Corporate Counsel Discusses European Court Ruling Against Microsoft
with President of Association for Competitive Technology
Last week, the
Center for Individual Freedoms Renee Giachino, who hosts the
radio talk show "Your Turn Meeting Nonsense with Common
Sense" on WEBY 1330 AM in Northwest Florida, spoke with Jonathan
Zuck, President of Association for Competitive Technology, about
the recent ruling issued by a European court against Microsoft.
are excerpts from the interview.
As many of know, I serve as Corporate Counsel for the Center for
Individual Freedom. My organization, since inception, has been concerned
with what appears to be an erosion of intellectual property rights,
not only in this country but across the globe. We are equally concerned
with the overreaching interpretation of antitrust laws by our courts
and by international courts.
why its hard for me to do anything other than throw my hands
up when I talk about the subject of this next segment. Many of you
may recall that just before the end of 2004, in mid-to-late December,
a ruling was issued against Microsoft by a European court. In the
ruling, the European Court of First Instance refused to delay the
imposition of sanctions against Microsoft while its appeal of an
earlier European antitrust judgment is being decided. What this
means is that the decision forces Microsoft to immediately pay a
whopping $664 million fine to the European Union and, worse yet,
perhaps, it compels the company to make part of its Windows operating
system available to its competitors.
The appeal itself
is pending and it will address the merits of the case which essentially
turn on charges that Microsoft allegedly used anti-competitive conduct
for media player software and workgroup server software marketing.
Joining us on
"Your Turn" this afternoon is a gentleman who is widely
known and respected as a leader in the technology industry. In a
former life he was a professional software developer. He is an author,
speaker and frequent face and voice as a technology expert on all
national media television and radio programs. He now serves as President
of the Association for Competitive Technology. Its my extreme
pleasure to welcome Mr. Jonathan Zuck. Are you there?
I am here.
Thank you again for joining us on "Your Turn." Mr. Zuck,
can you first give us a little information about the Association
for Competitive Technology?
Sure. ACT is an IT industry trade association based in Washington,
D.C. It represents mostly small- and medium-sized information technology
companies and their interests in Washington. So, we lobby on their
behalf to prevent over-regulation of the industry; we fight both
here and abroad for intellectual property protection; and we have
become embroiled to some extent in this antitrust case because of
the implications for businesses other than Microsoft in terms of
the erosion of their intellectual property protection, and then
what could happen to the platform of Windows and the effect that
could have on small businesses.
Alright, how did I do in describing the recent decision and on-going
court battle that Microsoft has going on overseas? Can you elaborate
a little bit in my explanation?
Sure, you did a great job even though I wish you had been the judge
at the Court of First Instance having heard your description.
Basically there were two separate cases that were brought at the
behest of Microsofts competitors here in the U.S. essentially
venue shopping over in Europe. One is Novell that is trying to replicate
some software Microsoft has called Active Directory and kind of
wants some of the codes to make it possible to create a clone of
that software so that they can more easily compete and integrate
into Microsoft clustered networks. And the other piece of it was
sort of at the behest of Real which is a company that provides
the RealPlayer that people play music on their PCs and stuff like
that. Their concern is that the presence of Media Player in Windows
was somehow anti-competitive and made it difficult for them to compete.
So there are
a lot of arguments on the merits associated with these. Real Networks,
for example, has a bad case simply because their other competitors
have increasing market shares so that even though their market share
has been decreasing, the market share of folks like Music Match
and Apples Quick Time have actually gone up during these so-called
"anti-competitive times" of Microsofts Media Player.
So it is clear that some of the blame for their loss of market share
has to reside squarely with Real Networks themselves.
I turn on my computer every day, Jonathan, and everything pops up
and I am happy as a lark and I get to go about my business. How
will the ruling overseas affect consumers in the United States,
and then lets talk about how it will affect consumers over
Well, there are sort of direct and indirect effects if you will.
I think the direct impact of this decision is going to affect European
consumers first because it actually means that there will be two
different versions of Windows for the same price out there
one of which doesnt have any media function in it. So a lot
of software will mysteriously not work on different versions of
Windows, and the consumer is not going to know why that is the case.
And is that just in Europe, or could we unknowingly buy a version
here I mean I read the labels but I dont always know
what I am reading, could I end up with a European version here that
wont allow me to play my media?
Well, most versions of Windows actually come out through an OEM
channel, out through computer manufacturers. So there probably is
a possibility that you could accidentally be shipped a machine from
Dell or Gateway or someone like that that doesnt have Microsoft
media functionality in it and then you will have some piece of software
that wont run like a language learning or something
like that that makes use of those media functionalities. But I think
it will probably be unlikely far less likely that that level
of uncertainty is going to exist here in the U.S.
at stake here is two-fold. One is because this precedent is set
you still have some people here in the United States that are clamoring
for something similar to happen here, and there is already an existing
additional civil lawsuit that Real Networks has brought against
Microsoft that could have a similar outcome to this. So certainly
the precedent is in place to have this kind of confusion for American
consumers as well.
