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A Rational Shift in the Net Neutrality Debate?

Thursday, August 5th, 2010

At ACT, we’ve taken great interest in the media coverage of a possible pending broadband deal between Verizon and Google. While we know nothing more than what’s been reported in the news, this appears to be an interesting development in the net neutrality debate.

Advocates of net neutrality have differing opinions about what is needed to preserve existing freedoms on the internet. ACT strongly supports the four core principles of net neutrality: that no broadband provider should limit access to any content, device, application or network.

Yet we also understand the pragmatic realities of managing a network and the need of certain applications for better quality of service and packet prioritization. Therefore we are cautiously hopeful that the reported discussions appear to be a move to a more rational position in the net neutrality debate.

At the same time, it’s difficult to know what to make of the deluge of commentary on this issue insisting that “Google is evil”. Perhaps this sudden, vitriolic response to today’s news merely demonstrates the difficulty in reconciling the advertising giant’s carefully constructed public image with its obvious need to maximize shareholder value.

Tags: FCC, Google, net neutrality, verizon
Posted in Current Affairs, Internet Governance, Tech Regulation, Telecom & Cable | No Comments »

ACT Member Peter Carnes Storms the House!

Thursday, July 22nd, 2010

CT member Peter Carnes (CEO of Traffax, Inc.) testified before of the House Committee on Small Business today about “The Impact of Intellectual Property on Entrepreneurship and Job Creation”. Peter shared the stage with a really diverse group of IP owners – from ABRO, which has problems protecting its trademarks, to Rick Carnes, a songwriter who has written songs for Reba McEntire and Garth Brooks. The President of the Business Software Alliance and the CEO of t3 (they sell mainframe software) rounded out the mix.

The Committee has Peter’s oral testimony up on YouTube here, but for those of you who want to read the full version, here’s a link.

Overall, the witnesses really hammered on the message that IP was a key way for America to move forward, and that it wasn’t going to happen without some help from the government. Holleyman and Rick Carnes (Songwriter’s Guild) pointed out that the BRIC nations are really doing a number on US copyright holders – stealing software, music and movies as fast as we can make them. Peter talked about the need to get the USPTO fully funded, and to get the backlog of patents dealt with so that businesses that file for patents aren’t hanging out in the wind for nearly 2 years after their patent has been published.

Peter also pointed out that adding IP to international trade agreements had an impact not just on the macro level, but in day to day business as well. He noted that he had been dealing with China for years, and he has begun to notice that IP issues have now become “part of the narrative” of business negotiations, when before they weren’t even an afterthought.

On patents, Congressman Luetkemeyer referenced a constituent of his who said ‘filing a patent lets your competitors see what you are doing, and then they just tweak it to work around, so why bother?’ Peter noted that this is the heart of the patent system; it drives innovation forward because by teaching others how you do things, they come up with ways to jump ahead. In exchange for sharing the secret of how my invention works, I get a time restricted monopoly on my design. I share so that I can get (temporary) exclusivity. But this delicate balance is being thrown out of whack by a patent system that takes far too long between publishing and granting. During that nearly 2 year gap of time the patent filer can do next to nothing to protect his idea.

We agree with Peter that something needs to be done to get USPTO on the right track of eliminating the patent backlog; in support of this, ACT has asked Congress to give the USPTO access to all the money it collects for FY2010 during FY2010, rather than wait a whole year to spend the money we’ve given them. Here’s a copy of the letter we sent to the Senate Appropriations Committee.

Finally, Peter talked about the difficulty small tech companies have had when trying to get a loan through SBA. Banks have almost no ability, and no interest, in granting loans to companies that have few tangible assets. Innovation companies don’t buy buildings, they don’t buy furniture, they don’t buy trucks, they may not even buy computers. Instead they pay wages for engineers, they hire software developers, they build and destructively test prototypes – none of which is a tangible asset that a bank can attach if you fail. Peter asked Chairwoman Velazquez to work with SBA to improve how SBA deals with IP as an asset for the purposes of securing loans.

Overall, Peter was a rockstar today, and made all of us at ACT very proud to have him as a member.

