EU fight may last to 2009, Microsoft says

Microsoft will appeal the fine and sanctions imposed upon it by the European Commission on Wednesday, a process that could keep the battle rumbling until 2009, Brad Smith, the company’s senior vice president and general counsel, said in a conference call shortly after the Commission’s decision was announced.

On Wednesday morning, the Commission fined Microsoft $613 million and ordered it to offer a version of its Windows operating system without the Windows Media Player software within 90 days.

“We have great respect for the Commission and have worked hard with (it) to get a positive result. We explored a number of proposals, with significant concessions from Microsoft, but … the Commission decided to adopt a negative decision,” Microsoft’s Europe, Middle East and Africa chairman Patrick de Smedt said during the call.

If the Commission had accepted the solution proposed by Microsoft, which called for bundling its Media Player alongside three competing media players in the Windows operating system, the company could now be getting on with business, Smith said. As it is, Microsoft will now 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 said.

The Court of First Instance is an independent court, attached to the Court of Justice, that deals with actions against Commission institutions.

Microsoft has 70 days to seek legal review from the Court of First Instance, Smith said. “We hope to get added clarity (from it), perhaps this year, and then there may be an opportunity to talk to the [European Commission] again. I anticipate four or five years of litigation ahead,” he said.

Removing Media Player from the operating system will break some aspects of Windows’ operability, and will affect many Web sites that have been developed with code using the player, Smith said. These include automatic playback of video on some sites, and voice narration when Windows is being set up, he said. “Even if you add RealNetworks (RealPlayer), that feature (the voice narration) won’t work,” he said.

RealNetworks issued a statement on Wednesday saying that the Commission is the third legal body to declare that Microsoft’s media player bundling strategy is illegal, and that it “welcomes the opportunity to compete on a more level playing field.” RealNetworks will use this decision to pursue its case in the U.S. to stop Microsoft’s “illegal” conduct, and to gain compensation for the harm that has been done to its business, it said.

“There’s an important principle at stake here. Every company should be able to improve its products to meet the needs of its customers,” Smith said. Having to sell the “hobbled” version of Windows under the Windows brand name is wrong, as that brand name is connected to state-of-the-art, multimedia technology, he said. Value will be taken out of the operating system, which will still be sold at the same price, he said.

Microsoft is still unsure as to whether the decision applies worldwide or just in the European economic area, Smith said. “The text does not explicitly refer to any geographical area. (European Competition Commissioner, Mario) Monti said this morning that (the requirement for a new version of Windows) was confined to the European economic area, but we need to talk to them and make sure we understand,” Smith said.

Development of other Microsoft products, such as the Longhorn operating system due in about 2006, could be affected, Jaap Favier, an analyst with Forrester Research Inc. said on Wednesday “What they are really saying is that the next time you bring an operating system to market it has to be open from the start. This will affect Longhorn, due out in 2006.”

Microsoft will probably come out with two versions of Longhorn, Favier said; one “fully integrated with all the bells and whistles and their own software” and a “patchwork version with software from Real and Apple that potentially levels the playing field. As a consumer I would be scared (of the patchwork version). Is it all integrated and does it work well?” It would take more time to develop a patchwork version, he said.

However, Smith said that he believes Microsoft’s plans for Longhorn “pass muster under European Law. It will be business as usual, though under very careful legal review,” he said.