Wired 9.04 ⎢ Gigatrends ⎢ April 2001
THERE IS NO OVAL OFFICE FOR EUROPE. But there is an oval table: a big mahogany thing in a nondescript Brussels office building, where the members of the European Commission gather every Wednesday to ponder and debate and decide. These commissioners, all 20 of them, serve as the collective head of the 15-nation European Union. Everybody in Brussels loves committees, so no one thinks it strange that the EU has more chiefs than it has members. The surprise — at least to giant US-based corporations like Microsoft, AOL Time Warner, and WorldCom — is the Commission's readiness to act as one on critical new economy issues like antitrust, copyright, and privacy. Call it the rise of the borderless bureaucracy: In a networked world, the Eurocrats of Brussels hold as much sway over Redmond, Silicon Valley, and Manhattan as their counterparts in Washington, DC — maybe more, because they're more apt to exercise it.
In the past year, Europe's hydra-headed presidency has acted decisively — some would say capriciously — in key antitrust cases with big implications for the digital world. Last June it nixed the $115 billion merger of MCI WorldCom and Sprint, two US companies that together would have carried a huge chunk of the world's Internet traffic. In October it forced Time Warner and EMI to scuttle their $20 billion plan to combine music operations, a deal that would have cut the number of global competitors to four. Meanwhile, AOL and Time Warner were left hanging for months before finally getting clearance for their merger. And now, in a move not even the Justice Department has attempted, the Commission seems about to force Microsoft to reveal the source code for Windows to archrival Sun so the software titan won't have an unfair advantage in the market for operating systems.
The man behind these actions is Mario Monti, the commissioner in charge of competition policy, an Italian economist whose dry pronouncements and monastic demeanor have not deterred the European press from dubbing him Super Mario. No matter that Monti shies away from interviews and that his public utterances are usually delivered in arid legal confabs; his readiness to take on corporate behemoths has made him something of a hero. But that's largely because Monti is one of the few identifiable faces on a faceless bureaucratic machine. Behind him are the 520 civil servants of the Competition Directorate-General, one of 24 separate bureaucracies the Commission oversees. And sitting alongside him at the oval table are other commissioners with odd-sounding but equally important bailiwicks — people like Erkki Liikanen, who heads up Information Society, and Frits Bolkestein, who runs Internal Market.
The Commission's larger ambition is to make Europe a force in the new economy. Internal Market — among the most crucial of the Commission's bureaucracies, since the dream of a common market is what's driven European unification from the start — is pushing a copyright initiative that will have a huge impact on intellectual property ownership in the digital age. Information Society is forcing competition on the telecom industry in an attempt to get the EU up to speed on the Internet. (Only a quarter of the people in western Europe have home access to the Net, compared to 59 percent in the US.) Behind these efforts is the realization by European leaders that the new economy offers a way out of decades of joblessness and stagnation. Despite the recent collapse of tech stocks, they haven't forgotten what happened in the US in the '90s, when computers and telecommunications ignited massive productivity gains that fueled inflationless growth and unprecedented prosperity. They also know they have to act fast, which is why, at a meeting in Lisbon a year ago — the so-called dotcom summit — the heads of the 15 EU nations directed the Commission to move quickly to liberalize telcos, encourage ecommerce, and promote digital literacy.
The new economy is hardly the only issue the EU faces: It's also struggling to absorb the newly capitalist nations of central and eastern Europe, and the question of how to accommodate 13 eager new applicants is a major preoccupation. But the EU is above all an economic union, and success in the new economy is what will guarantee Europe's economic fortunes. "B2B, together with the common currency — that will be a strongly unifying force for the internal market," says Liikanen, sitting on a government-issue sofa in his office on the rue de la Science. "If you have national markets, different currencies, and no Internet, it's easy to have rigidity. If you open the markets fully, put in the same currency, and put it on the Internet, you can't justify extra costs any more. So this will be a major mobilizing factor in our economy."
This is Europe's moment, because for all America's glory as the sole remaining superpower, the global interconnectedness of the new economy means the days of US business hegemony are over. Americans, however, tend to have trouble with the idea that globalization can cut both ways. Last fall, US Senators Mike DeWine and Herbert Kohl, the leaders of the Senate Subcommittee on Antitrust, wrote Monti wondering pointedly if his actions "have been influenced in part by pan-European protectionism rather than by sound competition policy." A US executive is blunter: "In Washington, there is some sense of accountability. But in Brussels, you're in a different world, playing by different rules. They're not beholden to anyone, and they really resent American dominance — particularly in the media business."