Posted in Copyright, Entrepreneurship, Innovation and IP, Patents, Tech Regulation, Uncategorized | No Comments »

Senator Hatch Grills FTC’s Leibowitz on Antitrust Power Grab

Monday, June 14th, 2010

As we’ve discussed before, the FTC recently decided to dust off its Section 5 authority to go after “unfair methods of competition” in lieu of using its tradition antitrust authority (Section 2) to pursue some of its tougher cases. This has many antitrust experts concerned, most notably, Bob Litan, former Clinton administration. In a discussion of the FTC’s use of Section 5 authority in its Intel lawsuit, Litan argued that:

The FTC apparently seeks to avoid proving harm to competition under the established standards of Section 2 because the causal link between the conduct it challenges and any conceivable harm to competition is weak. At a minimum, therefore, the relief sought by the FTC should reflect the tenuous connection between the conduct it challenges and the potential for harm to competition.

Apparently, Senator Orrin Hatch (R-UT) is also concerned by the FTC’s use of Section 2

During June 9th Senate Judiciary Committee’s hearing on Antitrust, Senator Hatch asked FTC Chairman Jon Leibowitz some tough questions. Hatch asked (based on our unofficial but mostly accurate transcript of the event):

I have serious concerns about the FTC’s decision to bring what are essentially antitrust cases under Section 5 of the FTC Act rather than under the Sherman Act…My concern is that there is a breadth of case law under the Sherman Act that gives businesses clear guidance as to what types of conduct are lawful or unlawful… However, it does seem to me that, with the FTC’s decision to start bringing cases under Section 5 of the FTC Act, these companies may see themselves facing complaints for conduct that they had good reason to believe was allowable under the law…Should we not be concerned that the uncertainty inherent in the FTC’s use of Section 5 will prevent businesses from competing aggressively?

Leibowitz Does Little to Reassure Hatch and Others on Section 5 Use

Leibowitz explained that the “only purpose of Section 5” is “to make some things punishable, to prevent some things that cannot be punished or prevented under the antitrust law.” He then went on to suggest that the more rigorous economic analysis that has been required since then 1970’s means that the FTC needs to find a way around Section 2 restrictions.

And it’s extraordinarily important, and again, what the Chicago school did, I want to go back to this, because in the 1960s and 70s, there was no need to use our unfair methods of competition authority, or little reason to use it, because our antitrust authority was read so broadly. We’ve seen those laws circumscribed – I think for some very good reasons – and again, I think the Chicago school’s emphasis on efficiencies and rigorous economic analyses is a good thing. But, having said that, you want us to stop anticompetitive conduct that harms consumers. That’s what we’re trying to do, in an area in which antitrust has been limited, especially because of treble damages, which we’re not able to get. It’s appropriate, I believe, and I think a bipartisan majority of the Commission believes, to use this authority on occasion, not always.

It seems that Leibowitz is arguing that requiring actual economic analysis of alleged “harms to competition” is too high a bar for his agency. They need to be able to prevent business practices they believe are harmful to competition and consumers, even if the economic analysis suggests otherwise. And in this new regime, companies will have little guidance as to what the FTC will consider legal vs. illegal, and will only know what the actual “law” is once they go to court on an appeal.

Tags: antitrust, ftc, leibowitz
Posted in New Economy Competition, Tech Regulation, Uncategorized | No Comments »

Antitrust Experts Engage Debate (Virtually) Merits of FTC’s Use of Section 5 Authority in Intel Case

Monday, April 19th, 2010

Over the past few weeks an online debate has been brewing between antitrust scholars over the FTC case against Intel. The focus of the debate has been the FTC’s decision to pursue most of its case using its Section 5 authority to prevent “unfair and deceptive” practices, rather than its Section 2 authority for combating anti-competitive behavior.

The discussion began with a piece by Bob Litan, former Deputy Assistant Attorney General in the Antitrust Division of the Justice Department in the Clinton Administration, entitled “The FTC’s Radical Application of Section 5.” As the title suggests, Litan has some serious concerns about the FTC’s case in general and its application of Section 5. It’s a pretty compelling piece that I recommend to all you antitrust geeks, but if you’re short on time/attention span I’ll try to summarize.

