“There are a number of things that are not spelled out explicitly in the decision itself. I am hopeful that we can have the kind of conversation that will enable us to know with confidence what we must do and what we can do in other areas, and I am hopeful that we can do that very quickly,” Brad Smith, general counsel for Microsoft, based in Redmond, Wash., said on Sept. 17.
In its ruling issued Sept. 17, the court agreed that Microsoft had abused its dominant position by refusing to make its products interoperable with those of its rivals and by tying Windows Media Player to the Windows operating system.
The full ruling can be found here, in PDF form.
One of the biggest issues to be resolved is the pricing of Microsofts communication protocols, which the European Commission earlier in 2007 said were too high, Smith said.
Click here to read more about why the EU court struck down Microsofts appeal.
In response, Microsoft did drop the price for protocols that are incorporated into products distributed in Europe to 1 percent of the revenue generated from the product, but it remains unclear whether that is an acceptable price to the Commission, he said.
“If the Commission feels that our prices are still too high, we will, of course, want to understand that very quickly so that we can address it … if the price is still too high, it will be very important for us to understand what price is low enough, so that we can conform to all of our obligations,” he said.
While Smith acknowledged that the prices needed to be reasonable and offered on a nondiscriminatory basis, he noted, “The decision itself did not specify that the only reasonable price was zero. Our goal is to be in complete compliance with this decision. We will look to the Commission, among others, for guidance.”
But, while Microsoft wanted to do the right thing, Smith said, he was not “necessarily here to urge us and other large companies in our industry to all sign up to the proposition that innovative technology should be free simply because it may be relevant to interoperability,” he said.
Microsoft has also argued vociferously that those protocols contain its intellectual property as well as trade secrets. This is another issue that it wants to discuss with the Commission.
“The protection of trade secrets in the way our protocols are implemented in other peoples source code is something that also may need to be sorted out, again, if possible, as quickly as we can,” Smith said.
Microsofts rivals have applauded the courts ruling. Click here to read more.
Given that the current case has been going on for more than seven years, Smith said Microsoft did not want to have continued arguments or disputes about all of the outstanding issues and questions. “We want to move forward, in compliance with the 2004 decision.”
He also acknowledged that the Commission was investigating another complaint against the company, from a group representing IBM and others that wanted Microsoft to license additional communications protocols relating to its SharePoint and Exchange servers, as well as some other products.
“We have conveyed our willingness to license those technologies. As a matter of business policy and approach to the industry, we are prepared to license to others in our industry, on reasonable and nondiscriminatory terms, the technologies that are important to interoperability,” Smith said.
Legal Effects on a
Smith also held out the hope that competitors and potential partners would, in the future, approach Microsoft directly rather than complaining directly to the Commission.
“They can always go to the Commission first if they wish, but they will make more progress if they come to us. We are open for business when it comes to licensing technology and intellectual property rights that are important for interoperability,” he said.
While Microsoft did work closely with both the U.S. Department of Justice and the European Commission as it developed Windows Vista, its relationship with the Commission grew rocky just before Vista was set to be released.
Click here to read more about the war of words between Microsoft and the EC over Vista.
Microsofts relationship with the Department of Justice was less strained, and earlier in September the department said the consent decree had been successful, even though six states pushed back and have called for it to be extended another five years.
In fact, Thomas Barnett, assistant attorney general for the departments Antitrust Division, even expressed concern with the European Court of First Instances ruling, saying that the standard applied to unilateral conduct by the Court “may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”
However, the Department remains committed to working with the European Commission to develop sound antitrust enforcement policies that benefit consumers on both sides of the Atlantic, he said.
As to what impact the U.S. and EU antitrust rulings have had on Microsofts behavior, Matt Rosoff, an analyst at Directions on Microsoft, said the software maker seemed slightly more hesitant about bundling previously separate features into Windows.
He cited Microsofts Web search efforts, where the software maker has so far had very little success gaining market share against Google.
