A Tale of Two Microsofts

By Larry Downes  |  Posted 01-10-2007

It was the best of times, it was the worst of times. Domestically, things are great for Microsoft Corp. on the antitrust front these days. The judge overseeing the settlement of the U.S. government's 2002 antitrust victory agreed to a two-year extension for Redmond to publish protocols that enable third-party developers to create Windows-compatible applications that could effectively compete with Microsoft applications. Even better, federal and state prosecutors told the judge in late November that "extensive testing" of Vista revealed no antitrust concerns that could delay the release of the new operating system.

Overseas, meanwhile, things are going badly for the software giant. Microsoft has been fined over a billion dollars by the European Union for failing to comply with its Windows-related antitrust rulings, even though the company assigned 300 engineers to revise 8,500 pages of technical documents submitted and rejected in July. The Commission hasn't yet decided what, if anything, to do about Vista. And Korean regulators have recently ruled that the company violates its antitrust laws as well—all decisions the company has appealed.

Despite enormous efforts in recent decades to consolidate and standardize business law throughout the developed world, Microsoft's situation highlights just how little progress has been made. Part of the problem is that there are still substantive variations in how different countries regulate competition and protect intellectual property. Antitrust law in the U.S. and Europe is similar on paper, but the decisions about how to enforce it, and which remedies to apply, have been quite different recently. And not just for Microsoft. Mergers approved in the U.S. have been rejected by the E.U., for example, even though the standards for reviewing them are largely the same. Even uniform laws can be subject to local interpretations—some of which, for better and for worse, are politically motivated.

Some of Microsoft's injuries are no doubt self-inflicted, the result of an early naiveté about the applicability of old laws to their new-economy business, as well as the company's trademark sneer at complaints by smaller software companies about unfair competition. And Microsoft's size and global penetration bring it into conflict with more local laws than any other software company can expect to deal with. Overall, Microsoft's legal expenses for 2006 were over $1.3 billion, representing almost 10 percent of net income. Ouch.

The temptation for Microsoft's competitors, and even its partners, is to see anything that distracts or impedes Redmond's dominance as a victory. Not so. Microsoft's legal battles were only the first wave of tech suits—Google, Yahoo!, eBay and Intel have all been recently upended by foreign courts and regulators. When entering new markets, as these and other cases illustrate, IT companies of all sizes need to be on high alert. They need to work with national governments, and with each other, to make uniform business laws and regulatory practices a reality. They need to speak with one voice in condemning provincial behavior that is draped in the language of antitrust and anticompetitive rhetoric. Even when—especially when—the victim happens to be a competitor.