But as Monti observes, a lot depends on your point of view. "In Europe," he says, "the Commission is frequently accused of hindering the creation of so-called European champions" — homegrown companies big enough to take on US-based competitors. "There is one aspect of truth to all this. We work against dominance, as our law obliges us to. But it is totally irrelevant whether the situation is created by American companies or European companies."
In fact, the Commission serves as a check, not just on the new oligarchs of the digital age but on the laissez-faire attitudes that — the Microsoft case notwithstanding — tend to prevail in Washington, especially when the Republicans are in power. An EU-US treaty provides for cooperation in merger investigations, and during the Clinton administration, Brussels and Washington often worked closely together — but even then they didn't always reach the same conclusions. In competition, in copyright, in privacy — again and again, the Commission showed itself more willing to intervene than American authorities, less sanguine about the wisdom of the markets or the eagerness of fat cats to do the right thing.
"There's a feeling that regulation is the responsibility of government," says one American observer in Brussels, "and that to permit excessive self-regulation is an abdication of their responsibility." Such critics maintain that Monti and his fellow commissioners are too interventionist to let the market do its work in an age when hyperspeed technology shifts can break down monopolies before regulators get out of bed. Monti disagrees. "When we assess mergers," he says, "we do not have the luxury of being able to see how markets will develop in the future. We have to take a view on the basis of what we know today."
IF THE EUROPEAN UNION HAD A SENSE OF THEATER to match its mission, its members would gather for their meetings in some dimly lit medieval hall, clad Jedi-style in flowing robes and accompanied by a lightsaber-wielding palace guard. Alas, no. Europe does not lack for disused palaces, but the Commission and its staff work in squat, featureless buildings that could have been built for the claims adjusters of a particularly penurious insurance company. The palaces, and the splendor that goes with them, are reserved for the member states. Which neatly illustrates the central fact about the EU: Far from being a United States of Europe, this union is designed to be subordinate to the nations that form it. The EU is an upside-down affair in which the states come out on top. Once you understand this, Brussels begins to make sense.
The main problem the EU is meant to address is that, individually, most of its member countries have the economic clout of Ohio or California. Put them together, however, and you have an educated, relatively affluent population of some 376 million people who happen to speak 11 languages and use 14 currencies. Collective strength was the main idea behind the creation of the European Economic Community in 1957 and its transformation 36 years later into the much more ambitious European Union. (The other idea was to keep Germany from running amok yet again, but in that sense the EEC was an economic means to a political end.) Not much can be done about the languages, but most of the currencies are set to give way to the euro in January 2002, and most other barriers to trade — tariffs, border controls, conflicting regulations — were eliminated when the EU finally achieved its goal of a single, unified market in 1993.
Trade and markets are something Brussels has been working on for centuries. This corner of Europe is one of the places where capitalism was born, and it was not a pretty sight. As far back as the 14th century, the history of Brussels and its neighbors has been the story of industrious merchants and traders rebelling against marauding warlords and suffering the consequences. The luminous paintings of the Flemish primitives are rife with burly swordsmen and severed heads; the hellish landscapes of Hieronymus Bosch were not considered particularly unrealistic in his day. But unlike London or Paris or Berlin, Brussels isn't given to fits of patriotism. A bilingual French-Dutch hybrid resting tenuously on the cultural divide between Europe's Latin south and Germanic north, the city is a natural home for the EU. "Nobody has dominance," says Liikanen. "The French cannot force others to follow. Germany cannot force. The UK cannot force. That's why Brussels is a nice city." He laughs heartily, a jovial, round-faced man who enjoys life's pleasures. "Good food is the only dominant culture."
Unfortunately, the EU's 15 countries are trying to have it both ways — to reap the benefits of an economic union without giving up any more of their individual political clout than is absolutely necessary. This explains why the EU has an executive body made up of 20 people, each appointed by his or her home government. (The five most populous countries — France, Germany, Italy, Spain, and the UK — appoint two each, the ten smaller countries each name one.) It likewise explains the bizarre nature of the EU's two legislative bodies, the European Council and the European Parliament. The Council is a kind of senate made up of the member states' own ministers (finance ministers for economic questions, foreign ministers for diplomatic questions, and so forth); without their agreement, no legislation gets approved. The Parliament, which resembles the US House of Representatives, is the only democratically elected body around, yet most of the laws it passes (with the Council's approval) don't take effect until they've been ratified by the member states. These states have to follow through or the Commission will take them to the EU's European Court of Justice — but they still get up to three years to think about it.