“The Microsoft of old might have bundled Web search results into the Vista desktop search interface, but with these antitrust rulings in place, that would have been obvious grounds for complaint,” he said.
Even then, Google objected to the inclusion of desktop search in Vista, arguing that it had first been released as a separate product known as MSN Desktop Search, he said. “Nonetheless, Microsoft will voluntarily make some changes to Vistas desktop search feature in SP1 to make it more palatable to antitrust regulators in the United States,” Rosoff told eWEEK.
But Rob Enderle, an analyst at The Enderle Group, said he believes that the changes to Vistas security center were made to preclude a similar action with regard to that feature, while the Zune, which is delivered as a separate offering, may also have been affected by that concern, he said.
Six states want Microsofts U.S. antitrust consent decree extended by five years. Click here to read more.
While Rosoff told eWEEK he anticipated the European ruling to have little short-term effect, over the long-term it could be far more significant. “If any company objects to anything Microsoft is reportedly putting into Windows, it now has a venue in which to complain. The EC has clearly put Microsoft on notice that its willing to impose further fines or product restrictions,” he said.
With regards to Vista and any immediate changes, Rosoff said the ruling did not require any, as Microsoft was already shipping a version of Windows without its Media Player.
But if third parties object to any particular Vista features in the future, Microsoft could eventually be forced to release new versions of the operating system without those features, he said.
Asked if Microsofts product development was likely to change as a result of complaints from Google, IBM and others, Rosoff said those legal complaints had had less of an effect on Microsofts product development than the general changes in the market.
Microsoft Competes in New
“Microsofts competing in a lot of new areas, and to be effective in those areas, it has to cooperate more broadly. For example, Microsoft wants to be more competitive on the Web; therefore, it has to make sure its Web services and technologies like Silverlight work with other operating systems and browsers,” he said.
These legal challenges could also lead to greater choice of software applications that run on and interoperate with Windows, and could help force Microsoft to build software and services that compete entirely on their own merits, rather than leveraging the huge installed base of Windows to get a head start, Rosoff said.
But analyst Enderle pointed out that both IBM and Google could find themselves on the other side of the legal fence in the future.
“Once a precedent like this is established, it tends to be applied to other companies. And both IBM and Google keep their core technologies closed. Similar actions will now take a fraction of the time this one did. The goal for the EU was to have a broad impact on the technology market with clear long-term implications beyond Microsoft, which had most of a decade to get ready for this ruling; others likely wont have anywhere near that much time,” he said.
To read more about why the Department of Justice says the Microsoft settlement promotes competition, click here.
For his part, Microsofts Smith also pointed to positive changes over the past two years, particularly the dialogue that Microsoft had with the European Commission about issues to do with Windows Vista that fell under the scope of the 2004 decision.
One of these was security, and how consumers would benefit if Windows were made more secure. “We had a very constructive dialogue with the Commission on that point. It was a dialogue that enabled us to improve the security of Windows and yet build in more choices, so that computer manufacturers and consumers who wanted to use someone elses security features instead could do so more easily. That may be a sign of one type of dialogue that it would be productive for us to have in the months and years ahead–we will have to see,” Smith said.
He also pointed to other large companies, like Apple, Google and IBM, which all have large European market share for particular technologies. “Apple has a 70 percent share for digital music in Europe; Google has near 80 percent share for search—in some countries in Europe, it has over a 90 percent share—while IBM has almost 100 percent share for mainframe computers in Europe and the rest of the world,” Smith said.
The reason for this is that IT tends to be an industry that is characterized by successful companies having large market shares, he said.
Googles market share could be larger than previously thought. Click here to read more.
“Sometimes, those market shares last; in many others instances, they are fleeting. It is very clear that we all have the need to look to Europe and the European Commission under the terms of this decision, and it is equally clear to me that this decision will occupy, as it should, the thoughts and discussion of many people, in the months and years to follow. It is one of those decisions that have that kind of extraordinary impact,” Smith said.
Check out eWEEK.coms for Microsoft and Windows news, views and analysis.