European Antitrust Law Fines Microsoft

A recent decision by the European Commission to impose another huge fine on the world’s largest software company Microsoft has highlighted the differences between U.S. and European antitrust law. It has also increased the likelihood that the two will continue to misunderstand each other and lead to further trans Atlantic conflicts.

Earlier this month (July 12) the Commission fined Microsoft 294 million euro for failing to comply with a demand made in March 2004 to produce different versions of its product for European consumers. Another case against Mr. Softee (as Wall Street traders affectionately call the company) has Brussels trust busters demanding that it also reveals the code that would allow competitors to operate in the small office servers market.

Microsoft says it will appeal both cases and is particularly annoyed by the earlier fine of 497 million euro as it claims it has been given very little time to produce some 12,000 pages of technical details that will give rivals access to Microsoft run servers. As the company claims that the Commission has only recently (April this year) given the guidelines as to which parts of the software and code it wants to be revealed to Microsoft’s competitors despite having made the original demand over two and a half years ago.

The main reason why Brussels anti-trust experts have been hounding Microsoft for the past seven years and why they are unlikely to give up is that European competition law is based on the old German legal concept of market dominance. The American version does not.

Market dominance is seen as an unnecessary evil in Europe whereas in the US has a sanguine attitude. The European Court of Justice, (Europe’s supreme court) in 1978 defined a dominant market position as “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained in the relevant market by affording it the power to behave, to an appreciable extent, independently of its competitors, customers and ultimately of its consumers.”

Since then Brussels has said that such dominance is harmful to the consumer and that prices and services are affected in negative ways.

However, while the U.S. recognises that while abusing a monopoly position is wrong and has ruled against such activities for over a hundred years since President Theodore Roosevelt appointed America’s first trust busters it believes that market dominance may have positive affects. These may be product innovations and no negative impact on consumer choice.

European experts say that the use of market dominance makes it easier to identify market abuses. While their American counterparts use an effects based definition of possible market abuse and as such will look at the effects of a company’s behaviour on a market rather than rely upon a codified version of competition law.

These differences in analysing markets can also lead to mighty trans Atlantic clashes over mergers and acquisitions. Seeing that American companies own a significant percentage of European businesses and vice versa the interpretation of such laws is vital to the smooth running of both economies and good relations between the two blocs.

Unhappily, this has not always been so as with the case of GEC’s purchase of avionics company Honeywell, which was waved through by the Department of Justice only to be resolutely blocked by Brussels. Other American companies to suffer similar fates have been Worldcom and TimeWarner. In fact a recent finding by the European Court of First Instance, the junior to the European Court, against a deal between music companies Sony and BMG has scuppered pre nuptial talks between Time Warner and EMI.

Well at least the U.S. and the European Union won’t be falling out over that case then. Quite what it does to TimeWarner and EMI exces feelings for Europe is another matter.