Free market vs. bureaucracy

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In its recent decision, Europe's Court of First Instance in Luxembourg refused to suspend the sanctions placed on Microsoft by European Commission competition authorities. Microsoft will proceed with its appeal against the regulators, but the company must immediately comply with the excessive sanctions imposed by the Europeans. Even if Europe's antitrust regulators eventually lose their case, which could last several years, the marketplace damage will already have been done by the sanctions.

The European courts and regulators still have not learned that they need to proceed cautiously in imposing overly intrusive government regulations.

In September, this same court ruled that European regulators erred in June 2000 by blocking the MCI/WorldCom bid to purchase Sprint. But the ruling came four years too late for MCI, which long ago abandoned its pursuit of Sprint in the face of regulatory pressure. The results of the MCI decision should have demonstrated the problem with applying regulatory remedies prematurely. Unfortunately for consumers and the technology marketplace, this lesson has fallen on deaf ears.

The heavy-handed ruling of the European antitrust authorities cost Microsoft more than $600 million, a record fine for antitrust violations. But even worse, European regulators have ordered Microsoft to reveal valuable software code information to rivals and strip its flagship Windows software of its audio- and video-playing capabilities.

Make no mistake: This case reaches far beyond Microsoft (and its investors). If European regulators win the day in the very end, they will establish a precedent that hurts global competition across virtually all industries.

Microsoft rightly argues that competition and consumers are hurt if businesses, even industry-leading companies, cannot freely improve their products. By effectively freezing Microsoft's incentive to innovate and compete in markets, European regulators limit consumer choice and remove one stick that spurs on Microsoft's competitors to create better products.

Other large companies with complex, market-leading products would be wise to assist Microsoft with its appeal. In fact, in a strange unfolding of events, European aircraft manufacturer Airbus filed to intervene on Microsoft's behalf and then withdrew after news of the filing became public.

Airbus' filing made perfect sense: Should an airplane manufacturer only be able to sell bare-bone fuselages and wings? By the logic of the European case against Microsoft, Airbus could be limited in how it improves aircraft with better engines, seats, galleys, and so on. Just as European regulators are set on determining what constitutes a computer operating system, so too could they regulate what defines an airplane, an automobile, a piece of medical equipment, a cell phone or any other product.

It is unclear why Airbus withdrew, but it does raise some questions. Are there other large companies that want to speak out, but are avoiding the fray?

The Court of First Instance has a strong track record of overturning decisions made by competition regulators, but it rarely suspends sanctions. European regulators famously blocked the General Electric-Honeywell merger in July 2001, after the transaction received approval from U.S. authorities. The Court of First Instance might yet allow the deal to proceed more than three years after the iron was hot. That decision, along with the MCI ruling, demonstrates that in the European judicial system, justice is often denied by its very delay. Microsoft is yet another victim of the court's unwillingness to take early action against excessive regulation.

Will U.S. companies continue to face jeopardy in the Kafkaesque European bureaucracy? There are signs that the harshest days of antitrust regulation across the Atlantic may be waning. European regulators are standing aside and letting the Oracle acquisition of PeopleSoft proceed. In addition, the head of the competition commission, the interventionist Mario Monti, just stepped down and was replaced by the more market-friendly Neelie Kroes. This changing of the guard could help Microsoft and other American companies down the road.

But antitrust harmonization between the United States and Europe should not rely on the whims of a single personality. In 2005, the Bush administration must reach out to European authorities and once and for all hammer out a more cooperative and free-market approach to antitrust enforcement. The conflicting systems are not merely inefficient. They create uncertainty and hamper competition, which costs everyone in today's global economy.

C. Boyden Gray, a former White House counsel, is co-chairman of the free-market advocacy organization FreedomWorks.