Microsoft Loses European Court Appeal

A European court today upheld an earlier ruling that Microsoft abused its monopoly position on several fronts, including bundling Windows Media Player with Windows and withholding critical technical information about its client and server operating systems.

The ruling, by The Court of First Instance, let stand the March 2004 decision by the European Commission, which included a record $689 million fine and an order to build a client version of Windows without WMP. In June 2004, Microsoft appealed the verdict, asking to throw out the abuse findings and lower, or eliminate, the fine. The Court of First Instance did neither, but did grant Microsoft a small victory in how its actions going forward will be monitored.

Ken Wasch, President of the Software & Information Industry Association (SIIA), hailed the Court's decision. "Today's judgment by the European appeals court is a victory for innovators and consumers everywhere," he said in a press release. "With this action, the only option left for Microsoft is to  immediately cooperate and fulfill the  requirements of the March 2004 Decision."

Rob Enderle, principal analyst of Enderle Group, said the decision was a "pretty significant" blow for Microsoft. "I think they really thought they had a shot [to win the appeal". Given the changes Microsoft has made since the case was originally brought in 1998, Enderle said the company may have believed it could convince the EU that the judgment was no longer valid.

The problem with that thinking, Enderle said, is that "courts live in the world in which the case existed, which was 1998."

Microsoft has two months to appeal the decision to the EU's equivalent of the Supreme Court, the European Court of Justice. Brad Smith, Microsoft Corp. Senior Vice President and General Counsel, said that Microsoft hasn't decided on its next step yet.

"I don't want to talk about what will come next in terms of the legal process," Smith said after the ruling. "As I said, we need to read the decision, it's a long decision, and it really helps to read something before one makes a conclusion about what to do about it."

Enderle's not sure that Microsoft will appeal again. "It depends on how long they want to drag this on. No matter what Microsoft does, the Court is going to hold them to their behavior in the1990s. With each appeal, it decreases the chances they're going to win. Microsoft may want to get out of the appeals process because it's aggravating the other side [the EU]. There may be a lot of people inside Microsoft arguing against one more appeal."

On the issue of technical information, the original finding was that Microsoft had not made its server and client OSes sufficiently interoperable with rivals, thus inhibiting competition.

"The Court considers that the Commission was correct to conclude that the work group server operating systems of Microsoft's competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably," the Court noted in its decision.

It went on to state that "The absence of such interoperability has the effect of reinforcing Microsoft's competitive position on the market and creates a risk that competition will be eliminated."

On the second issue, that of bundling WMP, the ruling again verified the initial finding.

"First, the Court observes that it is not disputed that Microsoft had a dominant position on the client PC operating systems market," the Court declared in today's decision. Because of that, it wrote, "The Court concludes that the Commission was correct to find that there was a significant risk that the tying would lead to a weakening of competition in such a way that the maintenance of an effective competitive structure would not be ensured in the near future."

Of course, that's no longer true, as the dominant media player in existence is Apple, Inc.'s iPod.

Microsoft's lone bright spot was the ruling that the Court overstepped its bounds by appointing a Court-appointed overseer of Microsoft's business and software development practices, and eliminating that position.

"By establishing the mechanism of a monitoring trustee, with his own powers of investigation and capable of being called upon to act by third parties, the Commission went far beyond the situation in which it appoints its own expert to advise it during an investigation."

Enderle said that decision could have a larger impact than many suspect. "That was going to be pretty painful," he said. A monitor with "absolute control" over what Microsoft develops would potentially give that person "the ability to sink the company," Enderle commented.

Microsoft's Smith agreed.

"We appreciate the court's judgment on the trustee issue and the monitoring mechanism, an issue where the court agreed with us, and yet I would be the first to acknowledge that I don't think anyone would say that is the most important part of this case or this decision," he said.

The ruling marks Microsoft's second major defeat in two weeks. In early September, an international standards body failed to adopt Microsoft's new document format, Open XML, as a standard. That failure could also have European ramifications, as many governments there are more suspicious of Microsoft than the United States', and may be more willing to try competing office productivity suites like OpenOffice and Star Office, which use the Open Document Format for its documents.

About the Author

Keith Ward is editor of Virtualization Review magazine. You can contact Keith at [email protected].