The Europeans Punish Success, Again

The European antitrust regulator has just announced it will fine Intel Corporation $1.44 billion (1.06 billion euros) because it "harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years." It did this, essentially, by discounting the price it sold chips to stores that agreed to sell computers containing them in bulk through exclusive agreements.

We've been down this path before. The railroads that served Standard Oil charged him a lower rate because Rockefeller could guarantee large, steady shipments of oil, which the railroads could ship more cheaply. For providing the railroads with product in a way that reduced their costs, and being charged less for providing that, Rockefeller was prosecuted.

In the same manner, a retail store that can guarantee large, steady sales of computers containing Intel chips is more valuable to Intel than a store that buys some of its chips and some of its competitor's chips. Intel can afford to provide a discount.

Those never-to-be-denied European customers benefit from this by getting cheaper Intel chips, yet they were supposedly harmed according to the European antitrust commissioner.

But also evaded by the European antitrust commissioner is that a market for computer chips would not exist at all if Intel did not invent, develop, and constantly innovate the chips that become the brains of computers. Because of Intel's work, each year the chips are faster and smarter. Each computer sold with those chips can do more -- faster processing of material from the Internet, simultaneous handling of video and audio, and numerous other tasks -- because of the relentless intellectual effort of Intel's scientists and engineers.

That is part of what the never-to-be-denied European consumers and all others who buy Intel chips are getting.

To steal $1.44 billion from Intel is to demand that these scientists and engineers work for free. It is to steal the fruit of their effort, which we all benefit from by voluntarily buying their products that they create. As their property created by their minds, they have the right to set the terms under which we gladly buy these products, which we buy because of the great benefits they offer us.

Into all this steps the punishing European antitrust commissioner. She violates Intel's property rights and the rights of Intel's customers to do business with Intel on mutually agreed-upon terms. And by so doing, she ensures that Intel has $1.44 billion less in which to reward the efforts of those scientists and engineers who create the marvelous Intel chips.

If our computers are a little slower than they could be and our freedoms more diminished, thank Neelie Kroes, the European antitrust commissioner, and the legions of apologist economists who rationalize the pernicious doctrine of antitrust that gives her this power.

This Is Not Capitalism

Yesterday, Google began an effort to lobby government to forcefully prevent Microsoft from acquiring Yahoo. Over the weekend, Microsoft had announced an offer to acquire Yahoo. The offer price was a generous one, amounting to a 61% premium for holders of Yahoo stock. This is a serious, attractive offer for Yahoo shares by a serious, deep-pocketed acquiror. Yahoo investors would receive either cash or stock in the new combined company.

Google wants to step in between this pending marriage-by-choice between Microsoft and Yahoo's shareholders. How do they intend to do it? Are they going to offer a higher price? Are they going to attempt to persuade Yahoo's shareholders that the deal is not in their interest?

No.

Google's first stop wasn't to its bankers to make a better offer to Yahoo shareholders or to its public relations experts to make the case to shareholders why the acquisition was not in their interest.

Google's first stop was to Washington. Google immediately instructed its lobbyists to concoct arguments against the merger that would persuade congressmen and regulators to scuttle the deal. This type of "persuasion" hardly costs Google anything. For the price of some hundreds of thousands of dollars in lobbyists' fees, fees that legally bribe congressmen in the form of campaign contributions, wine-and-dine them over dinners and soirees at expensive restaurants or through more nefarious contributions to designated "charities" and honoraria for "speaking engagements," Google can scuttle the potential Microsoft-Yahoo deal on the cheap. Certainly for a lot less money than having to top Microsoft's $42 billion offer for Yahoo.

Google will wrap all of this in some sort of argument about how a Microsoft-Yahoo combination will hurt "the public." That argument is expensive hogwash concocted by mercenary economists and lawyers. Even if Microsoft and Yahoo merged, their combined market share in Internet search would be a fraction of Google's. Google is the big gorilla in Internet search (a position they did earn legitimately) and they would remain the big gorilla even after a Microsoft-Yahoo merger. (Actually, it doesn't matter what Microsoft-Yahoo's market share would be. Even if it would far exceed Google's, it represents no harm to anyone. Such market share was earned in the marketplace and would have to be defended in the marketplace.)

Google earned its impressive leadership in Internet search and advertising by aggressively offering a more valuable service than its competitors. I use Google everyday and I marvel at the elegance and power of how they make the Internet useful to me. Google earned their position, but instead of keeping it through further entrepreneurship, they will use the same method the Mafia uses to keep its "market share": the pointed end of a gun.

The fact that this gun is legally held by the chairman of the Federal Trade Commission or by the Speaker of the House does not change its nature.

Capitalism is the system based on the opposite principle to the Google principle used against Microsoft and Yahoo. Capitalism is not based on force, but on voluntary trade. It is based on a person's right to his own life and the corollary of that right, his right to property. No one has the right to violate another's rights through the use of force.

That is exactly what Google wants to do. It wants to use the government's policing power to violate the rights of Microsoft's and Yahoo's shareholders to associate or not as they see fit.

Remember that Google's actions, in their essence, are no different than a Mafia chieftain who hires a street gang to tear up and destroy businesses that refuse to pay him protection money.

This is not capitalism; this is hooliganism.