The other issue
though is that the people who write software for Windows have to
deal with the presence or absence of this technology and so they
are going to have to create multiple versions of their software
as well. And so you are going to start to see increased costs to
both American and European consumers because now a software manufacturer
has to make two versions of their software without any additional
customers. And that is all the additional testing and support associated
with having multiple versions.
as a precedent, if this starts happening with every piece of technology
in Windows, then every piece of software is going to have almost
an infinite number of Windows versions to potentially address
when they install their software. All those things really have the
potential to raise costs for consumers both here and in Europe.
And if my head was not spinning before when I went to buy something,
it certainly will be spinning after all that.
Thats exactly right. And for no real valuable reason.
Thats right. And to us non-techies, its a mission to
go in and buy a piece of software and understand what it is suppose
to do and to get it to do what it is suppose to do, let alone make
sure that you are getting the right version. You know, Jonathan,
I understand that Microsoft must now license parts of its software
to its competitors.
How is Microsoft protecting its intellectual property? Isnt
this just going to make it easier for competitors to steal Microsofts
trade secrets that took years and millions of dollars to develop
and, even worse, wont it stifle innovation?
I think that is exactly right. I mean a lot of these effects are
indirect but some of it is immediate too. I mean once you have been
forced to share your intellectual property, its pretty tough
to get it back in terms of your trade secrets. But basically, yes,
Novell and a few others have been interested in trying to get at
some of the crown jewels of Microsofts server operating system
because what they want to do is create sort of a clone of that so
they can sort of sell one cheap into a company that has Windows
servers without having to do any of the R&D necessary to create
their own features on their own merits. And so that situation can
begin to occur as a result of this decision.
if the regime becomes one in which intellectual property isnt
rigorously protected, you are going to see less and less innovation
and the creation of intellectual property. Again that is a thing
that affects the United States more than anyone else. Right now
60% of the revenues of U.S. software companies come from exports.
So if there is not a belief that intellectual property can be protected,
those revenues could decline sharply and our industry was responsible
for about 25% of the GDP growth in the last 5 or 6 years. So there
are going to be effects across the entire economy if intellectual
property is not protected both here and in Europe.
Obviously the Microsoft decision impacts a lot of the people who
you do work for, but I have a lot of listeners who head up businesses
that do business overseas and I need to impress upon them, and I
need your help to impress upon them, that this decision could impact
them even if they dont operate in the technology world. Would
you agree with that?
I would agree completely. I mean not all businesses are IT businesses,
but many of them are and many of them need to be because it is becoming
the chief export in the United States. We are not a manufacturing
economy any more and our principle export is our expertise at this
point and if that cannot be protected we are going to have disastrous
economic results. Airbus, for example, joined in opposition to this
decision at one point because they became concerned that it could
What does Airbus do? Is that the plane company?
Thats right. Anybody that is developing intellectual property
or trying to expand on a product if your product happens
to be the market leader, even in a small market, you could fall
subject to these kinds of regulations, and so that is something
that affects all businesses, both directly and indirectly. If you
have a reliance on technology, you have an indirect effect, but
if you are in a business that involves intellectual property and
patents and trademarks that you need protection for, then it could
have a direct effect.
The lines are lighting up, John. If you dont mind, I would
like to take a call?
Go ahead, Caller, its "Your Turn."
Im a little bit confused. Was Microsoft marketing directly
in Europe or was it through the U.S. that it was marketed into Europe?
Well Microsoft sells directly in Europe but as I said for Windows,
particularly, most of those sales actually come through hardware
Thats where I am going with this. As far as the court decision
is concerned, if Microsoft did not market it directly in Europe
and they strictly said "alright, phooey on you Europe, you
are going to have to rely on sources within the U.S.," and
Microsoft marketed it only within the United States, would that
not have protected and continue to protect Microsoft?
Well, yes at a certain level Microsoft has the capacity to do something
drastic along those lines, but in practical, sort of political terms,
they cant afford to. The European Commission still has significant
power over what Microsoft does and that is a lot of what is in question
here whether they should have the power to dictate how software
gets designed and stuff like that, and that is the complexity of
it. If they just pulled out of Europe altogether, and just forced
European consumers to buy from the United States, there would be
tariffs and things like that and certainly large political problems
associated with it.
But as far as the tariffs, wouldnt NAFTA and GATT enter into
it in that circumstance?
Yes, youd start to have GATT and things like that, but it
would be an inefficient way for European consumers to get at the
technology as opposed to getting it through European computer manufacturers
or the European outlets of the U.S. Manufacturers like Dell and
Compaq that also sell in Europe. I mean these businesses are no
longer just American versus European; they are really becoming global
in scope. And that is what is going to make antitrust enforcement
around the world particularly problematic if every jurisdiction
comes up with a different set of rules.
