Microsoft Tests EU Sanctions in Public Court

By Matthew Broersma  |  Posted 2004-09-29

Microsoft Tests EU Sanctions in Public Court

Microsofts hearing at the Court of First Instance in Luxembourg starting Thursday is perhaps the most critical stage of a European Union legal process that is likely to stretch on for years, according to legal analysts. But any real-world impact from the hearings is likely to still be months away, experts said.

The European Competition Commission fined Microsoft a record 497 million euros (about $613 million) in March for abusing its dominant market position in operating systems. The commission also ordered Microsoft to ship a version of Windows without bundled media players and to license protocols that would allow competitors to integrate their servers with Microsoft desktop systems.

Read more here about the European commissions ruling against Microsoft.

Microsoft has filed two challenges to the ruling: one seeking to overturn the March ruling, and another requesting a suspension of these remedies until the larger case has been settled.

Since the overall appeals process is likely to take several years, an immediate suspension would effectively remove any threat to Microsoft, according to legal experts.

"In practice, the outcome of this preliminary proceeding will have a major and perhaps decisive effect on the continuing commission proceedings against Microsoft," partner Christopher Norall and associate Jonathan Gowdy of international law firm Morrison and Foerster LLP wrote in an analysis.

The CFI (Court of First Instance), the EUs second-highest court, has been considering the suspension request since June, when Microsoft filed its appeal, and the process is set to culminate in two or three days of oral argument before CFI president Bo Vesterdorf. The CFI may choose to rebuke the European Competition Commission by suspending its measures, something that would not be unheard of, or it may uphold the commissions demands.

But either side can appeal the CFIs decision at the EUs highest court, the European Court of Justice (ECJ). If the ECJ also denies Microsofts appeal, Microsoft general counsel Brad Smith has said the company is prepared to carry out the measures prescribed by the competition commission.

It is also still possible that Microsoft and the commission could come to a settlement on terms different from those of the commissions decision, and Microsoft has said it will keep this option open. But part of the commissions motivation is to establish a legal framework for similar situations that might crop up in the future, according to analysts, and this wouldnt be possible through a settlement.

Next Page: Would the commissions measures be effective?

Commissions Measures

If Microsoft is finally obliged to carry out the commissions measures by an ECJ decision—which could happen in the next few months—their effectiveness is not clear. PC manufacturers, if left to their own devices, would not be likely to choose to install a stripped-down version of Windows, industry analysts point out. As for interface protocols, the commissions decision does not require Microsoft to give away any information protected by intellectual property law.

"Microsoft would be entitled to reasonable remuneration," the commission said in the statement outlining its decision. "The disclosure order concerns the interface documentation only, and not the Windows source code, as this is not necessary to achieve the development of interoperable products."

If the ECJ decides to suspend the remedies, the pace of change in the software industry means that these remedies will essentially be meaningless by the time the wider appeal is resolved. The CFI could take four or five years to deliver a ruling—this week, for example, the CFI annulled a 2000 decision to block WorldComs attempted takeover of Sprint.

But if EU courts eventually uphold the commissions decision, it could create a far-reaching precedent, analysts say. If left undisturbed, the decision would give the commission a supervisory and regulatory role over Microsofts continuing operations in areas such as the Internet, mobile telephony and digital rights management, according to legal experts.

To win its appeal with the Court of First Instance, Microsoft must prove that its case is viable, that it would suffer irreparable harm if the remedies were imposed immediately, and that damage to the company is not outweighed by benefits to the public. Microsoft is expected to argue that the decision would infringe on its limited-time exclusive rights, such as patents, copyrights and trademarks.

Microsoft attorneys have suggested that revealing protocol information could expose new Windows vulnerabilities, which would be costly for the company to repair and could put the public at risk. Microsoft has also argued that the remedies arent necessary to allow competition, pointing to the success of rivals such as Apple, with the iTunes Music Store, and the Linux operating system.

Click here to read about Microsofts tactics in battling Linux.

For its part, the commission—reacting to defeats by the CFI in several 2002 merger-regulation cases—has gone to exceptional lengths to build a strong factual and legal case, according to legal experts Norall and Gowdy.

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