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Last Updated: Friday, 14 September 2007, 11:48 GMT 12:48 UK
Decision looms in Microsoft-EU row
By Alex Ritson
Business reporter, BBC News, Brussels

The long-running dispute between Microsoft and the European Union will finally be decided on Monday.

Advertisement for Windows Vista
Microsoft's market dominance alarms regulators

Three years ago, the European Union issued an anti-trust ruling against Microsoft for what it said was an illegal abuse of Microsoft's near-monopoly in the computer operating system market.

It ordered the company to change its business practices.

It also imposed the highest fine in European history - almost half-a-billion euros.

On Monday morning, Europe's second-highest court will deliver a ruling that could shape the rules of competition law in the bloc for decades to come.

The two sides are agreed it's a landmark case. But they agree on little else.

Commercial secret

According to Jonathan Todd of the European Commission, the case is a classic example of dirty tricks by a powerful company.

He says: "The basic question is, do we allow a company which has 95% of the market to make choices for us - or should consumers and users of computers have the possibility to make their own choices."

Not surprisingly, Erich Anderson, Microsoft's chief European lawyer, sees things rather differently. He says there are two key issues in the case.

Microsoft withholds the information that [rivals] need for computers to talk to each other
Jonathan Todd, European Commission

"The first involves the ability of leading companies to improve their products," he says. "The second issue in the case is really about whether leading companies are required to share the innovative technologies that they have developed with their rivals."

The case is about Microsoft Windows, the operating system used on nine out of 10 PCs.

The technology that Microsoft doesn't want to share with its competitors is secret computer code with the less than catchy name of "server interoperability protocols". These are vital in any modern office, where computers need to talk to each other and share files or printers.

Microsoft's rivals say that without these protocols, computers running rival server operating systems are not able to communicate properly with Windows.

Core technology

The European Commission's Mr Todd says it is like a telephone company refusing to give other telephone companies the necessary technical information to allow the routing of calls to its customers.

"At the moment," he says, "rivals like Linux can't make products that work properly with Windows, because Microsoft withholds the information that they need for computers to talk to each other."

Windows software
Microsoft insists it has complied with the EU's competition ruling

Microsoft rejects that completely. Mr Anderson says Microsoft's rivals would not be in business if their computers did not talk to Windows.

He says different companies' servers - or applications that perform services for connected clients - are working together with no problems.

"There have been no complaints from customers to the commission, or to Microsoft, about server to server interoperability," he adds.

"What's at issue here is that competitors want access to core technology developed by Microsoft so that they can use that technology for free in their products."

But Microsoft's rivals in the operating system market reject any suggestion that they are trying to freeload. They point to Microsoft's own marketing material - which says Microsoft products "work better together".

Media wrangle

Thomas Vinje is the lawyer for the European Committee for Interoperable Systems (ECIS), a group of technology companies which gave evidence in the case.

He says Microsoft's competitors were selling software to link computers together long before Microsoft adapted its desktop Windows program for use on computer servers.

"Microsoft's competitors were the pioneers in this market. They had all the functionality - they had the functionality before Microsoft had it," says Mr Vinje.

Leading companies in any country need to have... the ability to recoup the benefit of... technologies
Erich Anderson, Microsoft lawyer

"What Microsoft has done is to cut off the information which they need to be able to achieve interoperability with Microsoft's products."

The case is not just about computer servers. When you pay several hundred dollars for a copy of the Microsoft Windows operating system, you are also buying a copy of Windows Media Player.

This is a program which Microsoft developed to allow PC users to play CDs, DVDs or watch video files on websites.

Mr Todd says that by bundling them together, Microsoft destroyed the global market for rival media players with a single stroke.

"Essentially, Microsoft started including Media Player with its operating system, so that millions of people had it on their computers, irrespective of whether it was a good product, or whether people actually wanted that product.

"But the fact that it was there on their computers meant that alternative suppliers were unable to sell their product any more."


But Microsoft argues the European Commission is missing the point. Mr Anderson says the reason Windows Media Player is supplied with Windows is because it has become an essential part of Windows.

To buy Windows without Windows Media Player, he contends, would be like buying shoes without laces.

"Microsoft began adding media capability to the Windows operating system in the early 1990s and has steadily improved that technology over time. Our position is that this has been very valuable for consumers - and today, indeed, consumers around the world rely on this technology in Windows."

Microsoft's Bill Gates
Monopoly allegations against Microsoft go back several years

The dominant media player in the late 1990s was Real Player, made by the Real Networks company.

Mr Vinje of ESIS says Real Networks' business was largely destroyed by Microsoft's action.

"They went from a position of pioneer with a leading market share before the bundling occurred to being, for all economic intents and purposes, forced out of the market," he says.

"That's despite the fact that all of the objective reviews at that time rated Real's Real Player product as being substantially better than Microsoft's Windows Media Player."

Both Real Networks and Sun Microsystems, another original plaintiff, have since settled the case with Microsoft and withdrawn from the European Commission's case.

Mr Todd says Microsoft's monthly profits of more than $1bn give it a strong position when facing a legal challenge.

"Microsoft's rivals are in a very difficult position, trying to survive in the market with all the obstacles that Microsoft is putting in their place," he says.

"Some of them decide that it is better to reach a settlement with Microsoft to drop their objections, in return for financial compensation. In short, some of them are bought off."

'Avoiding precedent'

Not surprisingly, Microsoft has a different view. Mr Anderson says settling such cases simply makes commercial sense.

"I think it's important for any company that is subject of litigation to look for reasonable, constructive alternatives to that," he says.

"So, with any company that we might have a dispute with, we're always going to look for ways to have a reasonable conclusion to that kind of a lawsuit. So Real Networks is an example of that.

"Rather than continuing to litigate, we sought a business way to resolve that dispute, and we're very happy that we were successful in doing that. And Real Networks has had many business opportunities as a result of that settlement."

Windows XP
Most home computers use Windows software

Microsoft says it has tried very hard to settle the outstanding issues with the European Commission. It offers European customers a version of Windows without Media Player - although sales have been tiny.

It also makes some interoperability information available to competitors - as long as they are prepared to pay a fairly hefty fee.

As far as Brussels is concerned, Mr Todd is unimpressed. "Microsoft wanted a settlement in order to avoid having a decision that set a precedent for the way the antitrust rules are applied - and would have set a precedent for its business model," he says.

"Thus far, everything Microsoft has offered as a way of settling the case was unsatisfactory and did not meet the concerns that the Commission had about their abuse of their dominant position on the market."

Question of choice

A defeat for Microsoft would force it to make major changes to the way it conducts its business. Mr Anderson says companies around the world which innovate and employ thousands of people will be watching the case closely.

"Leading companies in any country need to have confidence that when they make investments in new products, new technologies, that they will have the ability to recoup the benefit of those technologies," he argues.

The European Commission, in the eyes of many observers, has staked its reputation as an anti-trust regulator on the case.

If the case goes against the Commission, Mr Todd says the real losers will be consumers around the world. "We want people to be able to choose for themselves which products they use on their computers, rather than have it imposed on them by a super-dominant company."

Whatever the decision of the court, an appeal on points of law to the European Court of Justice is all but certain. After all, the parties involved can afford to employ the best competition lawyers in the world.

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