successful programs? During the decade spent by regulators and competitors micromanaging Microsoft’s software, the entire nature of modern computing changed. The Internet and online applications today shape every aspect of a user’s experience, displacing the central importance of installed software. In this arena, Microsoft has been unable to gain traction on dominant players like Google. With its commitment to openness, the company acknowledges that achieving success on the Internet requires radical new business strategies.

As a powerful platform for the rapid exchange of ideas, the Internet brings together vast global networks of innovators. By opening its software to millions of collaborators, Microsoft hopes to help its products adapt with changing technologies, and seamlessly integrate the desktop with the Web. This will enhance the company’s reach into online markets, create opportunities for independent developers, and offer abundant choices for the consumer.

Rather than embrace these benefits, regulators in the European Commission are imposing exorbitant fines and launching new investigations. After collecting $700 million from Microsoft in September, the EC has grown emboldened by their authority to challenge and extort the American technology sector. Believing that the government’s role is to hold back successful firms and ensure a level playing field, Europe’s competition commissioner Neelie Kroes seeks to ratchet up Microsoft’s punishment until achieving “a significant drop in market share.”

The “European Committee for Interoperable Systems” (ECIS), a coalition of Microsoft’s American rivals including IBM, Sun Microsystems, and Oracle, eagerly exploits the EC’s willingness to help cripple their competition.

Based on complaints from the ECIS, Kroes launched a new investigation against Microsoft in January. Even though the company’s new strategy goes above and beyond any remedies sought by ECIS, Kroes imposed a $1.3 billion fine as retroactive punishment for not acting sooner. Furthermore, she pledged to continue the moot investigation, reserving the right to impose additional arbitrary penalties in the future.

If she cannot inflict sufficient damage using fines, Kroes will force the company to sabotage its own products, making them less appealing to consumers. Even though the Internet has become an indispensable component of modern computing, the EC recently launched a second investigation to determine whether Microsoft should be forced to ship its Windows operating system without any Web browsing capabilities.

Creative companies with innovative ideas should be rewarded in the marketplace, not punished by the government. The EC’s perverse system of incentives penalizes popular products, while encouraging anti- consumer practices such as collusion and extortion. By imposing endless fines without any path to reach compliance, Neelie Kroes saps the motivation for technology firms worldwide to compete and succeed. European regulators must stop treating Microsoft as their personal ATM and allow consumers everywhere to share the wealth.

Daniel Ballon, Ph.D., is a Fellow in Technology Studies at the Pacific Research Institute in San Francisco, California.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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