Monday, February 07, 2005

Microsoft's Moral Sanction II

In response to my earlier post on Microsoft, ROR reader Ryan Jensen posted a link to a seven page memo Microsoft has produced titled "The European Commission's Decision in the Microsoft Case and its Implications for Other Companies and Industries." This memo helps illustrate the deficiencies with Microsoft's defense of its rights. In a series of points illustrating the harm caused by the European Commission's antitrust enforcement efforts, Microsoft offers the following argument:

Fifth, the Decision rejects Microsoft's desire to maintain its intellectual property for its own use, adopting an impressionistic analysis that would enable the Commission to order compulsory licensing in virtually any market and in any case. The Decision pays little regard to the incentives that intellectual property rights create for a company to invest in product improvements and for a company's competitors to invest in their own innovations rather than simply copying from others. Instead, the Decision opts for compulsory licensing on the basis of an assertion that "on balance" innovation in the industry overall would be greater if the technology and IP rights were shared with competitors. (Para. 783.) Such an approach clearly creates new law and economic policy for Europe. By casting aside the exceptional circumstances test of Magill, the Decision obligates dominant firms to license their technology to competitors whenever the Commission determines that reducing a dominant firm's incentive to innovate would nonetheless be good for an industry overall. This unbounded test would have a profoundly negative effect on innovation and investment by market leaders around the world who sell their products in Europe.
Earlier and subsequent points illustrated in Microsoft's memo are:

  • The Commission's decision does not confine the use of the compulsorily licensed intellectual property to a secondary market.
  • The intellectual property rights at stake are the essence of Microsoft's business, the development of operating system software.
  • There is no basis for concluding that the use of Microsoft's proprietary communications protocols is indispensable to the creation of competing server operating systems.
  • The Commission's decision rests on a very narrow product market definition that bears little resemblance to the real world.
  • The Commission's decision ignores international treaty obligations designed expressly to prevent this type of broad-based compulsory licensing of intellectual property rights.

So in a list of six key points, the right to property ranks fifth, and only in so much as property creates "incentives [f]or a company to invest in product improvements," i.e., only in so much as the right to property serves the needs of others.

If service to others is Microsoft's best argument to the public in defense of its rights, Microsoft will continue to see those rights eroded. Microsoft's arguments are dishonest; everyone knows Microsoft is a profit-making company that exists for the sake of its shareholders--welcome to capitalism. Yet once again, Microsoft is attempting to prove otherwise. I don't think it can succeed, and in even trying, the firm looks foolish.

Microsoft has already paid out billions in unjustified antitrust claims. We are told that it must take such action in accordance with its fiduciary responsibilities. Yet how many of these responsibilities will be left if Microsoft refuses to defend against those who loot the firm on the moral grounds the looters operate? If Microsoft's looters claim that the firm has an obligation to sacrifice to its competitors, why can't Microsoft, just for once, defend its right to exist for its own selfish sake?

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