April 22, 2004 12:21 PM PDT

EU report takes Microsoft to task

A record fine imposed on Microsoft in Europe last month arose from the longstanding nature of the software company's anticompetitive practices, according to a massive report from European regulators.

The European Commission's 300-page document says the more than five-year duration of those practices pushed the fine to 497 million euros--now about $590 million--well above what Microsoft would have been charged simply on the basis of its business practices.

Special coverage
EU plays hardball
with Microsoft

European regulators tell the
software maker to unbundle
Media Player from Windows
and pay a record fine.

"The amount of the fine to be imposed on the basis of the gravity of the infringement should therefore be increased by 50% to take account of its duration. On that basis, the base amount of the fine is EUR 497,196,304," the document says.

The report is a full account of the investigation by the European Commission, the executive arm of the 15-nation European Union, into the way Microsoft sells software, and had been expected, since regulators announced their decision in March. That ruling found that the Redmond, Wash., company had failed to give rivals information that they needed to compete fairly in the market for server software and that it had been offering the Windows operating system on the condition that it come bundled with Windows Media Player, stifling competition.

The commission made the document available publicly Thursday at the end of its workday. Some of the findings from the report were first published by the online edition of The Wall Street Journal.

Responding to the report, which it had seen before the public release, Microsoft posted a seven-page paper to its Web site that aimed to portray the company as the victim of overreaching regulators. The paper called the March ruling a "new law" and cited both the ruling's potential to cause damage and its alleged legal shortcomings.

The commission's reponse to the Microsoft paper was terse.

"This is a decision the commission has taken. We will be explaining our decision in court and not in the press," Amelia Torres, a spokeswoman for the agency, said Thursday.

Microsoft intends to appeal the remedies outlined by the regulators, taking the legal battle to Europe's Court of First Instance.

"As our document points out, the commission's decision will have an adverse effect on consumers, the technology industry and many other sectors by stifling innovation," said Jim Desler, a Microsoft spokesman. The company also maintains that the size of the fine is excessive.

Much ado about Media Player
The March ruling gave Microsoft 90 days to provide a version of Windows without Media Player, although it can also continue to provide a version that includes the media software. Thursday's document offered additional details on that mandate.

"The remedy applies to Windows licensed directly to end users and licensed to (computer makers) for sale" in the European Union, the report stated.

Microsoft would be required to offer an operating system without Media Player that would perform as well as the bundled version of the Windows. It would be prohibited from offering a Media Player download link without also providing a similar link to its competitors' players.

"Microsoft must not give OEMs (original equipment manufacturers) or users a discount conditional on their obtaining Windows together with WMP (Windows Media Player)...or otherwise, remove or restrict OEMs' or users' freedom to choose the version of Windows without (Media Player)," the report said.

The commission also prohibited Microsoft from shipping Media Player with another Microsoft product--such as its Office software suite--that is dominant in its own market much as Windows is among operating systems.

"Without this exclusive franchise, called the Windows API (application programming interface), we would have been dead a long time ago."
--Aaron Contorer, C++ general manager, Microsoft, in a 1997
e-mail drafted for Bill Gates
The EU document also offers historical insight into Microsoft's business and how company executives viewed the software maker's market position. For instance, it notes that Microsoft withheld information from rival Sun Microsystems on the issue of interoperability.

In September 1998, Richard Green, a Sun vice president, wrote a letter to Paul Maritz, a Microsoft executive vice president, in which Green requested from Microsoft "the complete information required to allow Sun...to provide native support for the complete set of Active Directory technologies on Solaris."

Sun's request encompassed the specifications for certain protocols used by Windows work group servers. Although Maritz responded that the information was already available to Sun and other software developers via the Microsoft Developer Network and that relevant source code could be licensed from other sources, the commission found that Microsoft withheld information.

"Microsoft has acknowledged a number of specific instances of interoperability information that fall within what was requested in Mr. Green's letter and that Microsoft refuses to provide to any work group server operating system vendor," the report states.

As a result, the commission's remedies call for Microsoft to provide complete and accurate disclosure of protocols used by the Windows work group servers to provide file, print, group and user administration services to Windows work group networks, according to the report. The protocols should be shared with competitors at about the same time Microsoft releases its products to beta testers, the order said.

In addressing the future development of Microsoft products, the commission also said it preferred to define the scope of the relevant protocols, based on generic services such as file and print rather than on specific versions of products.

The commission notes that its remedies do not require Microsoft to share its own source code.

