Real Networks Spooked by Real Competition

Very few people would want to be standing in the middle of a circus ring between two elephants rearing up on their hind legs.

Yet that is precisely where Europeans find themselves today: trapped between two corporate elephants (Microsoft and Real Networks) in the middle of the European Union’s competition circus.

Like they had done in the U.S. courts, American competitors of Microsoft--with Real Networks (search), maker of the RealOne media player, helping to lead the charge--lobbied the European Union’s Competition Commission (search) to launch an antitrust case against Microsoft. After an investigation, the Commission announced earlier this year it had decided to impose draconian penalties on Microsoft, which would harm the technology industry. These remedies, which includes forcing Microsoft to design a version of Windows without its own Windows Media Player, would benefit Real at the expense of consumers and our industry.

The effort of Real Networks, an American company, to win in a court of law that which it has lost in the competitive marketplace, threatens to harm European consumers. And the European Commission’s absurd test for monopoly law only adds fuel to the fire. While the American system of justice emphasizes the benefits for consumers from competition, European rules focus on the competitors themselves. Under the European system, companies are prioritized over consumers.

While the intricacies of the laws on competition may be complex, the end result is simple. If the proposed European standard were adopted, Microsoft (search) would find itself unable to offer innovation, enhancements, or new features in future versions of Windows. In Europe, the act of improving the product would in itself be construed to be a violation of law, no matter how helpful those changes would be to consumers.

In America, the standards rely on a common-sense distinction: only those additional features expressly intended to extend a monopoly would be prohibited. American law recognizes the need to allow companies to continue to innovate on behalf of consumers.

The difference in law underscores the significant problems presented by the continuation of the Microsoft case in Europe. The issue of the U.S. company’s actions with regard to Windows had been settled by the government in Microsoft’s home country. In large part, the outlandish claims made and remedies sought by American companies like Real Networks and other competitors were rejected as contrary to law and against the interests of consumers.

But those competitors saw an opening in Europe and took it. Much as American school children call for a “do over” on the playground, Real Networks and its allies are attempting to take a second bite of the apple in the more favorable environment offered by the European Commission.

The concern in Europe over the advancement of this case and its proposed remedies should go well beyond consumers, however. Growing technology companies throughout the European Union stand to be big losers from the Microsoft precedent. If the doctrine established by the European Commission in this instance continues to be followed, innovation will be stifled and the interests of smaller competitors will take precedence over hard evidence when it comes to charges of monopoly and anti-competitive behavior.

Microsoft has asked for an injunction against the penalties while a more thorough appeal of the ruling is heard. EU Court of First Instance President Bo Vesterdorf presided over a hearing in late September where he had some very pointed questions for both sides and appeared to be suspect of some of the EC theories in presenting its case. A decision on suspending the penalties is expected any day.

With the ever-changing landscape in the highly competitive technology sector, the questions over unfair use of market power (search) are not as clear cut as the European Commission might have people believe. The truth is that market segments are constantly changing and being redefined. Moreover, it is all too easy to define the same technology company as belonging to multiple segments of the industry depending on how the company and the segments are viewed. When determining market penetration, will the European Commission choose to use a narrow or broad definition of the marketplace? If history is prologue, it will rely on the definition offered up by the complaining competitors.

For the good of the European economy, its consumers, and innovative technology companies, the European Commission should refrain from offering companies like Real Networks second chance opportunities to pursue businesses cases in courts of law. By serving as an enabler to European battles between major companies, the Commission risks catching consumers in the middle of a dangerous elephant stampede.

Rather than prodding the elephants into battle, European consumers would be better served if their government served instead as elephant tamers to promote innovation and market competition over legal remedies.

Jim Prendergast is the executive director of Americans for Technology Leadership.