Litan believes (like we do) that the FTC has a pretty difficult case to make, given that:

The levels of innovation and price cutting from the semiconductor industry are unparalleled by any other industry (see our paper on Exponential Innovation)
The FTC seeks to prevent Intel’s above-cost discounting of chips, a practice that Supreme Court has regularly defended and cautioned against regulatory interference of such pro-competitive activities.

Therefore, he argues:

The FTC apparently seeks to avoid proving harm to competition under the established standards of Section 2 because the causal link between the conduct it challenges and any conceivable harm to competition is weak. At a minimum, therefore, the relief sought by the FTC should reflect the tenuous connection between the conduct it challenges and the potential for harm to competition.

Yet, the FTC is pursuing pretty heavy-handed remedies.

Litan then goes on to make make compelling cases for how the FTC’s proposed remedies transform Intel into a regulated utility, which could actually raise prices, reduce innovation, and create “a radical and sweeping re-interpretation of this nation’s antitrust laws, with potentially grave implications for private incentives to innovate and compete.”

Enter David Balto, former policy director of the FTC and current Senior Fellow at the Center for American Progress. Balto has been consistently supportive of the FTC’s case against Intel and took issue with the Litan’s reading http://www.americanprogress.org/issues/2010/04/balto_ftc_intel.html of the situation. He argues:

These predictions of doom are exaggerated and misplaced. The reality is far more straightforward.

Balto argues that three different foreign antitrust authorities have charged Intel with anticompetitive conduct, and Intel’s conduct effectively limited consumer choice through its “rebate schemes.” Balto goes on to cover familiar territory by summarizing the arguments made the FTC and other antitrust regulators, and suggesting that Litan’s fears are far outweighed by the potential damage Intel could inflict on competition in the future, especially in the GPU market. He summarizes his points with:

The FTC’s action is perhaps most important for its focus on dynamic competition. Innovation is central to the growth of the U.S. economy. Exclusionary conduct that dampens innovation extracts a significant cost on the economy.

However, Balto never really addresses Litan’s concerns about the application of Section 5 in this case, but argues that the use of Section 5 authority is not radical and is in fact warranted in this case. While he does say that the FTC’s Section 2 case could stand on its own, Balto actually confirms Litan’s thesis that the FTC pursued the Section 5 claim to free itself from the bar of demonstrable consumer harm.

Section 5 enables the FTC to go beyond narrow competition concerns. As the Supreme Court has held in FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972), “like a court of equity, the Commission may consider public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.”

Perhaps his most compelling argument for the use of Section 5 authority is the speed at which the administrative courts can reach a decision, but that is a double-edged sword. Acting quickly can help the FTC address concerns before market opportunities are closed, but it can also magnify the cost of mistaken action as well. In the end, however, this was not one of Balto’s more compelling arguments for regulatory activism.

It wasn’t long before Geoff Manne of Lewis & Clark Law School offered his own rebuttal to the rebuttal. On the Truth on the Market blog, Manne posted an article entitled “David Balto (and the FTC) gets it woefully wrong on Intel <http://www.truthonthemarket.com/2010/04/14/david-balto-and-the-ftc-gets-it-woefully-wrong-on-intel/ .”

Manne highlights many of the failings of Balto’s piece.

He notes that Balto’s reliance on decisions by three foreign commission as evidence of Intel’s liability is misleading at best, given that “it is well-accepted that conviction by a party acting as judge, jury and prosecutor is less than decisive.” This is doubly true given that the FTC is pursuing conduct that the other jurisdictions never even looked at.
He also notes that, despite Balto’s assertion, none of the other Commission’s provided any evidence or specific conclusions that Intel’s conduct led to higher prices.

On Section 5, Manne provides his most effective rebuke of Balto, however. Manne notes that Balto is completely dismissive of error costs concerns (such as those made by Litan) because of his certainty that agencies “don’t err in the cases they bring-only in the cases they don’t bring.” He then takes on Balto’s argument that the use of Section 5 is critical to ensuring “dynamic competition”

Balto finishes by praising the FTC’s focus on dynamic competition and by comparing the case to the DOJ’s Microsoft case–as if to highlight how perfectly off-base his assessment is. The DOJ and the courts in Microsoft were so forward looking that they dismissed the threat to Microsoft from Linux and didn’t even realize that there was a threat from Google. Larry Lessig has announced that he “Blew It on Microsoft <http://webmonkey.wired.com/wired/archive/15.01/posts.html?pg=6> ” for failing to appreciate the dynamic market. This case by the FTC is built on theoretical models of speculative harms and against copious evidence of present-day benefits to consumers. If this is how the agency focuses on “dynamic” competition, count me out.

