Microsoft and Anti-Trust - Spin versus Reality

It's not every day that the New York Times and the Wall Street Journal have the same take when it comes to technology, and even less so when it comes to anti-trust issues. But we're seeing a rare convergence this week when it comes to the European Union's decision on Microsoft.

For both papers, the key point readers are supposed to take away from the case is that Microsoft is the canary in a coalmine of EU interference in technology and innovation. Let's first look at the case itself, which The Times sketched in three quick paragraphs.

European Court Rejects Microsoft Antitrust Appeal

LUXEMBOURG, Sept. 17 â'' In a stinging rebuke to the worldâ''s largest software maker, the second-highest European court today rejected a request by Microsoft to overturn a landmark European Commission antitrust ruling that the company had abused its dominance in computer operating systems.

Industry and legal experts said the decision bolstered smaller software makers and put market leaders on notice that they cannot take advantage of one technology niche to squelch broader innovation.

The European Court of First Instance, in a starkly worded summary read to a courtroom of about 150 journalists and lawyers here, ordered Microsoft to obey a March 2004 commission order to share confidential computer code with competitors. The court also upheld the record fine levied against the company, 497.2 million euros, or $689.4 million.

By paragraph #4, The Times's account turns stark indeed:

Software and legal experts said the courtâ''s decision might signal problems for companies such as Apple, Intel and Qualcomm, whose market dominance in online music downloads, computer chips and mobile phone technology is also being scrutinized by the commission. The ruling also could make it harder to Microsoft to continue â''bundlingâ'' new features into its Windows software.

â''What the court did was uphold E.U. law, which makes it illegal to leverage a dominant market position to obtain similar dominance in another area,â'' said Michael Reynolds, a Brussels antitrust lawyer with the firm Allen & Overy who filed the initial complaint against Microsoft in 1998 on behalf of a competitor, Sun Microsystems. â''Microsoft argued that the software industry, because of its dynamic growth, was an exception. But the court dismissed this argument.â''

In a Review & Outlook piece with the stark title, "Microsoft's Waterloo," the Journal took the same laser focus:

[T]his could get out of hand faster than the click of a mouse. Microsoft's general counsel, Brad Smith, points out that Apple's iPod dominates the MP3 player market, in which Microsoft's Zune is the underdog, and that Google's search engine has whipped Microsoft's MSN and all other comers. Not to mention the near-monopoly in some mainframe-computer markets held by IBM, which joined Sun Microsystems in pushing Brussels to take on Microsoft in 1998. Smith seems to be implying that two can play at this game of making "strategic complaints."

Neither paper cares much to entertain the fact that Microsoft has a functional monopoly on the desktop, nor the possiblity that Microsoft has indeed abused its monopoly position. As to the first, even by U.S. law, Microsoft clearly is, or certainly was at the time its anti-trust trial here, a monopoly. And it certainly used its monopoly position to promote its own software tools at the expense of its rivals, whether it was Internet Explorer versus Netscape or, as the EU focused on, Windows Media Player versus Real Player, QuickTime, et al.

Both papers seem to have unthinkingly bought into someone's spin. If you think for more than a moment about it, it's hard to see any parallels for Apple and Qualcomm. Apple's iTunes/iPod dominance is estimated to be 70 percent of the music player market, extending far beyond the 5 percent market share it has on the desktop. Qualcomm is anything but dominant in mobile phone technology; it is dominant in CDMA mobile phone technology, which is by far the minority technology when it comes to its third-generation cellular battle with GSM.

The case for Intel is harder to judge — it certainly has the same sort of CPU hegemony that Microsoft has on the desktop, but has it tried to extend it in the same way? It has instant credibility whenever it enters a market, and likewise confers credibility to a new technology when it adopts it — we're seeing that with WiMax. But the market has done a good job of smacking Intel down when it enters a market it doesn't have a superior product for — we've seen that with Hermon, as my colleague Harry Goldstein reported back in 2005 (see his "Intel Tries, Tries Again").

Microsoft's track record isn't flawless — again, Harry was the editor here to mercilessly single out one of the company's signal losers, a disfunctional wristwatch called SPOT (see, "A Dog Named SPOT") — but it has also had some stunning successes, including Internet Explorer and Windows Media Player. The question isn't whether Microsoft has successfully leveraged its desktop dominance — it clearly has. The question is whether it has done so unfairly. The EU has weighed in. It would be nice to see The TImes and The Journal addressing it, instead of spinning it.

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