Why Microsoft is under assault from all corners

For those keeping an antitrust scorecard in the IT industry, it is increasingly difficult to keep track of all the players.

Intel was sued in the United States, and it has faced antitrust investigations in Japan, Korea and Europe. Sony leads a list of memory chipmakers under antitrust investigation in the United States. Apple's iTunes pricing and interoperability formats have been subject to regulatory scrutiny on antitrust grounds in Europe.

Why is it that very few large IT players are immune from antitrust attack? Are they simply unable to comport themselves with the law? Or is this regulatory trend indicative of governmental lack of faith in the very engine that has created sustained economic growth and innovation in the IT sector: the free market?

One thing never seems to change: Microsoft is always enduring some antitrust challenge--even when it is working with other industry players to create better products. Take, for example, Microsoft's recent agreement with Novell to make Windows server software interoperate better with the Linux server products of Novell.

Last month, oblivious to this agreement, the European Commission issued another statement of objections alleging that Microsoft engaged in bad faith to thwart interoperability in the server market. The Commission's proposed remedy would require Microsoft to make its valuable intellectual property available to its competitors--for free.
While it is difficult to understand the European Commission's pursuit of Microsoft in a highly competitive server market, the Microsoft-Novell agreement was also attacked by the open-source community's Free Software Foundation. The FSF objects to any cooperation between proprietary vendors and open-source vendors, and it vowed to prevent similar deals via its update of the General Public License.

At first glance, the FSF and the Commission attacks on Microsoft appear to be unrelated. But the common thread is this: the attacks are based on a lack of faith that consumer demand will lead a market to where consumers want it to be. It is based on a faulty assumption that a company can use its intellectual property to harm competition rather than fuel it.

The FSF's assault on the Microsoft--Novell deal demonstrates its open hostility to Microsoft's--or any other company's--use of its intellectual-property rights to protect its innovations and inventions. This position is directly contrary to a central premise of free-market economics: IP protections will encourage investment and result in a wider breadth and depth of innovation.

But the inexplicable actions of the European Commission would take us in the same direction as the FSF. The Directorate General for Competition is the regulatory enforcement agent of Europe. Clear European law provides explicit protection to intellectual property through the Parliament's "Software Directive" and many published court decisions.

Yet the Commission alleges that Microsoft has established "unreasonable" prices for its protocol licensing of its server technology in Europe. The Commission characterizes Microsoft's proprietary server software protocols, which is protected by patent, copyright and trade secret law, as containing "virtually no innovation."

The Commission then remarkably concludes that everyone in the industry, nonetheless, "needs" Microsoft's protocols, and that Microsoft should provide them "royalty-free." What the Commission demands in the end is that Microsoft make its intellectual property available to its competitors for free.

Attempting to "outlaw" the Microsoft-Novell deal through changes to the GPL or trying to force Microsoft to disclose its software protocols through regulation and litigation both suffer from the same erroneous foundational assumption--that there is something wrong with the operation and functioning of the free market in general, and that IP protections that underlie the free market.

Microsoft and Novell recognized the basic fact that the consumer is truly in charge of software markets--not regulators, nor free-software advocates like the FSF. The impetus for their groundbreaking agreement was consumer demand. Enterprise customers operating Windows and Linux software wanted better performance.

Both companies realized that the fortunes of both would improve through the agreement. Market forces provide the driving incentive for real solutions. Those wishing to "control" markets should take note.