Microsoft’s Legal Battle With Europe Enters New Phase

From the desk of Chresten Anderson on Sat, 2006-04-29 10:17

Earlier this week (on 24 April) proceedings began at the EU’s Court of First Instance in the case brought by US-software giant Microsoft to overturn the corrective antitrust measures imposed by the European Commission two years ago.

The Brussels Journal has previously covered this issue, most recently when the Commission threatened Microsoft with a daily fine of €2 million ($2.5 million) for noncompliance with the March 2004 ruling. Microsoft has been seeking the support of the US government and other multinationals, while accusing the Commission of collusion with other software firms. The problem with European anti-trust legislation is that it almost by default will result in collusion between the Commission and rivals of the respondent, because the EU policy is aimed at protecting competitors rather than securing consumers.

The dispute between the European Commission and the software company dates back to 2004, when the Commission ruled that Microsoft was in breach of the EU’s competition rules. The unsurprising ruling of 2004  - the probable result of the Commission being plaintiff, prosecutor, judge and jury all in one – resulted in Microsoft being fined €497 million ($613 million) and the US based company was furthermore required to change its conduct:

* Microsoft was ordered to modify the marketing of its Windows software – in effect, to offer a version without its Windows Media Player.

* Microsoft was also instructed to make its software more “interoperable” with that of other firms.

The aim was to prevent Microsoft from abusing its market position and to enable other suppliers to compete with the US giant. However, history has shown the ruling to be even more wrong than expected. While the Windows edition without Media Player, which should have been called MS Windows EU Commission edition, has not been a sales success another media player, I-tunes, from MS competitor Apple has expanded rapidly thanks to the success of the I-pod.

The bundling issue, which was originally the key argument from the Commission, has been reduced. Instead, the main dispute relates to securing “interoperability.” After months of negotiations and threats, the Commission decided that Microsoft was not complying and that the company therefore would be subject to a daily fine.

Since then the Commission has upped the ante and is currently attempting to put pressure on Microsoft by stating that the next version of Windows (the Vista edition) basically has to be pre-approved by EU-Competition commissioner Neelie Kroes.

The decision by the Court of First Instance, which is presently hearing the appeal, is expected at the end of the year or in early 2007. Until then the future of European competition and intellectual property rights remains unclear.

More on this topic:

European Commission Still Threatens to Fine Microsoft, 14 March 2006

EU Elites: So Far Behind You Think You Are Ahead, 21 February 2006

Microsoft Surrenders to the EU Bully, 18 February 2006

EU Markets: Pullin’ a Putin, 4 January 2006

Europe’s Antitrust Policies: Bad for US and for Us, 31 December 2005

Microsoft Fights to Keep Source Code Closed, 1 November 2005

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dominance

Submitted by markpetens on Sun, 2006-04-30 01:46.

Consumers find Windows Media Player to be an intrinsic part of the operating system, otherwise they would have bought the strippped down version. The problem is not that Microsoft is making a product that consumers and corporations are willing to buy, the problem is that Microsoft has used monopolistic privileges to protect itself (patents). If the European Union were to be serious about markets, it would not sue Microsoft but would simply support the annihilatation of monopolistic provisions in the member states. But then again, I wouldn't expect the EU bureaucracy to be serious about markets.

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inept EC trying hard, failing

Submitted by Juan Golblado on Sat, 2006-04-29 14:27.

(continued from above)

So, Microsoft is coming to dominate Internet-based entertainment --  achieved through its domination of the media player market, achieved through its domination of the browser market, achieved through its domination of the operating system market. Do you see the pattern?

Now if that is not a great big violation of anybody's antitrust laws, it is because they have not yet been re-written to take account of the lock-in effect that the strong network externalities on the Internet create. On the net everything has to work with everything else or nothing works. This can be achieved through transparency and openness of standards or it can be achieved through allowing one or a few vendors to dominate the market.  Microsoft is aggressively promoting the path of its own dominance. Unfortunately, no one at the US Department of Justice, or the Commission, I'm afraid, have the wherewithal to face up to Microsoft. So what we get are a lot of proposals that don't work very well, a few proposals that might have worked but are so distorted by Microsoft's lawyers that they no longer make sense, and a situation in which the market can be presented as requiring Microsoft domination in order to function smoothly.

It doesn't have to be like that.  

But focusing on that old disagreement between the DoJ and DG Competition over protecting competitors v. protecting consumers will not take us anywhere. Even the two competition authorities don't talk about that anymore, and it never was a substantive issue. The issue is market dominance and abuse of dominance in ways that our legal authorities have not yet figured out how to counter.

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EC is inept but at least it's trying

Submitted by Juan Golblado on Sat, 2006-04-29 14:23.

Microsoft dominates the market for PC operating systems and is abusing its dominant position in two ways:

1. Microsoft hides and lies about the access points of its Windows operating system and now of Internet Explorer. It will no doubt do the same thing with Windows Media Player once it becomes securely dominant. These dirty tricks have been shown up and proven time and time again. I have had to deal with them personally a number of times. It is real. Microsoft hides and lies about its APIs. This is known as the "interoperability" issue. And the Commission may let Microsoft walk away from the rest of its violations once it makes its interface policy legal, although the harm has already been done.

2. As the maker of the dominant operating system, Microsoft is able to force PC makers to accept pre-loading Windows on all their new PCs. Like the Mafia, it makes "an offer they can't refuse": normal discounts are on offer, but the operative part is denial of access to the dominant operating system if they turn down the discounts that go with pre-loading what Microsoft supplies. As a result, the pre-loaded Windows comes with the Internet Explorer browser. Over the years this (and only this) has made Microsoft's inferior browser the one 90% of people use. The browser is important because it is the 'portal' on to the Internet and to web-based applications and a platform where innovative features to run as "plug-ins". Microsoft is coming to dominate web-based computing and selected plug-ins through its domination of the browser market, achieved through its domination of the operating system market.

Now Microsoft is doing the same with Windows Media Player. The media player is a browser plug-in. Microsoft now pre-loads windows with Internet Explorer AND Windows Media Player. The media player is the 'portal' into the vast Internet entertainment business - that very high-dollar stuff which is meant to start the next boom cycle.
(continued below)

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