With the Council representing the member states and the European Parliament representing the people, the Commission is supposed to be a collegial body acting on behalf of the EU as a whole. This means the Commission makes its decisions collectively and speaks with one voice: Dissenting opinions are rarely aired and meetings are not open to the public. It does not mean the Commission is free from national influence. Almost invariably, the people appointed to it are high-level government officials in their home countries, and they don't cut their political ties when they go to Brussels. On occasion, the commissioners have taken a stand against entrenched national interests — in 1998, for example, they forced the member countries to open their formerly state-owned telcos to competition from startups. Even so, EU-based companies have an edge on their non-European competitors because their governments have pull on the Commission, where there are always favors to be traded. "You can assume there are a lot of exchanges behind the curtain," says Alec Burnside, a prominent Brussels antitrust attorney.
The curtain has been pulled back only once, in 1999, after an accountant for the Commission accused it of fraud, nepotism, and mismanagement. The European Parliament went into an uproar, many of its members assailing the Commission for its arrogance and lack of accountability. The main target of their wrath was Edith Cresson, a former French prime minister who put her dentist on the Commission's payroll as an AIDS researcher. When a "Committee of Wise Men" appointed by the Parliament came back with a 144-page report documenting widespread corruption, the entire Commission was forced to resign and a new one was appointed in its place. One of the few members to come through untarnished was Mario Monti, then the Internal Market commissioner, who was reappointed and placed in his current post.
The revolt made the Commission more answerable to the European Parliament, but hardly more open or democratic. Deciding which commissioner to put in charge of what bureaucracy, for example, is still a consummate piece of horse-trading: EU rules call for the Commission president to make the assignments after consulting with member governments. And so Monti, reappointed to the Commission by the Italian prime minister, was put in charge of competition by the Commission's new president, Romano Prodi, who was Italy's previous prime minister. But as long as the EU is a creature of Europe's politicians, backroom dealmaking is no more likely to disappear than any of the other practices that make Brussels such a peculiar place — things that go by only-in-Brussels names like comitology and harmonization and subsidiarity.
Comitology — don't bother, it's not in any dictionary — is the science of resolving things by committee. It's what Brussels does best. Harmonization is what comitology is supposed to achieve: When the Commission sees a development that might fragment the single market, it swoops in to harmonize things. But harmonization is countered by the principle of subsidiarity, which holds that the EU can act only on issues that concern Europe as a whole; everything else is done at the national level. "This was put in to appease the member states who were worried that too much power was going to Brussels," a Commission official explains helpfully.
"It's all pretty impenetrable," sighs the Brussels representative of one US-based multinational. "I try to explain it to people at my company and their faces glaze over. It's like, 'Whatever! Just get it done.'"
IN THEORY, AT LEAST, ROLLING 15 MARKETS INTO ONE doesn't just benefit the markets themselves; it also makes life easier for the companies that do business in them. Especially in antitrust, where every executive's nightmare is having to answer to a myriad of national authorities, each with the power to hold a multibillion-dollar merger hostage or launch a headline-grabbing investigation. But now there's a different nightmare: the Eurocrats of Brussels. The place may not be a cross between Alice in Wonderland and The Trial, as one particularly frustrated executive recently declared, but to many of the thousands of lobbyists and foreign-government representatives who are posted there, it is beginning to resemble a fun-house version of Washington.
In reality, Brussels almost looks like Washington, its main boulevard bookended by 19th-century palaces and monuments and lined with squat, ceaselessly proliferating office buildings cloned from K Street. But it doesn't work like Washington. In the first place, competition cases in Brussels aren't heard in the more-or-less impartial forum of a public courtroom. In Washington, when the Justice Department or the Federal Trade Commission decides that a merger you're planning will let you corner the market, it sues and a judge sorts things out in relatively short order. In Brussels, the bureaucrats of the Competition Directorate-General make their case to their boss, the competition commissioner, who then argues it behind closed doors before the full Commission — and when the Commission issues its decision, that's that. You can appeal to the European Court of Justice, but by the time you get a hearing two years later, who'll care?
