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Playing Hardball With Software

Article published in The Wall Street Journal Europe on April 27, 2005.

Microsoft announced on March 28 that it had reached an agreement with the European Commission over the name of the operating system that it now has to sell without its own audiovisual software. This will be « Windows XP N, » the « N » meaning « not with Media Player. » After being found guilty of breaking antitrust laws in March 2004, Microsoft has been ordered to sell such a product and to share information with its rivals to improve interoperability between its operating system and their programs.

Do not be fooled by apparent signs of progress such as last month’s agreement. The commission’s attitude toward the Redmond, Washington-based software giant remains as hostile as ever.

In the previous episode of this seemingly never-ending saga, the commission criticized the IT giant for standing in the way of the assessment being carried out by a monitoring trustee employed to check that Microsoft was complying with the court’s decisions. « The commission officially informed Microsoft that its proposal concerning the monitoring trustee was not acceptable, » said a spokesman for the EU executive on March 23. He added, « Microsoft wanted to be able to veto the areas the monitoring trustee could look into. » It is now fashionable to attack Bill Gates’ company. However, a closer look at the accusations made against Microsoft reveals how arbitrary they are.

First of all, we must remember that less than a week before the reprimand of March 23, a commission spokesman had called the company to order, declaring that it had not « put into place corrective interoperability measures. » However, it is clear that this statement contradicts the one made on March 23. If the commission and Microsoft are still at the stage of « proposals » concerning the tasks of the monitoring trustee, that would suggest that the assessment has not yet taken place.

How can it be claimed that interoperability does not work if the person in charge of monitoring and making this judgement has not yet done his job? Had the result of the assessment been determined ahead of time? Either it is already established that Microsoft’s interoperability regime is flawed, in which case it is difficult to see what the monitoring trustee is supposed to check, or the accusation that Microsoft is blocking his work is well founded and the question of interoperability remains open. Whichever it is, the Commission is threatening Microsoft with a daily $5 million fine if its license plan guaranteeing interoperability between its products and third-party software is not changed. As for the problem of the expert, the commission is preparing to impose its conditions if Microsoft does not change its position.

Let us return to the problem of the multimedia software and its name. The commission had let it be known, at the moment the sentence was delivered, that the assessor would check « that the two versions of Windows offered an equal level of performance. » Therefore it did not welcome the name suggested in December by Microsoft: « Windows XP Reduced Media Edition. » Such a name would effectively suggest that the reduced version was, well, reduced. Thus « Windows XP N » is more « neutral » as far as the commission is concerned.

Microsoft has been forced to sell Windows without Media Player because the integrated version would give it an « unfair » advantage over rival multimedia software designers. However, the sanction can only « correct » the situation if consumers consider that the version of Windows with Media Player is not the same as the « N » version. If consumers think the performance of the two is very similar, then they will not care which they use. In such a case, why would they download more competing multimedia software than before? The commission’s desire to minimize the differences between the two therefore makes no sense when seen next to its declared objective of redistributing market share for the benefit of the consumer.

That is not all. EU spokesman Antonia Mochan observed that the Media Player affair went « beyond the question of its name, » which has now been settled. Indeed, Microsoft’s rivals complain that the reduced version of Windows is not totally compatible with their programs. The EU’s competition department has stated that tests are under way, and an EU source wishing to remain anonymous confirmed the plaintiffs’ complaints about compatibility. It is perhaps this aspect, the least widely reported in the Media Player affair, which reveals the most about the validity of the charges made against the IT giant. In fact, if the commission ends up denouncing this state of affairs, it will once again be contradicting grievances it has put forward about Microsoft.

The point of the penalty is that the integrated version of Media Player allegedly damages competitors. Withdrawing it should therefore benefit them. If this is not the case, as they say and as the commission spokesperson suggests, that means these rival software writers are in reality third-party beneficiaries of the Windows Media Player system. It cannot be argued in the same breath that Microsoft both hurts and helps its competitors with the same product. It follows then that we cannot criticize Microsoft both for putting forward a Windows « N » that is « flawed » because it doesn’t contain specific Media Player files, and for being an « unfair » competitor with its complete version.

In a trial where logic has not been taken seriously, arbitrary judgement has played a more significant role than reason and experience. As the accusation continues down the same path, the Microsoft case is coming to look more and more like a witch-hunt.

Mr. Méra is an associate researcher at the Paris-based Molinari Economic Institute.

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