EU Decision on Microsoft in the Pipeline

LONDON—In what may prove to be a setback for Microsoft Corp.s efforts to dominate the digital media and low-end server markets, a European Commission investigation is set to find that the company broke European Union competition law.

Sources close to the Commission indicate that a draft decision has been completed, and that Microsoft is likely to be found to have broken EU competition law. It is understood that copies of the decision have already been given to Microsoft, although these drafts do not include any proposed remedies. A spokesperson for EU Competition Commissioner Mario Monti confirmed that “a draft [decision] is on the table,” but declined to comment on the contents of that draft.

Microsoft is accused of using its dominant market position to stifle competition in the software market. Both RealNetworks Inc. and Sun Microsystems Inc. gave evidence to the Commission last year, with Real claiming the bundling of Window Media Player promoted the product at the expense of rivals. Sun alleged that Microsoft was using its dominant position on the desktop to boost its position in the low-end server market by making it more difficult for Windows desktop machines to work with anything other than Microsoft servers.

The Commission has almost unlimited powers to demand a remedy from Microsoft. Although it has tended toward levying a large fine rather than taking any other action, it is understood to favor ordering the company to unbundle Windows Media Player from the operating system in this case. If it chooses to fine Microsoft, it could demand anything up to 10 percent of the companys global turnover—a figure that could reach $3 billion.

However, whatever the Commissions decision, it is unlikely that this will be the end of the case. Microsoft is almost certain to appeal the judgment to the EUs Court of First Instance, a process that could take several years. The Court of First Instance has previously criticized the Commission for its failure to provide enough evidence to support its decisions, and in one case—that of a merger between packaging companies Tetra Leval and Sidel—overturned its judgment.

The final decision is expected to be announced in March.