Microsoft Ruling Sparks Debate

By Roy Mark  |  Posted 2007-09-21

Microsoft Ruling Sparks Debate

A European courts ruling against Microsoft not only once again fueled the debate over the software makers business practices but also raised concerns about how U.S. technology companies doing business on the continent will be treated.

The European Court of First Instance Sept. 17 upheld the findings of the European Commission in 2004 that Microsoft abused its dominant position by refusing to make its products interoperable with those of its rivals and by tying Windows Media Player to the Windows operating system. The court also upheld the $613 million fine imposed on the Redmond, Wash., software maker.

Microsoft officials were reluctant to comment much on the courts decision, instead saying they needed time to go through all 238 pages of the ruling. Still, Brad Smith, the companys general counsel, admitted that the decision raised as many questions as it answered.

"There are a number of things that are not spelled out explicitly in the decision itself," Smith said.

"I am hopeful that we can have the kind of conversation that will enable us to know with confidence what we must do and what we can do in other areas, and I am hopeful that we can do that very quickly," he said.

One of the biggest issues to be resolved is the pricing of Microsofts communication protocols, which the European Commission earlier in 2007 said were too expensive, Smith said.

To read about why the Department of Justice and lawmakers denounced the EUs decision, click here.

In response, Microsoft did drop the price for protocols that are incorporated into products distributed in Europe to 1 percent of the revenue generated from the product, but it remains unclear whether that price is acceptable to the commission, he said.

"If the commission feels that our prices are still too high, we will, of course, want to understand that very quickly so that we can address it," Smith said. "… If the price is still too high, it will be very important for us to understand what price is low enough, so that we can conform to all of our obligations."

However, while Microsoft officials themselves were putting off commenting too much about the ruling, others in the industry—friends and foes alike—were letting their feelings be known.

"The court has confirmed that competition law prevents a monopolist from simply using its control of the market to lock in customers and stifle new competitors," said Matthew Szulik, CEO of Red Hat, in Raleigh, N.C.

Interoperability information is "critically important and cannot simply be withheld to exclude all competition," Szulik said. One of the rulings in the case was that Microsoft must open its communications protocols.

"Given Red Hats firm belief that competition, not questionable patent and trade secret claims, drives innovation and creates greater consumer value, we were pleased with the overall decision and look forward to examining the decision in greater detail," Szulik said.

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Microsoft Ruling Sparks Debate

However, not everyone applauded the ruling— not necessarily because it hurt Microsoft but, in a larger sense, because they said it called into question how the European Commission will deal with U.S. technology companies in the future.

Lars Liebeler, antitrust counsel for the Computing Technology Industry Association trade group, in Oakbrook Terrace, Ill., said the European courts finding that Microsoft engaged in anti-competitive conduct by including Windows Media Player in its operating system ignored the realities of the software innovation process and laid the groundwork for further regulatory involvement in product design in the sector.

"This trend interferes with the workings of the free market and reduces consumer choice in the marketplace," Liebeler said.

"The decision ignores the development of the media player market in the years since the commissions decision, wherein a rich stream of new non-Microsoft products, such as [Adobes] Flash and [Apples] iPod [and] iTunes, have been developed and effectively marketed in conjunction with the continued widespread use of the Windows operating system," Liebeler said.

To view an eWEEK slieshow about the history of Microsofts EU antitrust case, click here.

Justice Department officials and lawmakers also voiced concern that the ruling will slow down innovation and competition by U.S. technology companies. The comments underscore what appears to be a growing difference between the United States and Europe in antitrust law.

"U.S. courts recognize the potential benefits to consumers when a company, including a dominant company, makes unilateral business decisions, for example, to add features to its popular products or license its intellectual property to rivals, or to refuse to do so," said Thomas Barnett, assistant attorney general for the departments antitrust division.

"In the United States, the antitrust laws are enforced to protect consumers by protecting competition, not competitors," Barnett said.

"We are … concerned that the standard applied to unilateral conduct by the [court], rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition," Barnett said. Neelie Kroes, the European commissioner for competition policy, said during a press conference Sept. 17 that the decision set an important precedent for the commission to regulate competition in the technology market.

"The court has confirmed that Microsoft cannot regulate the market by imposing its products and services on people," Kroes said. "The court has confirmed that Microsoft can no longer prevent the market from functioning properly and that computer users are therefore entitled to benefit from choice, more innovative products and more competitive prices."

Kroes said that since Microsofts decision to appeal the 2004 ruling, businesses and consumers have suffered. Over that time, she said, "Microsofts market share has grown to 80 percent of workgroup servers, up some 40 percent when the commissions investigation began."

As to what impact the U.S. and EU antitrust rulings have had on Microsofts behavior, Matt Rosoff, an analyst at Directions on Microsoft, said the software maker seemed slightly more hesitant about bundling previously separate features into Windows. Rosoff cited Microsofts Web search efforts, where the software maker has so far had very little success gaining market share against Google.

"The Microsoft of old might have bundled Web search results into the Vista desktop search interface, but with these antitrust rulings in place, that would have been obvious grounds for complaint," Rosoff said.

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