The European Court of Justice ruled today on Microsoft’s appeal regarding the Commission’s decision to fine it €500 million for its alleged abuse of its dominant market position.
There are two, parallel and basic issues with both the regulatory framework and the charges against Microsoft. First, corporations, as per their mandate, are formally encouraged (viz. required) to maximise their profits and market share. Furthermore, the existing legislation on copyrights, patents and IP in general, allows and protects the use of IP and trade secrets as corporate leverage in achieving financial success. Yet there are limits to the power a corporation can legally attain before regulatory oversight is forced to intervene.
Sadly, the regulatory system often fails in enforcing its policy. Countless anti-trust cases, in Europe and — especially — the US, have resulted in nothing, but a relatively small fine. A fine which, under both Roman and Common Law derivatives, is relatively straightforward to estimate and in many cases significantly less than the loss of profit a corporation would have sustained if it had followed the law instead of breaking it. ‘Low’, predictable fines by the legal and social institutions in the EU and the US have, in more cases than not, resulted in corporations practically redefining acceptable policy and norms and demonstrating complete disregard to the legal framework under which they are supposed to function, whilst maximising their profits and power in the marketplace.
Such is the case with Microsoft, a very successful corporation that has traditionally flooded the market with cheap sub par technology, gaining market share through smart contractual agreements, economies of scale, good marketing and, last but not least, strongarm tactics with its suppliers, corporate customers and resellers, the threat or actual abuse of a huge patent portfolio and imitation of others’ ideas and work. Over its almost thirty year existence Microsoft has managed to slowly, but steadily, conquer the vast majority of the markets it entered with few exceptions, while at the same time it has achieved notoriety in mediocrity.
Microsoft’s business and technical tactics, including the now infamous ‘Embrance, extend and extinguish’ approach to technical standards, its promotion of Digital Rights Management and Trusted Computing technology, as well as its aforementioned monopolistic business practices have resulted regular (if not constant) heavy criticism both in Europe and the United States and in some cases legal proceedings against it.
Yet, the U.S. Department of Justice’s 2000 ruling on Microsoft and the subsequent settlement are a prime example of how even the most powerful legal institutions bow to the corporate pressure and fail to adequately regulate the operation of corporations. The — reasonable and valid — cases against Microsoft globally since the 1980s number in the hundreds, not least because it is the de facto leader in so many industry sectors, but also because it is unscrupulous in its pursuit of profit. One case that clearly demonstrates how little and how late legal sanctions typically are in such cases is that of Be Inc. vs Microsoft Corp Inc. from 2001. The case involved:
[…] exclusionary and anticompetitive acts [by Microsoft] designed to maintain its monopoly in the Intel-compatible PC operating system market and created exclusive dealing arrangements with PC OEMs prohibiting the sale of PCs with multiple preinstalled operating systems.[1]
Microsoft was eventually found guilty, but by then Be Inc. and its technically advanced, yet incomplete Operating System had folded, its assets sold to Palm Inc. and its ecosystem was dying.
Ironically, in their proceedings against that corporation, both the (US) DoJ and the European Court of Justice have largely ignored the substance of Microsoft’s abuse of the market and have focused on minor technical and functional characteristics of its software, merely because these were easier to prove in court. Those very concerns that troubled both DoJ and the ECJ however were insignificant when that corporation’s overall behaviour and position were concerned; in the DoJ case a complaint by the DAs of twenty US states, a then leading browser development company, Netscape Communications Inc., among many others that claimed that Microsoft had abused its dominant position in the market. The cases revolved around the bundling of Internet Explorer and the appearance of its icon on the default Windows desktop, something that Netscape claimed to have disadvantaged its own product. Microsoft was allegedly forcing them to include a ‘shortcut’ to Internet Explorer on the desktop threatening them with a revokation of their licence, something that obviously went against Netscape’s wishes. Similarly, in the EU case, the bundling of Windows Media Player, after complaints by several competing companies, as well as the long standing complaint of hidden and closed APIs and standards within the product.
