Microsoft Digs in for Legal Fight

By Caron Carlson  |  Posted 2004-03-19

Microsoft Digs in for Legal Fight

Despite a last-ditch settlement attempt by its CEO, Microsoft Corp. once again finds itself facing protracted litigation and possibly stiff sanctions—this time in Europe. Rivals hailed the development as a victory for software interoperability and competition.

CEO Steve Ballmer dropped plans to speak at Microsofts Management Summit in Las Vegas last week to fly suddenly to Brussels, Belgium, to try to negotiate a settlement with the European Commission. But the effort failed, and this week Microsoft faces a final order from the EC, which could include requirements for the company to unbundle middleware from Windows, disclose greater interface information and abide by market conduct rules for future products.

The ruling will be the result of more than five years of investigating Microsofts use of its power in the operating system market to gain advantage in related software markets.

Ballmer, who had canceled a number of other domestic appointments last week in addition to his Management Summit keynote speech, was hopeful that despite the failed negotiations to date, Microsoft could settle the case "at a later stage," sources close to the matter said.

However, European Union member states voted unanimously last week in favor of the commissions proposed order issued last August, indicating that, unlike the United States, they wont accept a Microsoft-crafted remedy.

"Everything was addressed regarding the current case. What [both parties] could not get through were forward-thinking things on issues that would arise in the future," said Lou Gellos, a Microsoft spokesman. "They had worked well into the night trying to resolve that issue. The talks have ended for now, thats for sure."

Europes proposed antitrust remedies

  • Disclosing interface information that would allow low-end server rivals to fully interoperate with Windows products

  • Offering a version of Windows without Media Player bundled in or providing rival media players with Windows
  • In August, after reaching a preliminary decision that Microsoft illegally extends its Windows dominance into the server and media player markets, the EC proposed interface disclosure requirements that would allow low-end server rivals to interoperate with Windows products. The EC also proposed requiring the Redmond, Wash., company to unbundle Media Player from Windows.

    European Union Competition Commissioner Mario Monti said last week that the parties made progress toward resolving those issues but that Microsoft would not agree to commitments the commission sought for future conduct. Monti said it is essential to establish a precedent because Microsoft has such a dominant position in the market.

    "The commission thinks that if it has this decision in place, it would streamline future enforcement action," said Donald Falk, antitrust and appellate partner at the law firm of Mayer, Brown, Rowe & Maw LLP, in Washington. "There has been a series of meaningless settlements over the last 10 years in the United States and Europe. Europe has seen this movie before. They dont want to see it again."

    Next Page: Time could be on Microsofts side in European litigation.

    Time on Microsofts Side


    As was the case in the United States, time may be on Microsofts side in the litigation in Europe. Once the EC issues a ruling, Microsoft would file a request for appeal with the European Court of First Instance, in Luxembourg, which could take several years to rule, Gellos said.

    In the United States, the Clinton administration initiated antitrust litigation against Microsoft in 1998, and the Bush administration settled the case in 2001. Here, the court focused on browser technology and found that Microsoft used illegal means to sustain a monopoly in the desktop operating system market. The Commonwealth of Massachusetts has appealed the federal settlement, and a decision is expected soon.

    Monti, who has made a name for himself as a tough enforcer, faces the end of his term this spring. However, because the member states backed his approach unanimously, it is unlikely the commission would alter the approach under new leadership, industry observers said.

    "Mr. Monti has gotten apparently the unanimous approval of the 15 member states," said Falk, whose clients include the Computer & Communications Industry Association, which is made up of Microsoft competitors. "Its a different situation than we had here with an agency [the Department of Justice] that is responsible to a single executive branch."

    Although both Ballmer and Monti last week emphasized the common ground they have reached over matters of past competitive conduct, it is unlikely Microsoft would accept the commissions remedies and appeal only the forward-looking provisions, observers said.

    "Chances are, if theyre going to go into the Court of First Instance for the next three years, theyre probably going to go for a home run," Falk said.

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