The debate (online and offline) over the FTC’s case and the use of Section 5 will certainly rage on, but it’s becoming increasingly clear that the FTC’s case is anything but a slam dunk.

Posted in Innovation and IP, New Economy Competition, Patents, Tech Regulation | No Comments »

What happens to the art when the artist can’t make a living from his or her work?

Wednesday, February 3rd, 2010

Why do we choose the products we
choose, when there are so many alternatives?
I watched the ITIF Forum: “Info-Communism:” A Progressive Path Forward
or a Political and Intellectual Dead End? On ustream ustream today ITIF and Jonathan Zuck, the president of ACT, raised this
very fundamental question.

Although the discussion that followed
by the panel was interesting, I am not sure that the panelists ever really
answered Jonathan’s question.

It seems like an important one. Certainly it is relevant for anyone who hopes
to make a living off of their photos, poems, or code. It is in fact a critical question for
everyone who enjoys the products of these creative entrepreneurs.

On today’s panel, the discussion centered on intellectual and
political movements that seek to level the playing field by opening up access to
art to all, without fee, the creations of the few who toil to innovate. By name alone, these movements–“free culture,”
“openness movement,” and “extreme Net Neutrality”–sound inviting. Who would be opposed to a level playing
field? Why would anyone want to pay more
to enjoy what they could have for free?

There are lots of examples of how
we share more in real time today than was ever possible before. We trade quotes and pictures and lyrics with
people we have never met before from all corners of the globe. Sites like Flickr flickr show the amateur photographer in all of us what it
means to aspire to great beauty. This is
all wonderful to be sure. Free – looks
like it works fine. But, there is a rub.

Certainly these same folks that
enjoy such art would likely think they are paying the artist a compliment if
they share this shot with others. They probably
don’t spend much time pondering the fair use exception carved out by the
Supreme Court in its 1984 decision in Sony Corporation of America v.
Universal City Studios, Inc. 464 U.S. 417 (1984) when they use the pictures they downloaded as their
wall photo. But what of the
photographer who hopes to make a living off of the sale of his or her
work?

There are, to be sure, some areas
of grey in the current understanding of what fair use means in the digital
economy. Everyone understands what it
means to give someone credit for work well done and talents well used – and
even this simple courtesy is often overlooked.

At one level there may be a
qualitative difference between similar things:
one may have more artistry; be more elegant; or, more clearly capture the
essence of efficiency. Should the
author, poet or developer who labored and honed his or her skills to create
this artistry not be rewarded for the hours of training?

The real debate, however, probably has less to do with defining
boundaries in the currently foggy areas of fair use, or imposing norms of
civility and kindness, and more to do with human nature of striving for
excellence and wanting to be rewarded for the effort. How do you encourage investment and
creativity?

Jonathan’s question highlighted that people tend to gravitate
towards the work of professionals. In
other words, people seem to like that work best. Viewers gravitate to the music, movies and
art of professionals so it behooves us to allow those professionals who simply
work harder and for longer on their craft to enjoy the fruits of that
labor.

Jonathan raised the example of the “Hope” poster. His point was that while there is a lot of
debate over fair use surrounding that poster, he finds himself asking why when
there were over 100,000 photos of Obama that could have been used for free up
on Flickr, why did that person choose a professional image? Jonathan suggested, and rightly so, that the
user of this shot sought to profit from HIS art, shouldn’t the inspiration for
that art profit as well?

What happens to the art when the artist can’t make a living from
his or her work? After all Free is great – until it isn’t.

Tags: ACT, art, fair use
Posted in Copyright, Current Affairs, Music, Tech Regulation, Web/Tech, Weblogs | No Comments »

The Googley-eyed Monster…Isn’t it Awesome?

