CybaCity

The MicroSoft case

On Friday/Saturday 12th/13th October, 2007, SEEL held a briefing session for journalists at Agence Presse Européenne entitled "Policies for Innovation." One of the case studies used by Hector McNeill, Director of SEEL, as an example of poor management on the part of a regulatory agency was that of the European Commission's handling of the MicroSoft case.

CybaCity interviewed Hector McNeill following this presentation and some extracts are provided below:

CybaCity: In your Friday afternoon session you revealed some interesting and, I think, previously unknown facts relevant to the MicroSoft case which resulted in the European Commission Competition Directorate fining MicroSoft. An appeal to the European Court of the First Instance by MicroSoft resulted in their upholding the original European Commission fine. I note that you in fact worked at the European Commission in the past. What was your function?:

McNeill: In 1982/83 I was acting as a consultant to the UK company General Technology Sytems Limited who had been contracted by the Information Technology & Telecommunications Task Force (ITTTF) at the European Commission in Brussels to analyse the impact of ITT on the European Economy. This work began in 1983 but I was then asked to join the ITTTF as Senior Scientific Officer during 1984-1987.

CybaCity: So you had an inside view of Commission thinking on issues of IT and Telecommunications. What were you actually doing though?

McNeill: A large part of my work was analysing Japanese and US initiatives in information technology in the light of the earlier Japanese ICOT report on artificial intelligence. Essentially I was looking into ways and means of accelerating the European advances in IT applications.

CybaCity: That sounds if it could be the subject of another interview but I would like to focus on what it was about your experience then that caused you to feel the European Commission and, indeed, MicroSoft, both tripped up in their case arguments.

McNeill: First of all, the European Commission, in the form of the Commissioners for Competition, Mario Monti and subsequently Neelie Kroes seem to have had a very simplistic approach to technological innovation in information systems and in particular failing to understand the intellectual effort and considerable financial risk associated with development and, in particular, taking products to market.

Secondly, the main driving force motivating these European Commissioners seemed to be the commercial interests of the competitors to MicroSoft, most of whom were not European. In other words the fundamental constitutional issue of the Commission needing to tilt its interests in the direction of the European consumer seemed to be secondary consideration; their motivation therefore seems to have been more political in nature; responding to a lobby.

Thirdly, the existing process of appeal to the Court of the First Instance and then the European Court is flawed because neither of these courts have the necessary expertise to understand the fundamental innovation issues involved and such issues cannot be handled by codified law and regulations as per the European norm. In addition, during the last 5 years these courts have become more politicized and are subject to political party interference and with a high probability of handing down decisions which support the Commission and specific political interests. This becomes almost a default and biased process when one is dealing with a very large US-based corporation like MicroSoft.

Lastly, and here I return to the work being done at the European Commission before Mario Monti and Neelie Kroes were at the Commission. At that time a considerable amout of work was being undertaken at the Commission to try and bring about the breakup of posts and telecommunications monopolies, to introduce digital broadband and mobile telephony and above all to promote the merging of applications techniques into a single emerging digital technology. I would like to emphasise that during the 1980s the European Commission was promoting the fundamental importance to the European consumer of merging technologies so as to create multiple applications through single hardware or software devices and providing € billions in grants to companies to achieve this. While all of this was going on Mario Monti was a teacher in economics at Bocconi University and a commentator of the newspaper Corriere della Sera. Neelie Kroes had been a junior minister covering postal and telephone services and transport in the Netherlands government. Between 1982 to 1989 she held the same post.

These two should have been aware of the € billions being spent by the Commission to support R&D ; this was a constant media theme. I don't know about Mario Monti but Neelie Kroes as a result of her government role must have been aware of this since many regulatory committees were set in telecommunications, to support this. This lay in her ministerial brief. However, what is more than apparent is that neither of these people seemed to have grasped the concept being addressed; the facilitation of the merging of applications through digital technology. If they had understood this neither would have been so aggressive in their treatment of MicroSoft on this particlar issue.

CybaCity: Were you aware of MicroSoft's activities at that time?

McNeill: Very much so. This was an interesting and exiciting period and the ITTTF was an atypical setup within the Commission. It was not bureaucratic and as functionaries it was like working in an IT company. Indeed, most of our external contacts were with IT companies, telecommunications operators, universities and research organizations. As individual staff we had a considerable autonomy to follow our own briefs in an independent fashion. This wide exposure meant that long before this became more evident to the media we knew that IBM was heading for difficulties and that it had made a major strategic blunder in not following up PC applications development more actively. Indeed, one of our colleagues from Ireland had worked out that at that time PCs were overtaking mainframes and minicomputers as the main global source of computing power. IBM also seemed to be making some poor choices in terms of operating systems specifications for PCs. On the other hand, Bill Gates, although he was producing IBM operating systems had, as far as we could see by virtue of his alternative products, a far more practical perspective on the potentials for PC use. Indeed, even although MicroSoft was at that time only beginning to be noticed, that seems to be unbelievable now, we knew that this company was the only one moving fast enough to succeed in the PC arena. We also knew that with the company's launch of Windows in 1985 and its public share offer in 1986 this company was not going to look back. People forget I think that the nature of Windows was already a merging of multiple applications and it represented a major leap forwards in user friendliness, once the bugs had been killed off.