Yet if Brussels is less legalistic, it's also less partisan. Competition commissioners come and go, but DG Comp, as it's known, grinds on. "In the US, you can get different responses depending on whether there's a Democrat or a Republican in the White House," says Peter Sutherland, an Irishman who served as competition commissioner in the late '80s and now heads Goldman Sachs International in London. "That doesn't enter into the European thing." Not that Monti doesn't have a say: Senior bureaucrats in DG Comp's Merger Task Force meet with him often and rely on him to argue their case before the Commission. And yet, says Francisco Enrique González-Dìaz, who heads one of four investigative units of the Merger Task Force, "I have had no experience where a commissioner says, 'This is not my priority.'"
So while Robert Pitofsky, head of the FTC under Clinton, may not have much in common with his Republican successor, no one can discern any substantive difference between Monti and his predecessor, Karel van Miert. Stylistically there's plenty of difference: Van Miert seldom hesitated to leap into a case publicly, even before all the facts were in; Monti remains aloof and enigmatic. "But as far as substance is concerned," says van Miert, "I can't recall any case where we had a disagreement."
Where the Commission is most consistent, however, is in its drive for power. Until 1990, it was authorized to investigate antitrust charges but not to pass judgment on mergers; it won that right after years of wrangling with the member states, which often wanted to protect their own companies. More recently, the press has made Monti synonymous with the notion of collective dominance, which holds that it can be as bad for three or four companies to dominate an industry as for one. But even there, Monti is merely building on cases that went before. "It's not as if this is some new secret weapon," says Alec Burnside. "Economists have talked about it forever." What's changed is the threshold: In 1996, the Commission blocked a merger that would have left two competitors in the platinum industry; then it vetoed a deal that would have left only three big UK tour operators. In last year's Time Warner-EMI case, it signaled for the first time its opposition to a merger that would have reduced the number of competitors from five to four.
Decisions like these have made Brussels an increasingly anxiety-provoking stop on the global mergers and acquisitions circuit. Summoned before the Merger Task Force, corporate executives and their attorneys find themselves in a low-ceilinged conference room, staring at a windowsill lined with trophies from past merger reviews — a whiskey bottle from the 1997 Guinness-Grand Metropolitan consolidation that created Diageo; a model 747 from the same year's Boeing-McDonnell Douglas union, which the Commission nearly nixed. The 747 is particularly worrisome, because that case was another first: Two US-based aerospace giants, in a union supported by the Pentagon and about to be cleared by the FTC, suddenly found themselves caught in the crosshairs of Brussels. The merger finally passed after several concessions were made, but the near-death experience served notice to American multinationals that the EU could be tough going.
Then there's the Merger Task Force itself. Most executives give it high marks for professionalism, but no one denies that it's overworked. Its caseload has soared, from 63 cases in 1991 to more than 300 last year, thanks to the forces of globalization and the Commission's own success in abolishing national monopolies and creating a single European market. Staffing has not kept pace. With AOL-Time Warner, says an executive who was close to the investigation, "they had two people on the case. The same with EMI. And I don't want to tell you their age and experience. It was scary."
"They weren't stupid," another exec adds, "but most of them came from academia, and they loved theories. They had formulas for how you decide competition that made literally no sense."
Ultimately, of course, how people feel about the Merger Task Force has a lot to do with how the MTF feels about their mergers. Proponents of the AOL-Time Warner and Time Warner-EMI combinations paint the MTF as too slippery to pin down. "It was so surreal," says one. "You'd say, 'What if we did this?' and never get a straight answer. Even if the answer is no, you're better off knowing the rules of the road than being in this foggy thing, trying to feel your way around." But opponents — most of them rivals in the entertainment business — give the MTF high marks for cutting through the bull and seeing how the combined companies could have squeezed them out.
In the end, the Commission forced Time Warner and EMI to abandon their deal because it bought the arguments put forth by the likes of Disney and Seagram. These companies maintained that as the world's leading music publisher, Time Warner-EMI would be able to dictate terms to film and television producers — like Walt Disney Studios and Seagram's Universal Pictures — seeking to license songs. And by joining its immense market share in recorded music with AOL's potential for online sales, it could have put competing music companies at a disadvantage, even in Europe. In contrast, the Commission cleared AOL-Time Warner on the grounds that without the advantages the two companies enjoy in the US — AOL's dominance in online services and Time Warner's vast cable infrastructure — the merger posed little threat to Europeans.
