04.17.07
In Defense Of Free Markets For Technology
In Defense Of Free Markets
Or, Reasons Why Antitrust Laws Must Be Enforced
Sadly, the technology news and information site C|Net has allowed itself to be used as a tool of monopolists. Why is Microsoft under fire for antitrust violations? I am not an attorney, but just reading the news and my old business law texts says that they are under fire because their whole strategy is based upon violating those laws.
Case in point, taken directly from the C|Net article: CompTIA’s Lars Liebeler defends Microsoft on violations relating to server interoperability. In fact, Microsoft took the industry-standard Server Message Block protocol and extended it so that no other vendors’ products would work with theirs—clearly anti-competitive behavior, designed to limit the choices available to purchasers who had Windows servers.
One thing never seems to change: Microsoft is always enduring some antitrust challenge–even when it is working with other industry players to create better products. Take, for example, Microsoft’s recent agreement with Novell to make Windows server software interoperate better with the Linux server products of Novell.
Last month, oblivious to this agreement, the European Commission issued another statement of objections alleging that Microsoft engaged in bad faith to thwart interoperability in the server market. The Commission’s proposed remedy would require Microsoft to make its valuable intellectual property available to its competitors–for free.
Mr. Liebeler ignores the details of the Microsoft-Novell agreement. Note that no matter where one stands on the agreement, it does nothing for those who use Samba apart from Novell / Suse. As it is Samba, not Novell, that is creating the software, Microsoft’ should be working with Samba and other SMB/CIFS server software makers. Novell reuses Samba’s work in their own products and formerly employed a leading developer in the Samba team. Yet, an agreement with Novell can only mean that Novell may get some of the missing documentation that nearly all server software makers have sought for years.
Besides this, is Microsoft paying IBM a licensing fee for using SMB as the core of the now-renamed CIFS? After all, the SMB protocol is IBM’s “valuable intellectual property” that underlies Microsoft’s revised protocol suite. In essence, Microsoft has taken an open standard and made a few secret, incompatible changes to block their competitors out. This is hardly innovation and surely not worth legal protection as “intellectual property.”
One thing that this behavior surely is, and that is anti-competitive behavior—you know, the kind of thing that the Sherman and Clayton acts were passed to eliminate.
Yet the Commission alleges that Microsoft has established “unreasonable” prices for its protocol licensing of its server technology in Europe. The Commission characterizes Microsoft’s proprietary server software protocols, which is protected by patent, copyright and trade secret law, as containing “virtually no innovation.”
The Commission then remarkably concludes that everyone in the industry, nonetheless, “needs” Microsoft’s protocols, and that Microsoft should provide them “royalty-free.” What the Commission demands in the end is that Microsoft make its intellectual property available to its competitors for free.
Attempting to “outlaw” the Microsoft-Novell deal through changes to the GPL or trying to force Microsoft to disclose its software protocols through regulation and litigation both suffer from the same erroneous foundational assumption–that there is something wrong with the operation and functioning of the free market in general, and that IP protections that underlie the free market.
The free market theory lists certain underlying assumptions, without which it cannot be expected to work. One of those assumptions is that goods and services are functionally identical, that is that the goods or services from one producer can be used as drop-in replacements for similar goods from another producer. As soon as this becomes untrue, producers gain market power, which violates another underlying assumption: namely that neither buyers nor sellers individually have any market power, the ability of an individual buyer or seller to affect the pricing of the particular good or service in the general market. It is helpful if someone arguing from a free market standpoint understands the requirements for free markets to exist.
This position is directly contrary to a central premise of free-market economics: IP protections will encourage investment and result in a wider breadth and depth of innovation.
I am amazed that an attorney and free market advocate knows so little about the topic. “IP protections” are incompatible with free market economics. Their justification is based on the idea of market failures where an inventor or other creator may not be able to reap adequate reward for his or her creative works before copycats move in and make those works low-price commodities. In the server market, whatever minor creative work was exercised has already been compensated many times over, so this so-called need for IP protections does not apply.
Furthermore, since software has a near-zero incremental cost per unit, theory demands that any IP protections be strictly limited in time and scope. I suspect that his advocacy is not borne out of any commitment to the theories and ideas behind free markets, but merely promoting and protecting the interests of the organization’s largest member. That makes this article dangerous, because those who are not acquainted with these ideas might absorb this wholesale, without vomiting up the anti-competitive, anti-consumer portions of the rant. That would be truly negative for all consumers of server software as well as for Microsoft’s competitors (some of which are presumably also members of CompTIA).
Smaller businesses, our target market, can benefit by taking a look at server implementations that utilize Samba and other FLOSS-based implementations of SMB/CIFS. It is important to note that Microsoft’s monopoly-preserving actions could cause some problems between their products and some of the other products listed on the Wiki page.
I note that Mr. Liebeler is the antitrust counsel for CompTIA, and that Microsoft is a leading member of the group. I am not suggesting anything improper about it, but surely the point of view expressed must be informed by the dependence of the organization upon the continued good will of such an important member.
In fact, I would suggest that CompTIA is not independent enough to be critical of Microsoft when it deserves it.
I think we should always be sure to praise them when it is proper to praise them, just as we criticize them when it is proper to criticize them. The Eolas suit against Microsoft, for example, was completely groundless—in my opinion—and should have been thrown out from day one. Eolas, in targeting Microsoft, went after deep pockets, but threatened everyone in the industry that used plugins to enable one application to utilize another to manipulate an object within the first application. The OLE system is an example, and could easily result (if this is never rectified) in large damages against any company building OLE-capable software going back to the time the patent was issued.
Yet, while we should support Microsoft in this fight, we should not turn a blind eye to their misbehavior. In the server field, there are a number of companies that build servers that utilize what is publicly known about SMB/CIFS. Enterprises can purchase server software from numerous vendors that will work with one another, but each one has a certain amount of trouble working with a Microsoft Windows-based server, not because Microsoft was innovative, but because they made incompatible changes in their implementations of the protocol.
