Well, the European Commission announced its new fine on Microsoft on July 12. It was a whopping $357 million. The European regulators declared that Microsoft had not complied with their 2004 order forcing the company to share certain technology with rivals and to sell a version of Windows without Media Player. Oh yes, and at that time, regulators slapped Microsoft with a $613 million fine for antitrust violations.
The new fine comes out to 1.5 million euros per day from December 15, 2005, to June 20, 2006, and European regulators threatened to double that fine starting on July 31 if the company did not meet EC demands.
All of this is quite bewildering. First, as the Wall Street Journal wondered, why now? The Journal editorialized:
There's just one catch. This past April, Microsoft and the trustee that the Commission appointed to handle the case agreed on a series of deadlines for the company to revise the 12,000-plus pages of technical documentation it's provided to comply with the 2004 order. The deadline was set for July 18 (six days after today's meeting). Then, the company is supposed to have until July 24 to make any final revisions. By that point, however, Microsoft already might have been forced to fork out as much as €400 million, or more than $500 million.
There's also the small fact that the very ruling upon which Microsoft's alleged noncompliance -- and thus the potential fine -- is predicated is still under appeal. Microsoft General Counsel Brad Smith says it's unclear whether the fine would be refunded if the company wins the appeal, because there's hardly any case law that deals with such a situation. We can only guess that's because the Commission has rarely pursued any company with the zeal and haste of its attack on the American software giant.
Regardless of whether Microsoft has met Brussels' requirements, it's clearly too soon in the process for money to be due. So why the rush? The most plausible explanation is that [EU antitrust chief Neelie] Kroes has said all along that she wanted the fine issue settled by summer. And after next Wednesday -- still five days before the July 24 deadline -- the Commission won't meet again until after its lengthy August holidays. Nothing makes the EU bureaucracy get down to business like an impending vacation.
Second, there is the plain economic fact that Microsoft possesses no monopoly power. It must compete for customers on the basis of cost and quality, and it has to continue to innovate. If it fails to any of this, it will pay a dear price. That should be obvious to anyone with a scintilla of business and economic common sense. Microsoft faces varying competitors now, such as Apple Computer and assorted open source enterprises, with future competitors ready to emerge and strike if the software giant gets fat and sloppy.
Yet, European regulators choose to ignore the economic reality of today’s high-tech, fast-paced economy. They arrogantly claim to know what’s best for the economy and for consumers. But history clearly shows that the last ones to grasp economic change tend to be politicians and government bureaucrats.
All of this, of course, is not just troubling for Microsoft. It is dangerous for entrepreneurship, innovation and consumers in Europe. The heavy hand of government often crushes Adam Smith’s “invisible hand” of the free market.
But perhaps the courts will salvage economic sanity, good business sense, and consumer well being. Microsoft has appealed the 2004 decision to the European Court of First Instance, and expects a decision later this year or next. And the software maker reportedly will appeal this new fine in court as well.
Of course, the very idea that a U.S. company focused on serving its market should be subject to the whims and rulings of European regulators and courts is troublesome from an economics standpoint and generally offensive.
Raymond J. Keating