Monday, February 9th, 2009

The Boston Globe has an op-ed today that paints a bleak, Orwellian picture of our future in Google’s Panopticon. The piece begins with a quote from Orwell’s “1984”:

'THERE was of course no way of knowing whether you were being watched at any given moment . . . It was even conceivable that they watched everybody all the time."

The author, Peter Funt (TV producer and son of the creator of Candid Camera), argues that this line seems incredibly “prescient”’ given Google’s new Latitude service that allows users to monitor the whereabouts of friends and family, Street View which allows anyone to examine high resolution pictures of your home and property, and other “snooping” tools. Funt argues that Google is essentially creating tools to enable a world-wide version of Bentham’s infamous prison and pontificates on some of the worst potential scenarios.

By the end of it, I was ready to cancel my Gmail account, and switch to Yahoo! Search and Live Maps.

But, then I used the Google iPhone app with Voice Search.

It is AWESOME (and would be AWESOMER if it could search emails too). The voice recognition is great, and the integration with Internet and contact search make it a critical iPhone app for me. The reality is that there is an immense amount of value here (as there is in Google Search and Gmail), but…is it enough the justify the cost?

For most Web2.0 advertising-supported services (Street View probably falls outside this category because communities are not opting-in),that is the real question. We are trading a stream of information about ourselves (and our willingness to click on ads from time to time), for services. We need to judge each of these services based on cost vs. value – the same way we do with services that have monetary costs. For some people, being able to find their friends and family around the world at any time might be worth giving their location information 24/7 to advertisers (and potentially governments). For others it may not. These calculations will likely be different for each service and each person.

We can and should have high level debates about the large scale privacy implications of new technologies (as Funt is trying to spark), but it seems that empowering users to make informed choices is both more important and more pressing in today's environment.

Posted in Privacy, Tech Regulation | No Comments »

Regulatory Models that Promote and Prevent Business Models (Or, Don’t Only Believe the Public Interest Hype!)

Friday, August 8th, 2008

“Don’t Believe the Hype” — Chuck D, Public Enemy

De Tocqueville is famous for discussing the American way of enlightened self-interest, in which there are mixed elements of private and public goods involved. But when it comes to self-interested lobbying by the tech industry, it’s the words of an American rapper, not a French rapporteur, that I’d like to discuss.

“Innovation!” – “openness” – “jobs” – “choice.” There’s a lot of buzzword hype thrown out by IT companies. Policymakers hear these buzzwords all the time, which are usually connected to how certain regulatory polices can benefit the public interest the most.

So, what does it all mean? Well, a recently released paper of mine and ACT’s President, Jonathan Zuck, tells you absolutely nothing about which IT polices are better than others. That’s right, nada. Zilch. Zippo.

Instead, the paper — Understanding the IT Lobby: An Insider’s Guide — is an explanatory of business models in the Information Technology industry, and the public policies that can help or harm companies over their competitors. It’s not a Scott McClellan tell-all – rather it connects the dots between public policy rhetoric and licensing, service, and ad-based business models.

The gist: the pursuit of one public policy can disadvantage not just one company, but an entire business model.

Of course, there’s nothing new about an industry lobbying governments in self-interested ways. What is new is that there’s no single “self” among tech companies. Thanks to new technologies & the Internet, the tech industry is full of divergent yet competing ways to attract consumers.

Things can get complicated, though, when IT industry groups approach policymakers about a common concern, because they’ll often advocate for different solutions. And in the process, IT companies—even when they differ on policy—are increasingly attempting to show how their position benefits the public interest.

But when you peel back the rhetoric, most of the policy differences among IT companies are the result of competing ways of doing business. To fully understand the policy motive, you need to be able to identify the business model.

Business Models – the 4 P’s

A business model is just a term for how a company does business, how it makes money. You can breakdown a business model based on how a company prices, promotes, and places its product. In marketing class, they call this the 4 P’s Marketing Mix.

In the paper we identify 4 main business models in the IT industry.

License Software or Sell Subscriptions for Software Use (Microsoft, SAP)
Give Away Software to Help Sell Hardware (IBM, Apple)
Give Away Software to Generate Services (IBM, Red Hat, Sun)
Give Away Software to Sell Ads and Collect User Data (Google, Yahoo)

So, for instance, Microsoft clearly falls within the first as it depends on licensing revenue from Windows and Office products. Google, with its search and contextual ad network, is clearly pursuing an ad-based model. There’s also some overlap, as Microsoft (among others) is also pursuing ad-based models.