It was, arguably, due to these major compromises in the legal process that allowed for the strong (and largely meritless) arguments by neo-liberal thinkers, including Milton Friedman, that advocated that anti-trust laws should be abolished and that they impeded technological progress; in fact, as was shown by the demise of Be Inc. among others, as well as the perpetual success and evolution of Microsoft’s mediocre (at best) Windows 98, ME and 2000 operating systems and their successors, the exact opposite is true: anti-trust laws are currently unable to foster competition; if anything they should have been more powerful, able to do away with all the legal frivolity and deal with the problem at hand: regulating the attainment of a monopolistic position, its abuse by any one corporation or other business entity that might otherwise result in the inhibition of a healthy competitive market.
In the case of the DoJ, Microsoft settled by paying a relatively small sum of money — compared to its profits and prospective profits — and making it out of the whole thing intact. Microsoft’s monopoly on the market has not diminished, neither has its power over its chain of suppliers, resellers, large customers and indeed the U.S. Government.
Across the pond things have not been so good for Microsoft, but are not too bad either. The European Commission, a powerful institution of a society far less tolerant to corporate abuse than that of the U.S. and one with a much stronger belief in regulation and limits to corporate freedom, is still legally powerless to pursue Microsoft for its position and tactics. Instead of facing Microsoft’s abuse head on, it adopted a similar approach to that of its U.S. counterpart, that of ‘picking’ a case against Microsoft where it could win, even if the case had little significance. In other words, the EC found two areas that — albeit not accurately representative of the problem at hand — could lead to a successful prosecution and the huge fine or breakup of the company that this would entail.
Today’s decision of the ECJ is very welcome, in that it hurts a convicted monopolist and returns some of the capital gained by that monopolist’s actions to the public — although it is uncertain how the funds will be used. Yet, while the legal basis for the prosecution of Microsoft is (typically) sound, it fails to identify, highlight and deal with Microsoft’s continued underhanded immoral business tactics, its abuse of the system and its position. It brings up a completely invalid point (the inclusion of Windows Media Player) and a far more important, secondary, yet unrelated issue (the closed server APIs), yet does not resolve the raison d’etre of the abuse itself.
As such, it is fodder to those that support Microsoft’s position and stand behind complete deregulation while failing to see how society, the industry, innovation and technology are all hurt from it. Furthermore, while the €500 million fine may seem excessive to some, it is — arguably — far from adequate when compared to that company’s annual legal defence budget, its profits or market cap; wealth that in some ways can be attributed to its dominance of the market and its controversial tactics.
There is a significant and increasingly important regulatory void in our society. A void that allows a corporation such as Microsoft to attain a dominant monopolistic position in the market, abuse its position, impede competition and innovation and still enjoy the same freedom and protection smaller corporations enjoy under our legal framework. A void that forces regulatory bodies to resort to minor (or even frivolous) arguments and legal trickery to achieve a minimal level of regulatory control over corporations. A void that in the end hurts the industry (with the exception of the few massive corporations that can afford to exploit it) much more than its helps anyone. The void is part of the paradox of our legal and economic system; a system that encourages competition, but typically forbids complete dominance of a market. A system that encourages the undermining of social responsibility and morality in doing business transactions, and maximises the importance of profit. And a system that, effectively, fails to perform even to its incomplete and ineffective standards.
Still, ECJ’s ruling today cannot be dismissed that easily; Even if the basis for the EC’s fine is controversial, given the lack of the legal foundation that would enable our social institutions to effectively deal with powerful multinational corporations such as Microsoft — by effectively terminating their existence in that form, e.g. breaking them up — it could only be one of two cases: at best it is a manifestation of the increasing battle for power and control between the multinational corporation that readily shows contempt for the law, and the national and/or international social institutions aimed at upholding it and demonstrates extreme apathy towards the social environment in which it operates. At worst, it is merely an attempt to convince the public of the above, a smokescreen culminating in an explosion of the form of a — largely insignificant (for a corporation of the scale of Microsoft) — fine, while the aforementioned corporation maintains its practice, dominant position and massive profits.
Which one of the two remains to be seen. Yet until an institutional, fundamental, systemic and legally acceptable solution is found and agreed upon, I suppose irrespectively of the number and size of the fines corporations are asked to pay, cases such as these will never be resolved.
Ars Technica covers the case here