And I agree with that. I dont have a problem with that. I
just mean that sooner or later someone needs to step up to the plate
and say "okay, if this is how you want to treat us and we are
a U.S. based company, then fine we are not going to sell it to you.
We will sell it to our people over here in the United States and
we will, in effect, isolate ourselves, but you all deal with the
people who are going to sell it to you indirectly from us and now
we dont have to worry about your Mickey Mouse stuff. And oh,
by the way, you are going to get inferior products and it will take
you out of the loop."
Believe me that has come up. That suggestion has been raised. The
political consequences are just enormous, thats all. The governments
themselves actually buy products from Microsoft and other U.S. vendors,
and you dont want to create a situation in which those sales
Well, if you have the only bat and ball in town, then sooner or
later somebody is going to come around to play your game.
Caller, I think you segue nicely to my next question, which is
I want to make sure that people understand that the latest ruling
from the European Court does not deal with the merits of the case.
As I understand it, Jonathan, not everything in the most recent
ruling is bad news for Microsoft. What I mean is I think the judge
hinted that the antitrust case the case on its merits
may have some serious problems. And what I dont understand
is if he really felt that way, why did he go ahead and impose sanctions?
Well, unfortunately, there are three criteria that he uses to make
this decision. One is whether or not there is a prima facie
case on appeal. In other words, does Microsoft have a decent case
on appeal? The second is whether there will be immediate and irreparable
harm to Microsoft if these remedies are imposed. And the third is
a kind of balancing test which is where we were most involved because
it has to do with the effect on folks other than Microsoft. And
really the law forces the judge to focus mostly on the immediate
and irreparable damage, and that is where Microsoft was not able
to be persuasive enough. In other words, it became a "why not?"
question if there is not an immediate and irreparable harm
to imposing these sanctions, if they get rolled back later by an
appeals court, then why not impose them now? The presumption if
you will is with the Commission and not with the defendant. And
so Microsoft needed to prove that it would cause irreparable damage
to have these restrictions placed on them immediately and they just
failed to do that.
Well, you know I do a little political commentary on television
on Monday evenings, and yesterday Microsoft was the subject of my
monologue and I closed it by saying that if in the end Microsoft
should prevail, what this really turns out to be in part
other than a technology grab which certainly it is but also
it turns out to be a forced non-interest bearing loan to the EU.
Thats true too.
What kind of odds do you give Microsoft? Do you think the decision
signals that Microsoft might yet prevail?
I think that there are still opportunities for them to prevail,
and I think those opportunities will help bring both parties back
to the settlement table. I think that ultimately is going to be
the best solution to this because then both sides come away with
some kind of a framework for addressing these issues down the road.
Microsofts biggest problem is that they are going to want
to add functionalities to their operating systems going forward,
and if every time they add new functionality they are going to face
this kind of problem that would be disastrous. So fundamentally
they need to actually need to meet an agreement with the Commission
so that they actually have rules for the road that they can go and
continue to innovate their products as opposed to having to litigate
every new feature. For example, when they add voice recognition
technology to Windows XP, are they going to be back in to having
this fight all over again?
You mention parties, and I believe that I read that several of the
parties supporting the European antitrust case have withdrawn from
the case. So who is still pressing the case against Microsoft?
Well right now it is just the Commission, in theory on behalf of
European consumers. You still have folks like Nokia who are pushing
So the Commission acts sort of as an attorney general?
When will the case be over assuming it is ever over?
Well, like I said, I hope that the positive indicators that came
out of the Court of First Instance on the case on the merits will
drive the Commission back to the settlement table, in which case
the whole thing could be over in six months. Absent that, in a full
sort of litigation on appeal on the merits, it could be a couple
Spring boarding a little from our Callers viewpoint, I understand
that in a former life you set up U.S. operations for a French software
firm and helped build the company into an $11 million business.
How do you think the French company or any foreign company would
take a decision from a United States court like the one issued against
Microsoft in Europe?
Probably not well. Unfortunately, we all do this stuff to each other
way too much. The Europeans have accepted a considerably more regulatory
environment over there and probably expect it more here than they
see. It is the wrong way to go. The way to best serve consumers
both here and in Europe is by letting players in the market compete
vigorously for their patronage. When the government starts picking
winners and losers, it is almost always a disaster.
I know my organization is a strong proponent of the free market,
and we have expressed our outrage with this decision and we have
written about the case. What, if anything at all, can the average
citizen do if he or she is equally as outraged by the decision in
the Microsoft case, and do you think it will make a difference?
Well, I think it is always a good idea if you are willing to speak
up to put a call in to your local member of Congress. We have these
kinds of issues here in the U.S., as well. As you start to see the
kinds of effects this can have on your business, it is important
to get involved and speak up. If folks come to our website and sign
up, we will help them find the outlets for making their voices heard.
Can you please give people the address for your website so if they
want to learn more about this or your organization they can visit
Thats the Association for Competitive Technology. Thank you,
Jonathan Zuck, for your time and all your energy devoted to this
important effort. We appreciate it.
January 13, 2005]