Antitrust Smackdown

In today's New York Times:

Internet and media rivals to Google Inc. (GOOG.O), fearing an unprecedented consolidation of power in the online advertising market, are expected to urge regulators to closely scrutinize the Web search leader's $3.1 billion deal to buy DoubleClick Inc.

Google on Friday beat out Microsoft Corp. (MSFT.O) and Yahoo Inc. (YHOO.O) to buy Web ad supplier DoubleClick, securing a leadership position as the Internet's top advertising business.

Microsoft, the world's largest software maker, said the deal would allow Google to corner the online advertising market and provide them access to a huge amount of information on consumer behavior on the Internet.

``This proposed acquisition raises serious competition and privacy concerns,'' said Brad Smith, Microsoft senior vice president and general counsel in an e-mail statement.

``We think this merger deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market.''

Microsoft does not see the irony in pursuing antitrust to throttle its competitors, when it is one of the greatest victims in the history of antitrust, and remains a victim to this day.

Microsoft has pandered to the level of its less successful competitors in attacking Google. Like Sun Microsystems, Oracle, Novell, Netscape and sundry others who hamstrung Microsoft at every turn with harassing antitrust lawsuits over the past 15 years, Microsoft now does the same to Google.

Microsoft failed fair and square in trying to buy DoubleClick. Microsoft wanted it and it was outbid. Now Microsoft wants to use the antitrust hammer to forcefully gain what it wants, which it failed to do in the market.

Long ago, Microsoft undercut its own moral rightness in its antitrust battles. The company did this by never challenging the premise of antitrust. Bill Gates went on record repeatedly saying he thought antitrust laws were fine, just that they shouldn't be used this time against Microsoft.

Now Microsoft uses the same weapon against a competitor. Its action must put a spring in the step of Ms. Neelie Kroes as she continues to square off against Microsoft in the European antitrust courts. The director of the European Community's Directorate General for Competition (Orwellian sounding, huh?) knows that Microsoft barely stands before her, having already gnawed off most of the moral leg it stood on.

My advice to Microsoft's accountant is: beef up your reserve against an adverse judgment in the European antitrust case against you.

The Antitrust Hammer

This week Europe announced yet another antitrust action against an American company. Regulators are investigating Apple's iTunes for violation of European antitrust laws. They are claiming that because Apple offers music downloading on a country-by-country basis, they are violating rules against territorial restrictions on sales. Apple, for its part, says that it originally wanted to sell its songs Europe-wide, but found that copyrights were handled nationally and continental distribution was not feasible. Apple is being squeezed between one set of laws (copyrights) and another (antitrust). Although it is a problem of conflicting laws, the regulators do not seek to eliminate the legal contradiction. Instead, they punish the American company caught in the middle.

Apple has done nothing wrong here. As an exercise of their commercial freedom, they can sell to whomever they want on whatever terms they seek. To restrict that in any way is to violate the property rights of Apple's owners.

Why are the Europeans so concerned about such a bizarre, picayune issue? The answer is that they seek to bring down Apple because it is a successful American corporation. Observe the European regulators' continuing crusade against Microsoft, America's leading computer software company. To this day, even after Microsoft painfully settled American antitrust actions and lawsuits, the Europeans continue to punish Microsoft with ever-changing and constantly-growing demands. Lilliputian style, Microsoft is tied down under threat of more fines (after paying a record $613 million fine several years ago), and is forced to change its software, turn over programming code to competitors, adhere to government-set marketing rules and product specifications, etc.

Not so long ago, the Europeans were quiescent in antitrust enforcement. In fact, in countries such as Germany private cartels were legal (as they should be). Governments often encouraged cartelization (which they should not do; it is a private matter). However, about 15 years ago, the Europeans got antitrust fervor. They appointed a Europe-wide antitrust enforcer and set to work. A partial list of companies attacked by the European antitrust enforcers since then reads like a who's who roster of American business success stories:

• Apple
• America Online
• Boeing
• General Electric
• Honeywell
• McDonnell-Douglas
• MCI
• Microsoft
• TimeWarner
• Sprint
• WorldCom

Many of these companies who wanted to merge primarily to achieve efficiencies in the United States could not do so because the European regulators would not allow the companies to combine their European subsidiaries. Two examples were the intended General Electric/Honeywell and WorldCom/Sprint mergers. Both of these mergers of American companies were thwarted by the European antitrust regulators. In other cases, mergers between American companies were permitted only after costly concessions were extracted that favored local, European competitors. Two examples were the TimeWarner/AmericaOnline and Boeing/McDonnell-Douglas mergers.

Interestingly, Europe's antitrust fervor began around the same time as the American government's antitrust assault on Microsoft began in the early 1990s. Now, after nearly two decades of America barely uttering a word in protest, the Europeans believe it is open season on American corporations. With regard to Apple, France actually tried to pass a law a year ago that would have forced Apple to allow iPods to accept music downloads from services other than iTunes. Eventually, France backed down after Apple threatened to pull its popular iTunes service out of France.

The Europeans are not just being anti-American. They target plenty of European companies with antitrust enforcement. Their reach across the Atlantic into the boardrooms of American companies has more to do with punishing the successful to protect the mediocre and politically-connected local companies in Europe. Many of the world's most successful companies are American. Therefore, the Europeans hammer them with antitrust.