Note that business models compete. These companies are all competitors at some level, and these business models will change over time.

The 5th P — Public Policy

Over the past few years, we’ve seen the emergence of a “5^th P” – Public Policy – as part of the marketing mix.

When a companies pursue a 5th P strategy, they attempt to use the legislative and regulatory system to create policies that help their business model or harm competitive business models.

There are two important distinctions to make.

1. There clearly are policies that help certain business models more than others. For instance, if our public interest goal is increased law enforcement of intellectual property, this clearly helps IP owners and companies that rely on copyrights and patents as their core product.

2. There are public policies that can promote one business model and at the same time exclude others. For instance, a law that mandates the use of open standards clearly will help some companies who build products around these standards, but it also has the effect of excluding competing business models.

It is this second form that is more pernicious, because it doesn’t just favor one or more companies — instead, scenario #2 comes across as being specifically designed to disadvantage competitive business models.

And while using public interest advocacy to gain a competitive advantage is not new to Washington, in the IT industry we’re seeing more of it, it’s more sophisticated and it’s becoming more focused on competing business models, not just businesses.

This will be a continued focus of mine. In the meantime, it’s not that you shouldn’t believe the public interest hype — just don’t only believe the hype! (there just may be a business model preference lurking there somewhere).

Posted in New Economy Competition, Tech Regulation | No Comments »

The CFI Microsoft Decision – Affirming European Antitrust Activism

Monday, September 17th, 2007

I want Microsoft’s
market share to diminish to significantly less than 95%. I can’t say that it
has to be precisely 50% or whatever number, but it has to be significantly
less than 95.

- Neelie Kroes, European Commissioner for Competition Policy

Today’s decision from the European Court of First Instance
affirms the broad role that competition policy has in Europe.
You can slug through the lengthy court opinion, but these press conference
Q&A comments of Neelie Kroes (including the above quote) are revealing.
They show the true intent of the European Commission’s competition policy
regulators: competition policy is about
micromanaging software development and dictating market evolution.

Here’s the largest buzzword from both Kroes and the EC’s
press statement: interoperability. Again, a quote from Kroes, this time from
her prepared statement:

In confirming the interoperability part of the Commission’s decision, the
Court has confirmed the importance of interoperability for consumer choice and
innovation in high tech industries. If competitors are unable to make their
products "talk to" or work properly with a dominant company’s
products, they are prevented from bringing new innovative products onto the
market, and customers are locked into the products of the existing provider.

Sure, interoperability is often an important feature of IT
– if it’s market-driven. Otherwise,
it smacks of the sort of “infrastructure socialism” that Adam Thierer and Wayne
Crews have cataloged in their book. It also smacks of political rent seeking by
competitors. As Crews recently articulated in a CEI C:\Spin, “subjecting
Europe’s technology sector to political predation via aggressive antitrust
regulation and involuntary licensing is less about protecting consumers than
about competitors’ regarding themselves as entitled to someone else’s
customers.”

Paragraph 454 of the CFI decision has this precautionary
nugget: "The Commission asserts that the applicant’s refusal creates a risk that
all effective competition on the secondary market for work group server
operating systems will be eliminated." A “risk”? Come on! EC antitrust
regulators are now a pre-crime unit, using the force of law to intervene in precautionary
ways.

So are we at the dawn of a new antitrust era in the EU,
where a precautionary principle applies to antitrust, and the refusal to supply
or license intellectual property to a competitor violates competition policy?
Maybe…but maybe not.

The court affirmed that competition policy regulators have
the legal power to engage in strong
antitrust regulation. But whether as a matter of sound public policy the
Commission should involve itself in
certain competition policy matters is a different story.

Regulators tout the way trust-busting promotes competition,
but they rarely talk about the costs of antitrust interventions on the overall
climate for innovation. Even Commissioner Kroes said in her remarks that “investment
and innovation require a stable, fair and restrained regulatory environment. I
remain committed to delivering just that.”