Before green-lighting AOL-Time Warner last October, however, the Commission forced AOL to dissolve the 50-50 partnership it had formed with Bertelsmann, the German media monolith, to create AOL Europe. Two days later, it cleared the Vivendi-Seagram deal after Vivendi pledged to sell its 24 percent stake in BSkyB, the UK satellite-television provider controlled by Rupert Murdoch's News Corp. "It looks like Monti is more and more concerned about minority-ownership situations," says one media executive. "This is quite new."
Without those concessions, both deals would have resulted in keiretsu-like combinations — Japanese-style corporate entanglements in which supposed competitors are in fact partnered in one another's businesses. Time Warner and Bertelsmann are both huge players in music and in book and magazine publishing; Vivendi's satellite TV operations in Europe and Seagram's Hollywood production business could have meshed nicely with Murdoch's global media empire. So nicely, in fact, that Vivendi executives were boasting last summer about being able to leverage their BSkyB stake to get their Vizzavi Internet portal onto Murdoch's satellite platforms, not just in the UK but in Latin America and all across Asia. The message now: Not so fast.
But for all its aggressiveness in merger approval, the Commission has never tried what the US Justice Department is attempting — breaking up an already-dominant player like Microsoft. That could change, if Monti gets his way. In September he asked the European Parliament for explicit authority to order such breakups, claiming the Commission implicitly holds these powers anyway — though whether it might actually try to break up a US corporation or only its European operations, no one seems prepared to say. But even without dismemberment powers, Monti and his crew have shown they can give Microsoft fits. Last August the Commission opened formal proceedings against the company, based on Sun's charges that Microsoft is using its 95 percent market share in PC operating systems to gain an edge in the market for server operating systems. DG Comp's proposed solution? Force Microsoft to release its source code, so all servers — not just those running Windows — can work efficiently with PCs.
As demands go, this would be like making Coke hand over its secret formula to Pepsi. Microsoft points out that Sun is doing just fine in the server market on its own, and also argues that forcing Microsoft to yield its source code would result in less competition, not more, since the company would have no impetus to invest in product improvements and neither would Sun. "We think it would be counterproductive to all IT companies to be forced to release their trade secrets to competitors," says Jim Cullinan, a Microsoft legal spokesperson. A Microsoft insider is more direct: "If DG Comp gets what they're asking for, Microsoft might well pull out of the server business in Europe" — assuming such a move would let Microsoft off the hook. No one knows if that would satisfy the Commission, but it's a safe bet Sun wouldn't mind.
CAN BUREAUCRACY WORK? By European standards, the Commission is a counterforce to the long tradition of state control. But if Monti and his fellow commissioners want to show that their approach is preferable to the look-Ma-no-hands ideology that prevails among US economists, they'd better get it right. And nowhere is there more pressure to get it right than in telecommunications, where the Commission is facing down an array of entrenched former monopolies — France Telecom in France, British Telecom in the UK, Deutsche Telekom in Germany. The Commission has attacked the onetime national telcos for years, forcibly opening them to competition in their home markets while encouraging them to become global players. At the same time, it has pushed for the development of a wireless industry based on standards set by an industry consortium and then mandated by the Commission. In the US, where three competing standards have thrown the wireless market into havoc, even this much intervention is suspect: "Americans say we imposed standards from above, when what we tried to do is encourage industries to work together," says a puzzled Erkki Liikanen, the Information Society commissioner. Yet Liikanen knows that the telecom industry — wireless and fixed-line both — is where the Commission has to demonstrate that its MO can work.
For years, the telecom sector was Europe in microcosm: balkanized, dysfunctional, state-run, locked in the past. As recently as 1996, Europe seemed destined to become an info-colony of the US, its businesses dependent on American software and infrastructure providers like Microsoft and Sun, its people paying telecom monopolies steep rates to access data and services on American servers. To escape that fate required breaking the stranglehold of national telcos in every country. "Most of these telcos were a state within a state," says Karel van Miert, who was Competition commissioner at the time. "I used to say that Telecom Italia had a majority in Parliament, even though the government usually didn't."
