John Berthoud
2007-04-13 07:00:00.0
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WASHINGTON -

The European Commission demonstrated its vulnerability earlier this month, even as it exercised unwarranted power. The EC’s competition authorities threatened a new round of fines against Microsoft and declared that key Microsoft technology lacks innovation (a convenient excuse for officials to advocate royalty-free licensing).

Even some commentators in Europe recognized that the latest EC saber-rattling is blatantly anti-American. “It’s a bit of a witch hunt,” Brussels attorney and competition law expert Denis Waelbroeck noted.

The current skirmish in the EC’s nearly decadelong case against Microsoft revolves around how the firm licenses a special set of technologies called communications protocols to other companies. The EC order, now on appeal, has compelled Microsoft to provide the protocols, but it is allowed to charge a fee because the technologies involved are innovative and valuable (not to mention expensive to develop).

But here’s the rub: The EC now says that the communications protocols, which have multiple international patents, contain “no significant innovation” and therefore are not entitled to fees. Those are the words, however ridiculous, of Competition Commissioner Neelie Kroes herself.

Over the years, the Competition Commission has made other missteps. In 2004, regulators ordered Microsoft to provide a version of Windows in Europe without a media player. The bureaucrats seemed to believe that consumers wanted this choice, which Microsoft disputed. Shipped under the Commission-approved name Windows N, this product has been a flop, attracting virtually no interest from European consumers.

The EC’s actions against Microsoft are not isolated. It has acted against other American businesses as well. For instance, in 2001 the EC blocked General Electric’s planned acquisition of Honeywell. Assistant U.S. Attorney General Charles A. James said at the time that the EC’s decision “reflects a significant point of diversion” with U.S. American antitrust regulators.

The regulatory impulse across the Atlantic wasn’t always this reckless. This month marks the 50th anniversary of the Treaty of Rome, which created what is now called the European Community. First formed to promote a powerful economic union, the EC was to help forge common trade, monetary, and other policies in order to make European nations competitive with the United States.

But by the year 2000, European leaders acknowledged that the region still suffered from low productivity and poor economic growth. At a meeting in Portugal, European officials adopted the Lisbon Strategy, which tasked nations to promote innovation and education to make Europe the strongest information-age economy in the world.

The sad reality is that 50 years after the Treaty of Rome and seven years after Lisbon, Europe still lacks a culture of innovation on par with that of the United States. Last month, the EC released a report, the “European Innovation Scorecard,” which concluded that Europe still lags behind the U.S. in key areas, including venture capital investment, patent registrations and the number of university graduates. The report included a mea culpa of sorts: Europe suffers from reluctance to enact meaningful policy reforms.

In the context of this history, the EC competition regulators’ attack on Microsoft seems to be yet another example of old-guard European protectionism. Given Microsoft’s success in commercializing its research, it’s probably not surprising that the firm has been an ongoing target of European regulators (the company has paid $1 billion in fines to date).

Other American technology companies, including Apple and Intel, are now attracting European regulatory ire as well for their commercial success. Apple may have to turn over key iTunes and iPod technologies to competitors, or exit some European countries. In place of innovation, Europe is settling for regulation and de facto government seizure of (American) technology.

Fifty years ago, Europe’s policy failures and economic stagnation were essentially its own business. But in today’s world, the global economy is closely tied together, and technology moves easily around the world. Europe’s unfortunate response is to try to trap the businesses of other nations in a regulatory stranglehold.

Europe faces many challenges, but it does not need U.S. economic aid. Rather than try to stifle American innovation, perhaps Europe should focus more on encouraging homegrown entrepreneurial advances to vie with U.S companies. Healthy competition between our two continents is far preferable to the failed alternative of over-taxing and over-regulating.

John Berthoud is president of the National Taxpayers Union, a Washington-based nonprofit citizens group.