Microsoft Fears Irreparable Harm, Changes Licensing Tune

By Matthew Broersma  |  Posted 2004-10-01

Microsoft Fears Irreparable Harm, Changes Licensing Tune

Microsoft Corp. offered to license server interface protocols as part of a proposed settlement with the European Commission, the software company said in court on Thursday—the same licensing regime that Microsoft now says would cause it irreparable harm.

In hearings on Thursday and Friday at Luxembourgs European Court of First Instance (CFI), Microsoft is appealing a March European Competition Commission decision that would force the company to license Windows interface information and provide a version of Windows without its bundled media player. Microsoft is seeking to delay the commissions remedies until its broader appeal has played out, which could take three to seven years.

Read more here about the European commissions ruling against Microsoft.

Microsoft admitted to CFI President Bo Vesterdorf, the judge presiding over the hearing, that it had offered to license interface information to competitors to ensure their server products could work with Windows desktops as well as Microsofts own servers. Following the breakdown of settlement talks, the commission included the licensing requirement as part of its decision in March.

For the court to delay the remedies, Microsoft must prove, among other things, that the remedies would cause harm that couldnt be repaired in the event that Microsoft is ultimately found blameless as a result of its wider appeal. The claim of irreparable harm is undermined by Microsofts earlier offer to license interface information, argued the commission on Thursday.

"Microsoft effectively acknowledged that it offered more in the settlement discussions than the decision orders it to provide," said Thomas Vinje, a lawyer representing the Computer and Communications Industry Association, in the hearing. The CCIA is an "intervener," or interested party, arguing on behalf of the commission.

Microsoft General Counsel Brad Smith countered that the settlement offer had been made as part of a broader package including assurances over the circumstances of licensing, the criteria for use, which markets the licenses would be granted and other concessions, according to a Microsoft spokesman present at the hearing. Those qualifications werent part of the commissions decision, Smith said.

The software company is trying to prove that the interface information in question constitutes valuable intellectual property, and that the commissions decision infringes on its IP rights. The commission and its supporters argue that the information is only valuable in that its secrecy allows Microsoft to lock out competitors.

Next page: A stripped-down Windows.

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Thursday was devoted to the question of the licenses, while on Friday the judge considered the media player issue.

On Friday morning Microsoft presented its case to the judge, followed by its interveners, the commission and the commissions interveners. In the afternoon the judge was to question the participants for several hours, followed by short closing statements from Microsoft and the commission.

Microsoft said the commissions remedies strike at the heart of its business model by forcing it to create a new version of Windows labeled with the companys trademark. The stripped-down version would prevent many Web sites and software products from working properly and would confuse consumers, the company said.

The commission argued that the media player market is at a "tipping point," and that Microsoft would gain control over the digital media formats used in computers, mobile phones and handheld computers unless the commissions remedies took effect immediately.

RealNetworks argued that Microsofts growing power in the media player market is repeating the events of the 1990s, when Microsofts Internet Explorer shut Netscape Navigator out of the browser market. Once competition has been eliminated, it cannot be restored by government action, the commission said.

Countering Microsofts arguments that removing Windows media player would break other operating system functions, RealNetworks demonstrated a version of Windows XP Embedded, designed to allow system builders to add and remove components as needed. There was no technical reason an unbundled Windows XP couldnt be distributed, said Antoine Winckler, arguing for RealNetworks. Microsoft responded that in such a configuration, certain functions wouldnt be broken, but simply unavailable.

Microsoft argued that the remedy wouldnt be effective because there would be no demand for an unbundled Windows. Winckler countered that in that case, there would be no harm to Microsoft. "If indeed there is any market for or takeup of [unbundled Windows], the only reason is because there is consumer demand for it," said Vinje, summarizing Wincklers argument. Since competition law is designed to protect consumer choice, this argument could weaken Microsofts case.

Industry observers have said it might be difficult for Microsoft to argue a stripped-down Windows would harm the company when it is distributing Windows XP Starter Edition in a number of countries. Starter Edition, a cheaper version of Windows with limited functionality, is sold in Thailand, Malaysia and Indonesia as a way of countering the appeal of Linux-based machines. Microsoft announced this week it would offer Starter Edition in Russia and India beginning next year.

The Court of First Instance is expected to deliver its ruling in November or December. This is likely to be followed by an appeal to the European Court of Justice, the EUs highest court. Once the issue of remedies is settled, a panel of judges will begin considering the broader case, expected to take three to seven years.

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