Let’s hold Kroes to her word, and hope that a victorious
European Commission isn’t a recklessly emboldened regulator. Competition policy
is a blunt instrument to remedy perceived anti-competitive acts – nothing more.
It shouldn’t be an expanded tool to enforce market shares, dictate prices, and resolve
competitor disputes that are best left to the marketplace.

[Update: Check out this hilarious post at the Secret Diaries of Steve Jobs (here's a snippet):

We've proposed a great way for Europe to accomplish this and I'm happy
to say that so far they seem to be listening to us. Which is more than
I can say for the U.S. government which is still stuck with this quaint
idea that governments shouldn't decide how much market share any one
company should have in any one market.]

Posted in International Trade, New Economy Competition, Tech Regulation | 1 Comment »

Neelie Kroes Press Conference Transcript (Unofficial)

Monday, September 17th, 2007

ACT had a few folks at today’s press conference where Neelie Kroes spoke regarding the Court of First Instance decision. As there’s no official transcript yet available, and in light of a clarifying statement to some of Kroes’ remarks, here’s a rough transcript of the Q & A that occurred (translated into English when needed):

Q: Are you expecting a rush of dominant companies to your
door to discuss implications of the judgment for them?
A. No.

Q: Are you now going to impose hefty fines on Microsoft
for non-compliance?
A: Too early to tell.

Q: Do you expect this judgment can be used by the
Commission as a precedent to move more quickly on other cases?
A: Yes, I hope that my services will be in a position to speed up work on other
cases.

Q: Will you look into the legitimacy of access to
information by the Trustee?
A: No

Q (in Dutch): How will consumers notice the difference
after this judgment?
A (in Dutch): The interests of consumers are central. They will notice that the
market is going to be opened up in different ways: 1. more choice; 2. lower
prices; 3. more research and innovation.

Q (in Dutch): What does this judgment mean for the future
of Commission policy?
A (in Dutch): It confirms that our policy is right to place the consumer as our
priority no. 1 and innovation as our priority no. 2.

Q: How will you know if your action against Microsoft
really succeeded? Will you measure sales of other products competing with
Window? Will there be some kind of benchmark?

A: I’m not the one to take decisions [to buy a different
product from Windows]. That’s the consumer’s decision. But for the consumer to
take that decision, it is a must that there is a choice. Let’s wait and see.

Q: Do you expect Microsoft will appeal?
A: No, this judgment was very clear.

Q: Will the Commission now take further actions against
Microsoft in other product areas ?
A. I hope not. I hope it’s clear now to Microsoft that we stick to our point to
have competition.

Q: A similar ruling was rendered in the U.S. against Microsoft in the past,
but Microsoft’s market shares have still not diminished.

A: Microsoft should comply. And when they do, market shares
will change. In addition, competitors will also be stimulated by today’s
judgment.

Q: Interoperability is very important in many areas. Do
you think this judgment is going to cause big waves in other segments as well
(such as MP3 players for example) ?

A: In any sector where interoperability is important it
makes sense to change a situation in which there is no interoperability, and to
open other markets too.

Q: Microsoft also a partner of the Commission in many
other fields. How will the Commission now behave with Microsoft after the
judgment?

A. The Commission will be consistent. It depends on what
type of joint activity it is.

Q: In how far is this judgment a precedent ? Will the
Commission now take action with respect to Microsoft Office?

A: That’s not the way we deal with this. Let me say with a smile that it’s very
simple: if Microsoft is not in line with our policy, we take action; if it is,
then excellent.

Q (in Dutch): What was the importance of this judgment
for the Commission?

A (in Dutch): We have been strengthened in our approach, and in our belief that
the consumer and innovation are the most important. We have also been confirmed
in our approach to what competition entails.

Q: With respect to the bundling of Windows and Media
Player. Very few people have bought the unbundled version. The remedy has
clearly failed. Will you change the remedy ?

A: No.

Q: Most of the Commission’s evidence regarding
Microsoft’s non-compliance came from evidence held by the Trustee. How is this
affected by the judgment ?

A: We will study that section of the judgment very
carefully. We note that the Court does not question the legality of an
independent trustee appointed by the Commission from a list reviewed by
Microsoft.

Q: What are the Commission’s costs ?
A: I don’t have an exact figure.

