EU MS ruling could have more impact than US settlement

European Union sanctions in its five-year-long antitrust case against Microsoft could have more of an impact on the software company's business than remedies handed down in the US government's case, according to legal analysts, industry insiders and parties involved in the legal proceedings.

European Union sanctions in its five-year-long antitrust case against Microsoft could have more of an impact on the software company's business than remedies handed down in the US government's case, according to legal analysts, industry insiders and parties involved in the legal proceedings.

The European Commission, the EU's executive branch, in a widely expected ruling Wednesday fined Microsoft €497.2 million and required the company to offer a version of its Windows operating system without the Windows Media Player software within 90 days. The commission also ordered Microsoft to disclose within 120 days details of interfaces used by its products to communicate with Windows. The ruling does not require Microsoft to reveal its source code, however.

The EU case, while not necessarily having any direct impact on Microsoft business practice in the US, may make it more difficult for the company to continue its current practice of bundling new applications into the operating system.

"[The EU case] potentially has some powerful impact," says Mark Schechter, chairman of the government antitrust practice group at law firm Howrey Simon Arnold & White in Washington, DC.

"It's fair to say that Microsoft's business model has been to incorporate applications into the OS. That's going to be more difficult for them to do following the EC's decision."

Competitors and many legal analysts in the US say that the settlement reached in the antitrust case by the US federal government, joined by several states, has not had much of an effect.

The US settlement was approved 2002, though Massachusetts is still appealing it. The remedies in the case, among other things, prohibit Microsoft from retaliating against computer makers or independent software makers that develop or distribute any software that competes with Microsoft "platform software" or "middleware." Middleware products were defined as software for browsing the web, for instant messaging and for playing music and video files, as well as other products.

Microsoft was required to allow manufacturers to hide user interface buttons and other links to middleware functions, in order to make it easier to use third-party middleware. The settlement also forced Microsoft to share operating system protocols with developers.

But Massachusetts has accused Microsoft of charging excessive prices for software protocols.

More broadly, many analysts said that the US settlement hasn't done much.

"The consent decree appears not to be working," says Herbert Hovenkamp, a professor at the University of Iowa College of Law. "Microsoft market share has not come down at all. The remedy in the US hasn't had any significant effect."

Meanwhile, Microsoft competitors applauded the commission's decision.

"For the first time in five years, PC makers will have the opportunity to distribute a PC with a choice of media player. They'll be able to read consumer demand and meet that demand," says Dave Stewart, deputy general counsel of RealNetworks

Sun Micrososystems, whose 1998 complaint sparked the European case, hailed the Wednesday ruling as well.

"We expect to see at least portions of this have impact in the United States," says Lee Patch, Sun vice president of legal affairs.

"First of all, the commission ... articulated clearly that it is full interoperability that is required. The DOJ [US Department of Justice] never defined the level or degree of interoperability. [The commission] explicitly required that server-to-server exchanges be included in order to fully accomplish interoperability."

Though it's hard to tell what precisely the effect of the commission ruling will be in the US since it is legally valid for the EU market only, the result of the ruling's requirement could enhance interoperability among products for multinational companies, he suggests.

"We don't know everything. We know what the market will require for it be effective. If you're a global enterprise, how do you buy one set of products for one area and one set for a different area and realise that the products won't talk to each other?"

The Computer & Communications Industry Association (CCIA), which lodged a separate complaint last year in the EU, applauded the commission ruling, but says that Microsoft business practices continue to stifle competition on a variety of fronts.

One of the benefits of the EU ruling, according to EU competition commissioner Mario Monti, is that it sets a precedent for other cases.

"Future cases, if they do materialise, will benefit from this precedent," Monti says.

"The commission is not prohibiting bundling per se," he notes. "Each case will be judged on its own merits. But [the] decision has provided a framework that will allow the commission to deal with future complaints in a quick and efficient manner," Monti says.

Microsoft officials were quick to decry the sanctions.

A settlement proposed by Microsoft called for bundling its Media Player alongside three competing media players in Windows, said company general counsel Brad Smith during a conference call with media. Now, Microsoft will ask the European Court of First Instance to review the decision and stay or suspend the sanctions, particularly the order to create a second version of Windows, he says. Appeals processes could take until 2009 to resolve, he says.

He notes that removing Media Player from the operating system will break some aspects of Windows' operability, and will affect many websites that have been developed with code using the player.

Settlement talks broke down last week over demands from the commission that Microsoft sign a legally binding commitment on future business practices, according to sources close to the case.

On the conference call, however, company CEO Steve Ballmer kept the door open for further discussions.

"We hope at some point to resume discussions and resume resolutions of issues," he said. "Every company should have the ability to improve products to meet the needs of consumers."

The commission ruling was an "unnecessary step," according to Smith. "The US government spent five years addressing [these] issues. It's sad that when the day came and went, we just moved across the Atlantic to have another day in court."

(With additional reporting by Peter Sayer in Paris, Gillian Law in London and Paul Meller in Brussels.)

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Tags antitrust

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