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Europe does antitrust its way

Times Staff Writer

washington -- Transatlantic sniping among antitrust enforcement officials last week highlighted the growing rift between how the United States and the European Union police the world’s largest companies.

After a Luxembourg court upheld an antitrust ruling and a record $689-million fine against Microsoft Corp., the top U.S. antitrust enforcer complained that the ruling had done little to help consumers -- and may even hurt them. EU officials fired back, calling the criticism “totally unacceptable” and defending themselves against accusations that the case represented European protectionism.

The conflict is more than symbolic. Some antitrust experts say Europe’s tougher approach, designed to help consumers by strengthening companies that compete against dominant firms, could backfire, leading to higher prices and discouraging companies from developing innovative products.

Europe’s expanding role as the de facto global antitrust watchdog is making some U.S. companies and lawmakers nervous, especially now that the EU is the world’s largest economy.

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“They’re asking more questions, they’re looking under more rocks, they’re willing to be more proactive,” Dennis Oswell, a partner in a Brussels-based law firm, said of European regulators. “The U.S. is clearly in a phase where they’re quite comfortable with the status quo.”

Companies such as Apple Inc., Intel Corp. and Qualcomm Inc., whose market dominance also has attracted the attention of Brussels regulators, must work harder now to ensure they don’t run afoul of the stricter standards, which could lead to lengthy legal battles and potentially eye-popping fines.

The Bush administration’s forgiving interpretation of U.S. antitrust laws is making the contrast even sharper.

To see how differently the United States and European Union approach antitrust cases, you need only look at who’s in charge.

The officials who enforce U.S. antitrust laws are largely anonymous. The job is split between Thomas O. Barnett, an assistant attorney general at the Justice Department, and Jeffrey Schmidt, a bureau chief at the Federal Trade Commission.

In contrast, European antitrust law is enforced by Neelie Kroes, a high-profile member of the EU president’s Cabinet. The position is roughly as prominent there as the secretary of State is in the United States.

Kroes drew even more attention last week as she stood before TV cameras in Brussels and defended the court ruling against Redmond, Wash.-based Microsoft.

“I think it’s totally unacceptable that a representative of the U.S. administration criticizes an independent court of law outside its jurisdiction,” she said. She was responding to public comments by Barnett, head of the Justice Department’s antitrust division, who had complained that the ruling could hurt consumers “by chilling innovation and discouraging competition.”

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Legal experts widely agree that the Bush administration has not pursued antitrust cases as aggressively as previous administrations. The prime example is the Justice Department’s handling of its own case against Microsoft, launched by the Clinton administration in 1997. Justice officials have supported ending much of the oversight stemming from the settlement of that case even as Europe continued to pursue the software giant.

But antitrust experts say the divergence with Europe goes beyond Republican versus Democratic ideology. Rather, it stems from differing basic philosophies on competition, its effect on consumers and how to protect them.

“In the U.S., antitrust law is based more on the effects. If you commit an illegal practice, that practice has to have an effect on the market,” said Juan Delgado, a research fellow at a Brussels think tank and a former economist at the European Commission’s directorate concerned with competition. “In Europe, you don’t need to go so far. To prove you’ve committed an illegal practice is enough to punish your company, irrespective of the impact.”

Last week’s ruling by the European Court of First Instance in Luxembourg spotlighted the difference. The court upheld the finding by antitrust officials that consumers would be harmed because Microsoft had improperly tied its Windows Media Player to its dominant Windows operating system and did not adequately disclose software code to other companies so their products would work with Microsoft’s.

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The court noted that European law covers “not only practices which may prejudice consumers directly but also those which indirectly prejudice them by impairing an effective competitive structure.”

U.S. antitrust regulators rely more on economic analyses than assumptions of how consumers will be affected, antitrust experts say.

The United States, which has been dealing with antitrust issues for more than 100 years and has learned from its share of mistakes, is more sophisticated than the younger EU, UCLA law professor Mark F. Grady said.

“They have not been dealing with it long enough to understand the danger of accomplishing with antitrust the exact opposite of what antitrust is supposed to accomplish,” he said of European regulators. “Too often, they’re concerned with protecting competitors, when the inevitable effect will be to disserve consumers.”

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Protecting competitors would seem to help consumers by ensuring more competition, which could drive down prices.

But as evidence to the contrary Grady cited a lawsuit, brought in the 1970s by U.S. manufacturers of televisions and other consumer electronics, charging their Japanese rivals with conspiring to drive them out of business by undercutting prices.

In that case, he said, competitors clearly were being harmed. But the Supreme Court ruled against the U.S. companies in 1986. Although the decision led to the end of U.S. TV manufacturing, the market still has enough competition to keep prices down.

“The economic system operates for the benefit of consumers, and competitors are going to be harmed by their competitive struggles,” Grady said. “ ‘Do no harm’ has become the dominant theme of antitrust jurisprudence in the United States, and the Europeans will catch up.”

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In the meantime, those different systems mean the Europeans will remain more active on antitrust, experts say, even if a Democrat is elected to the White House in 2008.

Donald M. Falk, a partner at Mayer Brown in Palo Alto who represented trade groups opposed to Microsoft in the U.S. antitrust case, said the European Commission had broad leeway to take aggressive action against companies that dominate their markets.

“The dominant single firm needs to be considerably more cautious in Europe than in the United States,” he said.

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jim.puzzanghera@latimes.com


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