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Wednesday, March 24, 2004

The EU's antitrust authority said that "because the illegal behavior is still ongoing," it was also demanding changes in the way Microsoft operates in Europe, with the aim of improving competition globally. Those sanctions go well beyond the 2001 U.S. antitrust settlement.

The regulators gave Microsoft 90 days to offer European computer manufacturers a version of Windows without the company's digital media player, which lets computer users watch video and listen to music and is expected to be an important market as multimedia content becomes more pervasive in coming years.

The European Commission also chastised Microsoft for trying to "shut competitors out of the market" in software for office servers, by hoarding code that would help competing programs work smoothly with Windows computers. Microsoft now has 120 days to provide rivals in the server market with such code.

EU Competition Commissioner Mario Monti said that the ruling was "proportionate" and "balanced," and that "dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition."

"We are simply ensuring that anyone who develops new software has a fair opportunity to compete in the marketplace," he said at a news conference.

Monti said he limited the order to Europe "in deference to the competition authorities of the United States and other countries."

Eurocrats Claim They Have Power Over the Whole World

"We could legally have imposed explicitly a worldwide geographic scope, given the global nature of these markets," he said. "We have not done so."

He said limiting it to Europe "will not unduly undermine the effectiveness of the remedies," given the size of the European market. Microsoft, which had $32 billion in revenue last year, does about 30 percent of its business in Europe.

Microsoft's general counsel, Brad Smith, told reporters the company would appeal the decision to Europe's Court of First Instance and most likely would ask that much of the ruling be suspended during the appeal. Smith said he expected the case to take four or five years to be resolved.

Settlement talks with Microsoft broke down last week over the EU's insistence that a deal also restrict which features could be added to future versions of Windows, such as an embedded search engine. The commission is already investigating a complaint filed by competitors against the latest version, Windows XP.

Smith argued that the company's settlement proposal would have been more useful to consumers than the penalties announced Wednesday. He said Microsoft offered to immediately release worldwide a version of Windows that included three media players. He said the company also would have offered "unprecedented access to Microsoft's technology."

The company argued that extracting the media player from Windows will be difficult and will make other features work less effectively. What the EU is asking Microsoft to create "is not Windows," Smith said.

Noting that the U.S. case was settled after an appeals court ruling, Smith said a similar scenario could happen in Europe, although no discussions are under way.

Microsoft was found guilty of similar monopolistic behavior in the U.S. case, but the EU order strikes deeper by aiming at the heart of Microsoft's business strategy: regularly adding new features to Windows to help sell upgrades.

The Redmond, Wash.-based company argues such "bundling" benefits consumers. But rivals call it unfair competition, given that Windows runs more than 90 percent of personal computers worldwide.

The EU regulators were concerned that bundling "deters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take an interest in and tie with Windows in the future."

The EU said it was concerned that a stranglehold on media players could let Microsoft dictate future standards for how digital music and video files are encoded, distributed and played.

Under the EU order, Microsoft can continue selling a version of Windows with its media player software installed, but it must refrain from making the stripped-down version less attractive or a poorer performer.

Fearing that attempts to set prices would be overturned in court, the Commission did not order Microsoft to make the stripped-down version available at a discount. But it said Microsoft could not offer PC makers a better deal for buying the version of Windows with Microsoft's media player included.

The ruling could boost rival makers of media software, led by RealNetworks Inc. and Apple Computer Inc.

Bob Kimball, RealNetworks' general counsel, said the EU decision "confirms the merit" of his company's private antitrust lawsuit against Microsoft.

The other half of the EU case involved low-end servers, which tie desktop computers together in offices.

Silicon Valley-based Sun Microsystems Inc. complained to the EU in 1998 that Microsoft refused to provide details needed for Sun programs to "talk" to Windows computers as efficiently as Microsoft's own server software could.

The commission said Microsoft's refusals to disclose server software code "were part of a broader strategy designed to shut competitors out of the market." The risk, the commission said, was that Microsoft's dominant position would end up "eliminating competition altogether."

The ruling said Microsoft could get "reasonable remuneration" for disclosing its proprietary code, and added that the Windows source code itself would remain untouched.

The EU also said it would appoint a trustee to monitor Microsoft's compliance with the ruling.

The fine, 497 million euros, surpassed the EU's 2001 penalty of 462 million euros against Hoffman-La Roche AG for acting in a cartel. Money from the fine would be redistributed to the EU member states.

© 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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