CybaCity: Exciting times, but how does this history relate to the MicroSoft case?

McNeill: It became evident already in the 1980s that one of the only companies to be succeeding in achieving what the European Commission was promoting as policy, the merging of applications into a single digital system was MicroSoft. This is why it is extraordinary that the European Commission fined MicroSoft for doing what the European Commission had been advocating for more than a decade. They were punished for bundling their media player with the Windows operating system.

CybaCity: But there were issues concerning PC sales and Windows operating systems being considered to be unfair marketing.

McNeill: Look, if MicroSoft was doing anything to break any laws then they only have themselves to blame. However, the main arguments by their competition and also by the European Commission, from what I have read, lay in the field of bundling of other applications with operating system packages, which is an approach which benefits the consumer, and issues concerning what is known as the "interworking" of other applications with the Windows operating System. On the interworking issue we have worked with Windows for as long as it has existed developing non-MicroSoft applications and if there were "interworking" issues they tended to be temporary with updates and fixes smoothing out hitches.

CybaCity: How do these facts relate to the case?

McNeill: MicroSoft, I believe, could have avoided a lot of wasted time if they had simply used the fact that they were one of the few companies to respond to the European digital policies of the 1980s. As a result of that evolution in their technology they were also the only company to be punished by the same European Commission for following European Commission policies. This is as absurd as it is unacceptable. Indeed, their case is one which could be based upon maladministration by the European Commission because of three factors. The whole case was brought by a commercial lobby of companies who were unable to compete with MicroSoft. The European Commission did not pay sufficient regard to the global impacts of their acts upon European consumers and systems developers who use MicroSoft Windows variants and applications. Indeed, the Windows packages which MicroSoft was forced to produce as per Commission specifications were a complete commercial flop proving the point that the Commission did not act in the interests of European consumers. Given this fact the European Commission should be required to pay compensation for this misdirection of corporate effort against the better instincts of the management of MicroSoft. Lastly, there remains a failure in coherence of the approach by the European Commission to the merging of applications in digital technology between the beneficial and technical/economic rationale promoted in the 1980s and the MicroSoft case which dragged on through the 1990s and 2000s and which cuts across all of this logic. Given the waste of time and indeed what seems to be an unjustified fine it really is necessary for someone to investigate all of this since what I say about Commission policy is indisputable.

The reality is that this case has done the European Commission and technology a lot of harm and this arose from the ignorance of the Commissioners concerned of this important formative policy for European IT and telecoms. Indeed the Windows Internet Explorer and the Media Player are outstanding examples of the merging of multiple applications through digital technology. They are not perfect but they have delivered what was envisaged at the Commission in the 1980s.

CybaCity: But it seems to be extraordinary that MicroSoft a very large corporation did not seem to pick up on this? Was this point ever raised?

McNeill: Not that I am aware of. I tried on occasions to contact MicroSoft but again their sheer size and probably number of communications they receive probably cause my communciations to be lost in the spam. Certainly in reviewing this with past colleagues who were at the Commission at that time they confirm my analysis but, of course, only off the record.

CybaCity: But the European Court of the First Instance upheld the massive fines levied against MicroSoft.

McNeill: Well, what would you expect? This was predictable from the start. The European Courts, all of them, are not British, Canadian or US Courts since the European forums are not equipped to handle this sort of issue. The case for the prosecution rested on all involved, including MicroSoft, being ignorant of European policy in the 1980s. The judges would not have had a clue about this particular issue. If the judges were more attuned to European policy they would have thrown the case out. Also as a result of misdirection of effort and ignorance of European policy the correct case on the part of MicroSoft was not argued. The European Courts are highly politicised, that is, they are not impartial. The issue of the European judiciary is a matter of increasing concern and this is not the place to review this. I would limit my comments to stating that our work on constitution shows that these courts, believe it or not, do not uphold any concept of decisions being beyond a reasonable doubt. Judges decide by majority vote in small panels. Dissenting opinions are not published. If they were published freely, as you will appreciate, this would demonstrate a reasonable doubt. The European courts also avoid juries (these are alien to the European judicial Corpus Juris codified law) which are better understood in the UK, US and Canada and which are able to follow complex cases and to come to decisions based on unanimity, that is, without a reasonable doubt. So returning to the question as to the expected outcome of a judicial decision in a European Court involving a decision between a big US Corporation and the European Commission, who is going to win? - the outcome is obvious. I am afraid that the arbitrary nature of the European judicial system is something of increasing concern because of the constitutional implications, especially in the United Kingdom. Unfortunately, the European legal system is gathering a momentum as something to be feared rather than admired. On that point it was interesting to note Neelie Kroes' prickly "nationalistic" response to US criticism of the court decision; this criticism was justified.