Eye For Eye

The EU’s fining of Microsoft is state robbery and follows similar US looting of EU companies. This “cycle of violence” is much more damaging to the global economy than the MidEast cycle, and State should address it quickly before the US dollar is further damaged.

The robbery:

Four months ago, Microsoft surrendered to Brussels. Yesterday came the bill for not capitulating sooner: €899 million, or $1.36 billion, another record fine for the American software giant.

The latest penalty covers a 488-day period when the European Commission says Microsoft wasn’t complying with a 2004 order to share certain software code with rivals on “reasonable” terms. The code allows other firms’ programs to work with Microsoft’s ubiquitous Windows software, which Brussels deems crucial to competition in the industry.

Microsoft has already racked up some $1 billion in fines in the case…

When the case started, Microsoft’s terms for sharing its code included a 2.98% royalty from the revenues of products that used it. In May, it lowered that price to 0.5% within Europe. But Ms. Kroes wasn’t satisfied until Microsoft dropped its price globally to a flat €10,000 charge, which it did in October.

By comparison, even anticorporate activists say a pharmaceutical company should get around 4% of revenues when a government forces it to hand over a drug patent to a generic maker.

So the EU has assumed the right to set Microsoft’s prices and in the process fined it $2.36 billion.

This is just as egregious as the US treatment of the highly respected Dutch company Royal Ahold, which in 2000 acquired a US company and left its management in place – an expensive mistake, because 3 years later (my ellipsis):

“Ahold was forced to restate more than $800 million in earnings after it came to light that U.S. Foodservice executives had inflated promotional rebates from suppliers to meet earnings targets. The scandal caused the parent company’s shares to plunge.”

“Ahold settled with the Securities and Exchange Commission (in 2005) and agreed to pay $1.1 billion to resolve shareholder lawsuits.”

Ahold then sold Foodservice at a profit, de-listed from the NYSE, and runs its US store chains from the Netherlands.

Now only the bravest European companies buy US enterprises, and that’s cut demand for US assets, weakening the dollar (although there are other reasons for the weakness). Plus the EU is getting even.

Crimping of trade between the world’s two largest trading areas is clearly bad for both, and if it continues will lead to an outright trade war.

And that will be vastly more damaging than the Mideast conflict.


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