Antitrust Abuse Abroad is Abetted by Weak U.S. Enforcement, Panel Says

The U.S. must lead by example as it wraps up a decade- old antitrust case against Microsoft (see the separate report in this issue), panelists said. The settlement let rivals dictate Microsoft’s business model without a scintilla of evidence that Microsoft product features hurt consumers, emboldening antitrust authorities abroad to behave in a draconian manner, they said. The group, seen by some as a Microsoft front, counts eBay and Orbitz as members.

Rep. Robert Wexler, D-Fla., said his House Foreign Affairs Europe Subcommittee will hold a hearing “in the next couple weeks” on foreign misuse of antitrust policy. Apple, Microsoft, Qualcomm, Intel and others are enduring “a new form of protectionism,” he said. “The EU should be our natural partner” because it also has a trade deficit with Asia. It’s troubling that Viviane Reding, European Commission Information Society & Media commissioner, has said she could impose a mobile-TV standard less advanced than Qualcomm’s, Wexler said. Adobe only makes $3 million a year from China, though piracy has made its viewing software dominant there, and Swedes have elected legislators on a pro- piracy platform, the Intellectual Property Promotion and Piracy Prevention Caucus co-founder said. “We cannot in this Congress stand by” as the world alternately usurps and blocks U.S. IP.

Europe is not engaging in “protectionism pure and simple” but simply took a “wrong turn” in antitrust policy, said Ronald Cass, Center for the Rule of Law chairman and dean emeritus at the Boston University law school. Most antitrust cases in Europe are brought by American companies seeking to bring down a dominant competitor, he said, citing IBM, Sun and RealNetworks as litigious offenders. Europe promotes “forum shopping” and is setting a bad example for China, South Korea and other nations with unsavory IP records, Cass said. The risk is a world full of varying versions of Windows tailored by each country’s antitrust authorities, or a single version “stripped down” by the most restrictive regulators.

The EU is trying to re-regulate technology explicitly exempted from tariffs in trade pacts, said Robert Atkinson, Information Technology and Innovation Foundation president. His Dell monitor was reclassified quietly as a television, a category lacking the tariff exemption, he noted. The goal is to help domestic manufacturers or get U.S. companies to move operations to Europe, Atkinson said. He bemoaned Italy’s decriminalization of P2P sharing of copyrighted files if it involves no payment. South Korea gave itself a “national security” loophole waiving antitrust enforcement against domestic companies, and China is working up technology standards to block industry-driven standards, Atkinson said.

Antitrust regulators are conflating “niche” markets created by innovative companies with “distinct” markets that deserve more scrutiny, said Steve DelBianco, Association vice president of public policy. Apple’s real innovation wasn’t the iPod but the iTunes Music Store, which created a broad platform for selling music and video protected from copying; the company was “bound to dominate for a short time” in that niche as the innovator, he said. Later he declined to say what constitutes a “short time.” The European Court of First Instance next week will decide whether the EU acted properly in finding that Microsoft abused its dominant position to sell workgroup servers -- a niche market it created, DelBianco said.

An updated antitrust law passed last week in China and taking effect in August 2008 improves only moderately on the version that generated pressure from the U.S. and Europe, said DelBianco. Originally the Chinese measure said that “several” companies could count as “dominant” together, in violation of antitrust rules, but the law passed is little better -- one company with half the market share, two companies with two-thirds, or three with three-quarters, could be “dominant,” he said. A foreign company refusing to license its technology to a Chinese company can be found in violation of the new law.

The U.S. largely deserves blame for turning a blind eye to antitrust zealotry, speakers said. The U.S. Trade Representative maintains the unstated position that it’s “somebody else’s job” to enforce trade pacts, Atkinson said, voicing sympathy for the agency and its limited resources. “We're spending almost nothing” to lobby and educate countries caught “on the fence” between opposing views of capitalism, in contrast to Europe and its active efforts to shape China’s IP policy, he said.

The U.S. District Court, D.C., status conferences that followed the Microsoft settlement are “a monster that we've created,” DelBianco said. As Microsoft attempted to improve Windows by bundling antivirus, “save as PDF” and desktop- search functions, Symantec, Adobe and Google complained that the improvements hurt their products rather than harmed users, he said. State plaintiffs in Tuesday’s status conference asked the court to extend some provisions of the judgment for three years, to 2012.

Erik Lieberman, majority regulatory counsel for the House Small Business Committee, questioned the panel on whether perceived Justice Department laggardliness on antitrust cases has sent U.S. companies to Europe for relief. Such cases have no merit, regardless of venue, Cass said. U.S. antitrust authorities have learned through “very deleterious litigation” against AT&T, Microsoft and others that they should prosecute only “real cases of abuse,” not complaints from competitors absent consumer harm, he said. “Market laggards,” not successful companies, generally complain.

Asked by a USTR staffer how USTR could do more, Atkinson said the U.S.’s $750 billion trade deficit gives it leverage. “These countries need us more than we need them,” he said. The State Department and other agencies intent on “making friends” are impeding Justice, USTR and other enforcement agencies, he said. The U.S. should empower ambassadors with “backbone” to press their hosts on trade discrepancies, Cass told a Commerce Department staffer, blaming “old-line socialists” in the U.S. government for subverting the U.S. line.

The U.S. can help companies bring WTO cases by giving them tax credits, since USTR, unlike most other authorities, rarely brings its own WTO cases, Atkinson said. DelBianco said the U.S. needs an “interagency strike force” staffed by Justice, USTR and others. An unidentified audience member said all the discussion seemed for naught; trade rules as written largely ignore problem areas cited by tech interests, the observer said. Panelists didn’t disagree.