The fight was led by van Miert and Martin Bangemann, who was then the commissioner in charge of Industry and Telecommunications. Bangemann's 1994 report on IT — which rejected direct government investment in favor of privatization and a reliance on market forces — became the road map for reform. Once governments began privatizing their telcos, the Commission pushed through legislation opening them to competition as of January 1998. By the end of that year, Europeans could choose their long distance provider from among dozens, in some cases hundreds, of phone companies. Wireless services proliferated as well, flourishing in an unregulated market in which a single technical standard is used from Finland to Portugal. Yet Internet access charges remained steep, because Europe's telecom giants continued to bill by the minute for local calls. With the meter ticking away, surfing the Net was a luxury few could afford.
The problem was that the Commission's 1998 telecom liberalization moves had been made with voice, rather than data, in mind. "Now we are at the second stage," says Liikanen, who took over Bangemann's portfolio when the new Commission was appointed. "Telecom liberalization was a success story, but its impact on the whole economy was smaller in Europe than in the US. " When the presidents and prime ministers of the EU nations met last March at the Lisbon dotcom summit, they made it a top priority to unbundle the local loop — telecom jargon for forcing telcos to make the copper lines running into homes and offices available, at cost, to competitors. This enables new companies to offer local service and, more important, dialup Internet access and DSL connections. It's justified, Commission officials say, because the telcos, before they were privatized, put those lines in with taxpayers' money. Despite squeals of protest, the unbundling measure was rammed through in record time — four months, from start to finish. It took effect in January.
Now Liikanen and his Directorate-General, which has since been renamed Information Society, are pushing a regulatory reform package that will streamline the current maze of telecom regulations into six. ("I've never managed to count what we have now," one Information Society bureaucrat admits. "There are directives which modify other directives. Each step seemed logical at the time.") This is tied to a broader Information Society initiative, the eEurope Action Plan, that's supposed to propel Europe further into the new economy. By laying out a clear set of goals — telecom reform to encourage fast, cheap Internet access; digital literacy; privacy guarantees and other measures to build confidence in ecommerce — the Commission hopes to prod Europeans to move their economy into the electronic sphere.
While Liikanen evangelizes on behalf of telecom reform, Monti is wielding the cudgel to make it happen. At the moment, the telecom office in DG Comp has three investigations going — one of them, surprisingly, involving wireless charges. A couple of years ago, wireless operators were the rebels, allies in the fight against the telecom establishment. But now that some countries have more mobiles than fixed-line phones, wireless is part of the new establishment. Last fall, DG Comp conducted dawn raids on two of the leading mobile operators in the Netherlands to scoop up records. Disciplinary action has not yet been taken, but Monti's bureaucrats are on red alert. "We have an advantage over the US because we enforced a single standard," says one. "How do we maintain that advantage in the mobile Internet age? That is the challenge for the future."
WHILE MONTI AND LIIKANEN TAKE ON THE TELCOS, another arm of the Commission has been trying to lay down some basic rules of conduct for the digital age. This is the turf of the Internal Market Directorate-General (usually called by its Dutch name, DG Markt), which Monti supervised before the old Commission stepped down. At the moment, DG Markt is awash in controversy because of its attempt to rewrite the rules on copyright, and its proposal — which has survived three years of lobbying and was expected to come up for a vote in the European Parliament in February — has every US media mogul up in arms. "Sometimes our issues become very emotional," concedes Jörg Reinbothe, head of the Internal Market unit that drafted it, "especially if you mention a catchy term such as 'private copying.'"
Reinbothe is making a wry joke. "Private copying" might not get a reaction in most places, but in Brussels it's a hot button. It refers to the right of consumers — people who buy software, for instance — to make copies for their personal use. A couple of decades ago it nearly derailed the nascent VCR industry, until suspicious Hollywood studios realized that the money lost to fans taping movies and television shows for their friends would be vastly outweighed by the money to be made selling videocassettes. Now it's ground zero in the debate over intellectual property in the digital age — and the stakes are much higher, because, unlike videotapes, digital copies are infinitely replicable and indistinguishable from the original.
