EU's gain is U.S. loss in influence on antitrust

BRUSSELS (Reuters) - The European Union's antitrust agency is becoming more influential just as its U.S. counterparts have grown more cautious and inactive, experts say.

The European Commission's recent success in forcing Microsoft (MSFT.O) to carry out antitrust sanctions underscores the differences, and academic researchers say the U.S. is also hanging back in merger challenges.

That makes Brussels, more than Washington, the place where companies must go to get their deal through and where companies must ready themselves against possible antitrust action. It also means competition agencies around the world look to Brussels, as South Korea did in taking action against Microsoft.

"There seems to be a sundown atmosphere in Washington," said Angelo Cardani of Milan's Bocconi University, once a senior aide of former European Competition Commissioner Mario Monti.

"Brussels is not affected by electoral politics and shines out in moments when other agencies are caught up in the political cycle," he said.

Research by two leading U.S. antitrust economists, who both served as antitrust agency chiefs during the Democratic Clinton administration, shows U.S. merger enforcement under the Republican Bush administration at a nadir.

Jonathan Baker, who ran the economics bureau at the Federal Trade Commission, and Carl Shapiro, who was chief antitrust economist at the Justice Department, praised modern, economics-based evaluation of mergers.

They now believe "the pendulum has now swung too far in the direction of non-intervention". Merger challenges by the Justice Department antitrust division and the Federal Trade Commission have sunk to the lowest level on record, they found.

Statistics on the European Commission Website show essentially no change in enforcement by Brussels.

Baker and Shapiro say the problem originates partly with U.S. District Judge Vaughn Walker, who in 2004 rejected a Bush Justice Department bid to halt Oracle's (ORCL.O) takeover of rival software maker PeopleSoft.

Walker "failed to understand the basic economics" used by the Justice Department, they wrote, adding: "There is unfortunately some evidence that the Oracle decision has ... caused the Justice Department to scale back its merger enforcement efforts".

THE MICROSOFT DIFFERENCE

Most obvious have been public differences between Washington and Brussels to abusive monopolies, especially Microsoft.

The Justice Department has filed no cases about abuse of monopoly power in the Bush administration, unlike all other major antitrust agencies in the same period.

Justice Department antitrust chief Thomas Barnett criticized a landmark European Union court decision backing EU sanctions against Microsoft last month. Barnett said the decision could

chill innovation and harm consumers.

U.S. antitrust leaders insist their view of Microsoft represents no divergence from that of the Clinton administration, which vigorously pursued the software giant.

Federal Trade Commission Chairman Deborah Majoras bristled at the idea the Bush administration backed off on the case.

"That's completely wrong. It's always been wrong," she said at the Fordham Conference in New York last month.

She said the Bush Justice Department was reined in by an appeals court, which threw out a lower court order to break up Microsoft. Majoras said a new remedy she helped fashion at the Justice Department went as far as the appeals court allowed.

A New York University law professor writing a book on the Microsoft case disagreed.

"The government that once clearly chastised Microsoft has come full circle to defend many of its core business strategies," wrote Harry First, who headed New York state's antitrust bureau for a Democratic attorney general, and worked on the case.

The Justice Department has gone so far as to use the Microsoft case "for redirecting antitrust doctrine and enforcement away from the problems of monopoly...", wrote First and his co-author, Andrew Gavil.

Differences go beyond Microsoft. John Fingleton, chief executive of Britain's Office of Fair Trading, said courts have made it quite difficult for the U.S. to bring cases on predatory pricing, in which a big company takes a deliberate temporary loss to drive a smaller competitor out of business.

This leads to more influence by the European Commission, said Juan Delgado of the Brussels think tank Bruegel:

"If you're tougher you set the standards. The European Union is becoming more of a reference than the United States, whether for good or for bad."