In-depth: EU Microsoft ruling could set precedent

With the breakdown of settlement talks between the European Union and Microsoft, the stage is set for the EU to announce next Wednesday a series of antitrust remedies and declare that the software company is an abusive monopolist, thus setting a precedent that will make it easier to prosecute other complaints, including several that are already under investigation.

With the breakdown of settlement talks between the European Union and Microsoft, the stage is set for the EU to announce next Wednesday a series of antitrust remedies and declare that the software company is an abusive monopolist, thus setting a precedent that will make it easier to prosecute other complaints, including several that are already under investigation.

The expected Wednesday announcement would close one chapter of a series of investigations that have been years in the making. However, a planned company appeal, and the other antitrust inquiries into Microsoft business practices, mean that the software giant might be dealing with antitrust issues in Europe for years to come.

Announcing the breakdown of settlement talks Thursday, European Competition Commissioner Mario Monti said in a news conference that European regulators and Microsoft were unable to agree on commitments the company must make for future conduct.

“The public and competition would therefore be better served by a decision setting a strong legal precedent which establishes clear principles for a company that is so dominant in the market,” he said

European regulators will propose that the European Commission, the EU’s executive body, issue a decision Wednesday on the case, which revolves around complaints that Microsoft abused its monopoly in desktop operating systems to stymie competitors in the media player and server software market.

Rivals Sun and RealNetworks, as well as the Computer & Communications Industry Association (CCIA), all said they look forward to a strong decision condemning Microsoft.

“Unfortunately, in and of itself, this ruling won’t rein in Microsoft. However, it lays a foundation for other measures that could,” said CCIA President and CEO Ed Black. “This ruling will set an important precedent. The fact that (Monti) is putting a high value on the precedent means that the Commission intends to use it.”

The CCIA filed a broad complaint against Microsoft with the Commission in February last year. A ruling against Microsoft next week would help the CCIA’s case, Black said. “With formal precedents established and rulings made, it makes it a lot easier to accelerate other complaints,” he said.

The Wednesday ruling is expected to force Microsoft to sell two versions of Windows to PC makers in Europe: one with Media Player and one without, sources close to the case said. The Commission is also expected to require Microsoft to share some Windows code with rivals. In addition, the European regulator will fine Microsoft between €100 million ($123.9 million) and €1 billion.

Microsoft’s general counsel, Brad Smith, said the company will appeal the expected ruling but declined to say whether it would ask for a stay on the remedies until the appeal is resolved.

Settlement talks, in which Microsoft CEO Steve Ballmer participated for several days this week, broke down over Monti’s demand that Microsoft sign a pledge to not abuse the dominance of Windows in the future by bundling in separate software products to thwart competitors, according to sources.

Microsoft nemesis Sun said in a statement that it is “encouraged” by the Commission’s decision not to settle the matter, but to come out with an official ruling.

“A decision by the Commission is important as it will establish the legal principles that will apply to current and future generations of Microsoft technology,” Lee Patch, vice president of legal affairs at Sun, said in the statement. A strong decision will improve competition and consumer choice, he said. Sun is also pursuing its own antitrust case against Microsoft in the U.S.

RealNetworks, a maker of media player software, said it supports a decision that would give PC makers, enterprises and consumers a choice of media players. “It’s time to restore fair competition to digital media through an effective remedy that addresses Microsoft’s illegal tying,” of media software with Windows, the company said in a statement. RealNetworks late last year filed its own antitrust suit against Microsoft in a U.S. federal court in San Jose, Calif.

A U.S. federal judge approved a settlement in November 2003 between Microsoft and government complainants including the Department of Justice and some U.S. states. But that case’s findings of fact — which ruled that Microsoft abused its operating system monopoly — opened the floodgates for the private lawsuits.

Sources close to the European case said that the Commission was prepared to allow Microsoft to avoid an admission that it had abused the dominance of Windows, and reach a settlement, as long as it signed a legally binding commitment on future business practices.

But there is more at stake than an admission on Microsoft’s part. The EU regulator, as well as Microsoft rivals, indicated that the EU’s expected ruling against Microsoft will make it easier to prosecute other antitrust-related cases, just as the U.S. government’s case opened the way for other lawsuits.

“Other cases (against Microsoft) that exist or are on the horizon (bear) remarkable similarities to issues raised in the current antitrust case due to conclude next Wednesday,” Monti said.

Several separate antitrust inquiries in Europe are already underway.

The complaint lodged in February 2003 by the CCIA sparked an inquiry into whether Microsoft is using the Windows XP operating system to push into new markets. The CCIA accuses Microsoft of unfairly competing in areas including software for e-mail, instant messaging and audio and video streaming and playback by bundling software with Windows XP.

The CCIA also charges Microsoft with taking unfair advantage of the ubiquity of its operating system software to establish itself in Internet-related markets and markets for software for mobile phones and handheld computers, server applications and server software.

In another inquiry, the European Commission has also been contacting hardware manufacturers about Microsoft’s licensing policy, acting in response to companies that have expressed concern about certain conditions that Microsoft attaches to the licensing of its Windows operating system.

The current case, to be ruled on Wednesday, is itself the result of several investigations into Microsoft business practices by the Commission. The first inquiry was launched after a 1998 complaint from Sun, which charged that Microsoft was giving its own server software an advantage over competitors’ products by withholding information about Windows from them.

In February 2000, the Commission launched a separate investigation to check whether Microsoft was doing the same thing with Windows 2000, which at the time was new. In August 2001, the EU regulator announced that it was merging the 1998 and 2000 cases because they were similar.

By 2002, the EU had broadened the scope of the case to incorporate what it termed “middleware,” which included Windows Media Player.

(Paul Meller of the IDG News Service in Brussels contributed to this story.)