Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft v. Commission

Abstract

Microsoft v. Commission indicates a shift in competition policy at the expense of protections for intellectual property. The case applies "essential facilities" arguments to Microsoft's server operating system and "tying" arguments to its Windows Media Player. The dynamic effects of Microsoft v. Commission pose a substantial risk to the incentive to innovate in several ways. First, mandatory licensing and unbundling of the elements of an invention erode intellectual property rights. Second, the targeting of multinational corporations by the European Union creates barriers to international trade whose impacts extend across the global economy. Third, the interpretation of "abuse of a dominant position "focuses on market outcomes rather than on anticompetitive conduct, thus penalizing successful innovators and rewarding their competitors. Competition policy based on Microsoft v. Commission diminishes the incentive to innovate.