Q: You seem to be certain that Microsoft’s market share
will diminish. What share would you be satisfied with ?
A: I’m not able to say precisely how much. It depends on a couple of issues.
But obviously the path Microsoft took until today is far too much. It will have
to diminish by more than a couple of %. We want the market to be open, so that
competitors can do their job.

Q: What’s the influence of this judgment on the Intel
case ?
A: It’s too early to say. We will study this carefully. Obviously, the
background of this case must be respected.

Q: What is the Commission going to do about Vista?
A: it is too early too say, but you will be informed soon.

Q: Did you talk about Microsoft with the Chinese
officials when you were in China?
A: No

Q (in French): In the USA
a settlement was reached with Microsoft, but now the procedure is ongoing in
the US too as Microsoft is not complying. Is there going to be a dialogue with the US authorities ? Do you think the judgment today will have an influence over what
happens in the US and will you discuss that with them?

A: Yes, we are definitely talking with our US colleagues. I will be visiting
the US in a week, and Microsoft will certainly be "on the menu".

Q (in Dutch): Are you taking into account that Microsoft
may appeal and the Commission may lose on appeal?
A (in Dutch): No.

Q (in Dutch): Really ?
A (in Dutch): I am a) a democrat and b) an optimist. Today the Court reached
some very clear conclusions. I am not going to worry about problems that do not
exist yet and that may never exist.

Q: Vesterdorf gave a rare interview to a German
newspaper, in which he gives his personal view that fines are not enough to
deter cartels and that there should be personal liability for cartel leaders,
such as for example jail times. Would you be in favor of this ?

A: I have read the interview with Vesterdorf. It’s highly
interesting. We have started a discussion on these subjects at the Commission.
I do not agree with his view that fines do not work, or that the consumer ends
up paying for the fine. I know the US have a system of personal
liability; so do some of our Member States but they have been using it only
very rarely. I am not in favor of that at the moment. I believe the system of
fines is working quite well, even if we still need to fight like hell against
cartels. That’s the reason why I re-organized DG Competition and created a
special cartel unit to fight them.

Q (in Italian): Will this judgment not make political
relations between the US and the EU even more difficult ?
A. We have a very close relationship with our US colleagues and communicate with
them on a daily basis. But there are differences between us too, and we respect
that. It is never an issue in our relationship. For some things we have a
different culture. We found it important for example that the Chinese decided
to base themselves largely on the EU system for their antimonopoly law. This is
definitely not a black spot on our relations with the US. We are professionals and that’s
it.

Q (in Dutch): Microsoft’s current market share is nearly
95%. To what extent can market share be a legal criterion to decide whether
Microsoft is complying or not ?

A (in Dutch): We know that one single producer has a market
share of 95%. This is clearly a monopoly and this is not acceptable. No
competitor has an incentive to enter such a market. I want Microsoft’s market
share to diminish to significantly less than 95%. I can’t say that it has to be
precisely 50% or whatever number, but it has to be significantly less
than 95%.

Q: Do you think Microsoft is going to start a new
procedure ? Or are there going to be more complaints ?
A: We have a clear judgment from the Court that their dominance is preventing
competition. Microsoft must now comply. No more excuses now.

Q (in Dutch): Do you think your reputation as an
antitrust regulator was riding on this case ?
A (in Dutch): No, our reputation does not depend on one case. We do our job
carefully, with good faith, and with arguments. We have not suffered any
reputation damage. This does not depend on one case. In any event, I do not
think losing a case now and then is bad for our reputation.

Q: In what timeframe do you expect or do you want
Microsoft’s market share to diminish ?
A: The sooner the better. Let them start this afternoon.

Posted in New Economy Competition, Tech Regulation | No Comments »

Innovators are Happier in Malta :-) Miserable in Germany :-(

Thursday, March 8th, 2007

You can tell by the look on their faces. Our friends over at Business Europe just released their "European Reform Barometer Spring 2007" this week and the result will be suprising to many.

They have even provided a handy chart of EU 25 and Accession Countries based on the categories of: Public Finance, Businessenvironment, Research & Innovation, Internal Market, Labour Market, and Education & training.

Just a quick glance reveals that Ireland and Malta have an awful lot of these smiley faces: