Governments and dominant positions

Please find bellow a translation of most interesting parts of the study written by Antonio J. Russo, reffered to in previous thread.

[II] An overlook on MS Corporation

It is very difficult to explain to the public, why the economic and political power in our society is a problem, without misleading and without going into technical details.

Many people express great sympathy for Microsoft ; they believe that currently the U.S. company is the most innovative company in the world; Microsoft makes our lives easier with its solutions, contributing to the development of computer science.

For these people, Microsoft is a "good society", which is daily "attacked" by people "envious" of its technical and economic successes.

Another view is supported by others who think that Microsoft is a "wicked," responsible for all "concerns in the computer field." They'd rather talk about the “dark side” of the company. Such a frontal attack loses its credibility in most cases.

There is then another group, advocating for free software and interoperability, aware of the problems caused by dominant position in the field of ICT. These defenders of freedom are opposed to the policy of Microsoft and the way in which governments manage the situation.

However, many of them are convinced that Microsoft has such an influence on the market and so much easier to appear regularly as a victim, that they prefer to keep quiet. In fact, you should know that Microsoft spends $ 1.33 billion worldwide for advertising.

As there are not many journalists willing to counter Microsoft arguments, there is a dissemination of conflicting information that often do not correlate with the actual facts supported by data that can be rigorously documented and analyzed in an objective and scientific way.

» Turnover, market and revenue

In the current situation, Microsoft, by distributing its products with a proprietary license and having control over operating systems, has effective control over most segments of the ICT market, both software and hardware. Today, it is not risky to say that Microsoft Corporation has the power to prevent the development of products and services.

The two best performing sectors of the company are "Clients" (Windows Operating Systems) and "Microsoft Business Division" (Microsoft Office, etc). These are precisely the two areas where Microsoft has more than 95% market share with Windows and Office and which it has a strong power over competitors. However, in the "Server and Tools" which actually is a competitive market in which Microsoft has failed to impose its products, the company's profits are falling substantially. These sectors recorded an economic collapse with heavy losses.

Judging by accounting data, it appears that Microsoft owes its course to the two main economic practices that ensure an almost monopolistic dominance:

- the sale bundling of its operating systems on new computers;
- the preference of governments for their products in public procurement.

Economic performance and competitiveness of the company are based in reality on the preservation of its monopoly position and the imposition of its products with questionable methods in terms of legality.

» Microsoft in Europe : the French case

Accounting strategy adopted by Microsoft has a significant impact on the economy and national finances of France. Indeed, all licenses sold on the French territory are billed from the headquarters of Ireland, Microsoft Ireland Operations Limited.

The multinational has a subsidiary in France, Microsoft France SAS. According to its corporate purpose, Microsoft France SAS is a commercial agent of Microsoft Ireland Operations Limited for its commercial representation, promotion and technical support made on French territory. As such, Microsoft France SAS collects fees calculated under the terms of a contract signed between the two parties based on sales made by Microsoft Ireland Operations Limited in France.

Thus, during the fiscal year 2006, Microsoft France SAS has spent no money on research and development. The sales of Microsoft France June 30, 2006 was € 336,699,118 € 296,158,291 of which correspond to billing-related businesses (fees paid by Microsoft Ireland).

This accounting strategy adopted by Microsoft Corporation does not meet the requirements of production since the programming software is not an activity related to a given territory. In this case, it is indeed a purely financial choice from the Irish tax system where corporate tax is 12.50% on profits, while in France the same tax is of 33.33%.

Of course, Microsoft continues this fiscal policy in order to maximize profits of the company and it has nothing special. However, given the large sums involved, this practice has a significant impact on national economies.

The policy adopted by Microsoft Corporation promotes the American government, and produced in the world win-win situations, such as for the state of Ireland, and other harmful example for the French state.

France finds itself having to import the form of intellectual property technology that in some cases was produced by French scientists using public funds. This is for example the situation of the Joint Research Centre in the Paris area set up jointly with the National Institute for Research in Computer Science and Control.

For Microsoft Corporation, France is a great opportunity: this is the third European market. It is possible to operate a small business by paying a minimum tax and it is possible to benefit from public contributions to research. In addition the company Microsoft can count on a large number of officials of the French state for the direct or indirect promotion of its products.

However, the strategy of Microsoft France has nothing original. Exactly the same strategy Microsoft Italia Srl as has been terminated in May 2007 by the Associazione per il Software Libero in the article "Spunta di Riflessioni sulle politiche Innovazione nel settore of ICT."

Of course, there is the part of European governments, political responsibility of the situations described in the preceding paragraphs; situations that continue to play in favor of Microsoft and its desire to perpetuate its dominance.

[III] Public administrations and Microsoft Corporation

Frequently in politics or economics, we try to resolve an issue without control causes. This type of behavior was observed in the case of Microsoft Corporation when the company was charged for anti-trust behaviour, to ensure compliance with freedom of trade and industry.

The European Commission in 2004 and after five years of investigation, concluded that Microsoft had violated EU competition rules by abusing its quasimonopole on the market for PC operating systems in order to restrict competition in the related markets.

Microsoft rejected this decision and appealed to the European Court. In 2007, nine years after the start of the inquiry, the Tribunal confirmed the decision of the Commission and the sentence became effective.

Not studying the causes that drive Microsoft's dominant position in the ICT market has created a paradoxical situation. While the European Commission was driving its endless investigation, the governments of European countries continued to adopt measures and policies in favor of Microsoft.

Responsibility is political: in a market economy, no company can hold a dominant position in relation to competitors, without the help of government.

» Illegal public procurement

By simply visiting French public procurement website, we are confronted with a daily reality rather discriminatory towards companies developing or marketing open source software solutions. Almost every month, several notices are published for the purchase of software produced by Microsoft Corporation.

Of course, as long as governments continue to write call for tenders including the purchase of licenses for Microsoft products, this company will be promoted while the other companies, such as free software ones, will always be disadvantaged.

It appears that administration staff in charge of software procurement often do not respect the rules requiring benchmarking between a proprietary program and its open source analogue. They argue that this is not a real acquisition, but an update of existing software.

This approach to legitimize outlaw behaviour is pretty common in ICT sector. This actually hides an unwelcome truth : if indeed it was an update, it should therefore be included in the purchase price of the software and there would be no reason to launch a new call for tender.

The truth is that ICT is not an special area ; all bids in this sector should therefore respect the law.

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