The Brussels representative of one US company calls the Commission's copyright initiative "the most lobbied piece of legislation in the history of the EU," and it's hard to find anyone who disagrees. The measure is intended to implement the World Intellectual Property Organization copyright treaties of 1996, an update of global copyright law for the Internet era, and it has shown once again that the devil is in the details. The WIPO treaties, negotiated in Geneva by the organization's 175 member nations, laid out the basic principles of copyright protection (the idea that software is protected, for example) but left the mechanics (such as how to reconcile the software company's right to prevent illicit copying with the purchaser's right to make private copies) to the individual countries. While the US implementation of the WIPO treaties, the Digital Millennium Copyright Act of 1998, allowed industry groups — content providers, consumer electronics manufacturers, and the like — to decide a lot of these issues among themselves, the European directive tries to spell out in detail who gets to do what. This helps explain why the US acted three years ago and the EU measure is only now being passed.
The Commission has heard from everybody — media conglomerates, consumer organizations, consumer electronics companies, member states, telcos, Internet service providers, dotcoms. ISPs and dotcoms didn't want to be held liable for what happened on their servers. Member states, eager to protect their cultural distinctions, had their own idiosyncratic demands: One wanted military bands to be exempt from normal copyright rules; another wanted an exception for parody and satire. Media companies wanted what they always want: the right to lock everything up with copy-protection schemes. "If we can't encrypt," cries one executive, "we're dead."
In the end, it came down to what should take precedence — the right of individuals to make private copies for their own use, or the right of copyright holders to use "technological measures" (that is, encryption schemes) to combat piracy. If technological measures are supreme, then the music company/film company/publishing company gets to decide how many copies can be made; if private copying is supreme, the music company/film company/publishing company has to give users a way to circumvent whatever copy-protection measures it employs. Southern European countries generally favored technological measures; northern European countries favored private copying. A compromise had to be reached. As it made the long, slow journey from Commission to Council to Parliament and back again, the measure picked up an amendment that leaves it to the member states to decide whether enough has been done to allow private copying. Now rights holders are doubly incensed. Not only do they lose the freedom to nuke violators; they lose it on a state-by-state basis, the very thing the unified market was supposed to prevent. "What we're saying to the Commission is, 'Let the industry sort out protection measures,'" says another executive. "'Refrain from intervening.' The US government would never do that!"
The last time the Commission took an interventionist stance on an issue like this, it threatened to bring transatlantic commerce to a screeching halt. That was with DG Markt's 1995 privacy directive, which requires companies doing business in the EU to follow strict procedures to guarantee personal privacy. Under the directive, companies are prohibited from transferring personal data from the EU to any outside country that lacks adequate privacy safeguards — unless they get permission from the person in question. Banks, airlines, credit-card companies, ecommerce operations — none would be able to move personal data outside the EU without falling afoul of the privacy directive. The US, which allows companies to set their own privacy standards, turned up on the list of renegade states, right up there with China. Washington was outraged.
"A lot of industry people thought this would be better done by self-regulation," admits Ilkka Räsänen, one of commissioner Liikanen's top aides, "but we found that in order to have citizens' confidence in new media, we had to have strict guarantees that information is secure and confidential." With the White House threatening a trade war over the issue, the Commission put the directive on hold until some sort of agreement could be worked out. This was finally accomplished last July, when the Commission agreed to let US-based companies transfer data to the US — as long as they pledge to follow EU rules. It was a compromise, in that in most cases it allows the companies themselves to certify their own compliance, but essentially the Commission won.
Brussels still has a lot to achieve before it's truly the equal of Washington. Among other things, the leaders of the EU nations will have to abandon their pretensions to sovereignty, and their people will have to accept the idea that they can maintain their national identities while embracing a larger whole. There are no guarantees that this will happen. But even in its current, awkward state, the EU and its Commission have shown that the new economy is not, as many in the US maintain, beyond the ken of government. Monti disavows any overarching motive: "We simply speak to the need to have a competitive marketplace." But with Washington lurching to the right, Brussels may be all that stands between us and a global information oligarchy in which individuals are the sum of their data profiles, and their data profiles are a commodity to be traded among a few dozen interlocking conglomerates. In a networked world, the idea that Washington is the only authority, even in the US, is as archaic as it is unrealistic. Brussels, too, will give shape to the digital age. The Commission speaks in 11 languages but with one voice — and its message is, Get used to it. ■
Contributing editor Frank Rose wrote about Vivendi in Wired 8.12.