The Trans-Atlantic Rift in Antitrust Law
Introduction
BRUSSELS Since the European Commission's surprising rejection of the merger of General Electric and Honeywell, the tension between European and American antitrust enforcers has gotten continually worse. Despite the polite tone and optimistic rhetoric, the growing divergence could easily devolve into a trans-Atlantic trade war and create critical problems for the future of global business, especially in the information technology sector.
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Some have mistakenly argued that this divergence is illusory - created by a more conservative view of antitrust within the Bush administration. The level of antitrust enforcement in the United States has certainly fluctuated over the past 100 years, but the divergence we see today is not mere fad or fashion - it is substantial and dangerous. .
American antitrust law identifies competition and consumer benefit as the key focus when dealing with anticompetitive behavior. As the Supreme Court noted in Brooke Group Ltd. v. Brown Williamson Tobacco Corp., the antitrust laws were passed for "the protection of competition, not competitors." European antitrust law, however, focuses primarily on the effect of a monopolist's behavior on competitors. Europe's focus on competitor welfare, rather than the welfare of consumers who benefit from robust competition has several dangerous consequences. .
First, the commission's antitrust enforcers tend to rely very heavily on representation from competitors rather than their own investigations. For example, the commission's decision against Microsoft openly and liberally cites complaints from Sun Microsystems and Real Networks. .
Second, the European system has become very attractive as a "second chance" court for antitrust claims launched by American companies that are denied by American judges. Hewitt Pate, the Assistant Attorney General for Antitrust recently remarked that, "in a system of multiple enforcers, the alternative inevitability leads parties who can benefit from regulatory assistance to seek out the most restrictive regulator." Sun and Real Networks went to the European Commission when their efforts to cripple Microsoft were sputtering in the U.S. Courts. Evidently, Advanced Micro Devices was impressed by the results and has now asked the European Commission to pen its case against Intel. Third, Europe also uses a lower threshold for determining market "dominance" than American antitrust enforcers. This is particularly dangerous in the information technology industry where markets are continually evolving and converging, thereby blurring previously distinct markets. Phone and cable companies, previously considered separate industries, now compete in several markets including cable, phone and Internet services. .
These essential differences create an environment of tension in international antitrust enforcement that the European Commission's recent decision against Microsoft could further upset. If the Court of First Instance upholds the commission's decision on appeal, global information technology companies will be held to drastically different standards in Europe and the United States. .
On March 24, 2004, the commission concluded that Microsoft broke EU competition law by leveraging its dominance in the market for PC operating systems onto the markets for work group server operating systems and media players. The legal basis for the commission's decision is the theory of anticompetitive “lying.”
In the United States, the theory of anticompetitive “lying” has largely gone the way to the dodo. Lawyers and economists have found no evidence to support the idea that the “lying” of one product to another inherently harms competition, except when it is used specifically to extend an existing monopoly.
It is only within this narrow set of circumstances that Microsoft was found to violate the antitrust rules of the United States. The U.S. Courts rejected claims that Microsoft was trying to leverage the dominance of Windows into new markets like Internet browsers, media players and other software.
Moreover, the Court of Appeals reaffirmed its belief that dominant companies should be allowed to innovate when it rejected the appeals of Massachusetts and two groups of Microsoft competitors. The European Commission, however, is taking the exact opposite approach. The commission argues not only that lying Media Player to Windows is illegal but also that the addition of any new functionality to a dominant product is inherently illegal. If this is upheld, the divergence with American antitrust law will be clear and incontrovertible.
Even Lawrence Lessig, a digital law luminary and Microsoft critic, recently argued that the European Commission got it wrong. In Wired Magazine, Lessig laments the decision as “imperfect justice” and worries that “if every Microsoft innovation launches an antitrust investigation, then innovation will move to companies that don’t pay such a high price.”
It is clear the growing rift between European and American antitrust law has arrived at a critical juncture, particularly for international information technology companies. If the European Court of First Instance in Luxembourg upholds the European Commission’s decision, the rift will deepen and threaten the future of global business.
Jonathan Zuck is president of the Association for Competitive Technology, and advocacy group for the U.S. technology industry. Laurent Ruessmann is the association’s antitrust counsel in Brussels.
