EU Dispute May Mean Unbundling Internet Explorer

A dispute with the European Union might change how Microsoft distributes its software in the region. The dispute concerns the bundling of Microsoft's Internet Explorer Web browser with Windows, which the European Commission (EC) is currently investigating as a violation of competition rules.

Microsoft outlined some actions it could face in its recently filed 10-Q financial statement.

"While computer users and OEMs are already free to run any Web browsing software on Windows, the Commission is considering ordering Microsoft and OEMs to obligate users to choose a particular browser when setting up a new PC," Microsoft stated in the 10-Q report.

Alternatively, the EC might elect a shotgun-type of approach to browser distribution.

"Such a remedy might include a requirement that OEMs distribute multiple browsers on new Windows-based PCs. We may also be required to disable certain unspecified Internet Explorer software code if a user chooses a competing browser," the 10-Q report added.

The EC took action this month in response to a complaint filed in December of 2007 by Oslo, Norway-based Opera Software, which makes a browser that competes with Internet Explorer. On Jan. 15, the EC initiated a "Statement of Objections" considering the idea that Microsoft's operating system monopoly gives it an unfair advantage in pushing other software products.

"The evidence gathered during the investigation leads the Commission to believe that the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world's PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match," stated the EC, in a memo.

Microsoft has two months to appeal, but it lost a similar case in the not-too-distant past. In March of 2004, the Court of First Instance upheld the EC's complaint against Microsoft for bundling Windows Media Player with its PC operating system.

Microsoft is in the process of winding down a similar U.S. antitrust case settled in 2002, in which Microsoft was found to have used its Windows monopoly to gain unfair advantage in the browser market. Federal oversight stemming from that case is expected to end in November.

Microsoft's 10-Q report listed a number of possible business-risk factors that the company may face. Topping the list is the claim that open source software requires little development capital for competitors to produce, while it "mimics the features and functionality of our products."

Microsoft also noted that software-as-a-service represents a competitive threat. Meanwhile, Microsoft is building out its own hosting capacity.

"We have spent and expect to continue to spend substantial amounts to purchase or lease data centers and equipment and to upgrade our technology and network infrastructure to handle increased traffic on our Web sites and to introduce new products and services and support existing services such as Xbox Live, Windows Live, and Office Live," the 10-Q report states.

Microsoft, which announced a planned cut of 5,000 personnel last week, also complained about U.S. H-1B work-visa limitations.

"We are limited in our ability to recruit internationally by restrictive domestic immigration laws," the report states. "If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected."

About the Author

Kurt Mackie is online news editor, Enterprise Group, at 1105 Media Inc.