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Microsoft argued in a Luxembourg court on Thursday that the European Competition Commissions antitrust decision against it would infringe on its intellectual property and cause serious and irreparable harm to the company.
The software giant and the European Competition Commission presented their first day of arguments in Luxembourgs Court of First Instance (CFI) in Microsofts effort to win a reprieve from the commissions antitrust remedies.
Microsoft hopes to delay complying with the commissions demands, including that it provide a version of Windows without a media player and that it license communications interfaces, until the conclusion of its wider antitrust appeal, which could take three to seven years.
The commission is pressing for Microsoft to comply immediately; that could mean as early as next year, if Microsoft loses the current appeal and a further appeal to the European Court of Justice (ECJ).
The court proceedings included lengthy arguments around IP (intellectual property) rights and a discussion of Linuxs role in the server market.
The session began with opening statements from Microsoft and about 10 other interested parties, known as “interveners,” supporting either Microsofts case or the commissions. The rest of the day focused on the demand that Microsoft license interfaces and protocols to guarantee that rival companies servers can interact seamlessly with Windows desktops. Fridays hearing is to concentrate on the requirement that Microsoft produce a stripped-down version of Windows without a media player.
Microsoft general counsel Brad Smith said in a post-hearing statement that the court had clearly identified the issues in the case, and said exchanges in court had revealed fundamental weaknesses in the commissions approach. A lawyer supporting the commission agreed that the judge had done his homework extremely well and was engaged in the cases issues.
Earlier in the day, Smith reiterated Microsofts hopes for a settlement, but said it would not budge on the core issues. “The path chosen by the European Commission will harm hundreds of European companies, thousands of European software developers and millions of European consumers,” he said in a prehearing statement.
“As well show in the courtroom during these next two days, people want their computers to be simpler, not more complex. We need to provide consumers with more value, not less.”
Lawyers from organizations supporting the commissions side of the case took an active part in the proceedings, with participants including the Free Software Foundation, Novell and CCIA (Computer and Communications Industry Association), lawyers said. On Microsofts side, interveners included ACT (Association for Competitive Technology) and CompTIA (Computing Technology Industry Association).
Danish judge Bo Vesterdorf, the courts president, addressed most of his questions to Microsoft, the commission and the commissions interveners, a lawyer said. Microsofts legion of lawyers far outnumbered the other parties—the commission and its numerous interveners amounted to about a third the number on Microsofts side, which numbered around two dozen, participants said.
Those on the commissions side argued that a delay in implementing the commissions remedies would be likely to hand Microsoft the market for media players and workgroup server operating systems.
“If a remedy is not implemented immediately, the risk is that it will become utterly meaningless,” said Thomas Vinje, a partner with Clifford Chance, which is representing the CCIA. In the market for workgroup servers, “the remaining competitors are beginning to look very much like fringe players. Once competition has been eliminated, there is no rescuing the market.”
Vinje said a substantial discussion was devoted to open-source software, something that has been held up as proof of vibrant competition in the server market. But open-source server software such as Apache does well in areas such as application and Web servers, where desktop interoperability is not an issue, the CCIA argued. “Its true [Apache] is doing well, but thats irrelevant,” Vinje said.
Next Page: Intellectual property, or merely value created by secrecy?
Value through Secrecy
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The issue of intellectual property is likely to make or break the case, according to analysts, and it made up the substance of the days hearing. Microsoft argues that if it is compelled to license interface specifications, it will disclose valuable intellectual property, infringing its IP rights and causing it irreparable harm. The commission and its backers say there is nothing valuable about the specifications Microsoft is being asked to disclose.
“It is our contention that this case has nothing to do with intellectual property,” Vinje said. “As someone said today in the hearing, Microsoft does not keep its interface specifications secret because theyre valuable, theyre valuable because theyre secret.
“And the reason theyre valuable is because when theyre secret, Microsoft can prevent competition. These are not the crown jewels, the secret sauce, the recipe for Coca-Cola.”
On Microsofts side, a spokesman said the question of whether IP is at issue is no longer controversial, saying even the commission would now agree that rights are involved.
CompTIA told the court that it supports Microsofts position on IP. “The interoperability section of the ECs order, which directs Microsoft to give away its valuable intellectual property to competitors, stands contrary to widespread industry practice that clearly shows interoperability thrives in Europe,” Lars Liebeler, CompTIAs antitrust counsel, said in a statement published after Thursdays hearings. “It also represents a monumental departure from long-recognized European IP legal protections that provide the needed incentive to create and innovate for consumers.”
This weeks oral arguments are not just a formality, and can win or lose the case, according to legal experts. “The oral pleadings are key in these kinds of proceedings,” said Javier Ruiz Calzado, a lawyer with Latham & Watkins LLP who worked as “reféréndaire” to a Court of First Instance judge for six years. “A real dialogue takes place between the judge and the parties, with the enrichment of the interveners.”
Thursdays pleadings will be particularly significant to the final decision because they address the critical issue of IP rights, experts say. As part of its case, Microsoft must prove that the commissions remedies would cause irreparable harm to the company, and its best chance of doing so is likely to be through its IP rights argument.
“Financial damages are always reparable. IP harm may well not be,” Calzado said. “Microsoft has a chance on the protection-of-IP argument, which appears strong.”
Microsoft has said it will argue that the commissions order to license communications interfaces would impinge on limited-time, exclusive rights such as patents, copyrights and trademarks. The company has said disclosing such secret information to other companies could even help hackers find new security vulnerabilities.
The IP argument hinges on whether potential licensees would produce a “new” product—that is, whether licensing would allow innovation or merely help competitors copy Microsofts products, according to legal analysts. Microsofts argument is that competitors would use the interface information to essentially duplicate Microsofts server product, while the commission is arguing that the refusal to supply the information is abusive because it prevents innovation, according to analysts.
A related issue is whether the commissions March decision proves that competitors cant operate sufficiently without access to the interface information in question.
An ECJ judgment of April 29 in the case of IMS Health v. NDC Health laid down specific rules for the compulsory licensing of IP, according to lawyers. The IMS case was frequently referred to during the day, according to participants, and is said to offer material useful to both sides.
The court is expected to issue its decision in November or December.
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