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Microsoft vs. Europe

A recent court ruling raises concerns that officials who don't understand the market are punishing success.

September 20, 2007

In Europe, it seems, it doesn't pay to win big.

The European Court of First Instance this week upheld fines and sanctions that antitrust officials had levied against Microsoft Corp. in 2004. According to the court in Luxembourg, Microsoft improperly used its dominance in computer operating systems to stiff-arm competitors in two other markets. As a consequence, Microsoft must pay more than $1 billion in fines, offer European computer vendors a version of Windows without its media-playing program and help competing makers of server software work with Microsoft's products.

The ruling sent a chill up the spines of many tech executives in the U.S., who worried that a similar punishment awaited any highly successful firm. Even the Justice Department's top antitrust cop sounded a note of alarm, saying the decision in the Microsoft case could actually hurt consumers by "chilling innovation and discouraging competition." That's a likely outcome if market leaders are penalized for adding new features or seamlessly integrating products and services.

But the European Commission can easily avoid heading down that dangerous path. It's worth remembering that the case against Microsoft began in 1998, when computer operating systems were a vital platform for numerous products and services. Although the company still has a headlock on operating systems and office productivity software, its power isn't what it used to be -- nor is anyone else's. That's because the Web opened new avenues for entrepreneurs and innovators to reach customers, despite the walls put up by bigger firms.

The spread of broadband connections has enabled many functions to move from the desktop to the Web. For example, RealNetworks Inc., which sought to penalize Microsoft for competing unfairly against its RealPlayer software, now has versions of its music service that work through Web browsers, portable players, consumer electronic devices and other Internet-friendly outlets. And with a growing number of devices connecting to the Internet -- cellphones, set-top boxes, TV sets, even home appliances -- no single platform is likely to hold the key to digital success.

That's not to say companies won't find ways to abuse competitors. Regulators need to be particularly vigilant over broadband providers, who could be tempted to pick winners and losers among online applications, services and content providers. But Europe needn't feel compelled to level the playing field any time a company starts to leave its competitors in the dust, because there are so many more ways now for rivals to catch up.

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