An "exclusive franchise"
The report also includes a memo written for Microsoft Chairman Bill Gates by C++ General Manager Aaron Contorer in 1997 that describes one of the reasons why he felt Microsoft's Windows operating system was becoming a must-have product for client PC vendors.

Contorer wrote that end users stuck with Windows, despite the operating system's shortcomings, based on the high costs of abandoning heavy investments already made in APIs.

"The Windows API is so broad, so deep and so functional that most ISVs (independent software vendors) would be crazy not to use it. And it is so deeply embedded in the source code of many Windows apps that there is a huge switching cost to using a different operating system, instead," the e-mail reads.

"It is this switching cost that has given the customers the patience to stick with Windows through all our mistakes, our buggy drivers, our high TCO (total cost of ownership), our lack of a sexy vision, at times, and many other difficulties," the e-mail said. "Customers constantly evaluate other desktop platforms, (but) it would be so much work to move over that they hope we just improve Windows rather than force them to move."

The Contorer e-mail continues: "In short, without this exclusive franchise, called the Windows API, we would have been dead a long time ago."

In making its conclusions on the bundling of Microsoft's media player with its operating system, Mario Monti, the head of the European Commission's competition bureau, said: "The commission does not purport to pass judgment as to the desirability of one unique media player, or set of media technologies coming to dominate the market. However, the manner in which competition unfolds in the media player market, which may or may not bring about such a result, is of competitive concern."

The commission alleged Microsoft has a "clear incentive" to achieve a strong role in the media player market, which would serve as leverage in propagating its stake in proprietary media formats and technologies for its server software efforts, as well as bolster its relationship with content developers.

"It has been shown that what Microsoft presents as the benefits of tying (its media player to its OS) could be achieved in the absence of Microsoft tying WMP with Windows. As regards (the) other benefits identified by Microsoft, they primarily relate to Microsoft's own profitability and, being furthermore disproportionate to the anticompetitive effects in the market caused by the tying, cannot therefore serve as a valid justification," the commission said.

Michael Parsons of ZDNet UK contributed to this report.


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Well, well....now the TRUTH about M$
What will all those Microsoft HACKS (like Thurott and the like)
have to say now that it's evident that Windows really does suck
and you have all been duped by the big monopoly?

Bring out the Kool-Aid (bondi blue).
Posted by Dr Dude (49 comments )
Reply Link Flag
Big Blue Cult Member?
I have not been brain washed by the Big Blue Cult Association so here is a differnet perspective.

Is it against the law to sell a new car with a radio at no charge? Do you have to keep the factory radio? Can you install a second radio? Can you replace the factory radio completely?

Name one thing, man made, that is perfect and lasts forever.

Dupped??? Get over it dude........
Posted by (4 comments )
Link Flag
You're full of it
If anything this report shows just what a socialist nightmare the EU really is. They're intent on bringing everyone down to the lowest common denominator. Perhaps it's not Microsoft that sucks, but companies like Real Media and Sun Microsystems who want to use the courts to compete rather than making a better product (I've used Solaris, and it's trash). People started ditching Real Player when it was found that it was spyware. Not mention the way the installation program was designed to hide opt-in for ads etc so if the user didn't carefully read and check every button they'd get a ton of stuff they don't want. If you want people to use your product you can't treat them the way Real has/is. I have WMP on my system but that didn't stop me from download Apple's QuickTime (the standalone version no the one that comes with iTMS) and Winamp. I know several people who have done the samething.
Posted by unknown unknown (1951 comments )
Reply Link Flag
Solaris trash?
My Solaris machine has *never* crashed in over 4 years. My Windows machine crashes at least once a week (and more often than not, more than that). I am running XP Pro, but have had the same fundamental reliability problem with W2k and NT on a variety of different hardware. Even the free Linux OS is considerably more reliable (one or two crashes per year) than Windows.

You may have used Solaris, but you have absolutely no clue what you are talking about.

Posted by (1 comment )
Link Flag
Another joke of a lawsuit.
Lets fine microsoft 500 million dollars because some people dont know how to install Media Player. You can uninstall it - get over it. And you dont even have to install it. Sure Internet Explorer is more embedded - but who wants to use Netscape anyway - the poor cousin of the browser world. Again, if i wanted to use it, i would install it.

There has always been a CD player in Windows, since way back in the 3.1 days. The fact this is coming up now is because no competitors can make an acceptable program. Real player, WinAmp and the rest are riddled with spyware. And if i did want to use something else i would download it.

Lets all punish microsoft for having good software, that is easy to use.

As for it being unreliable - maybe it is the user not the software. i have been using XP for between a year and 18months, and never had a problem. I work in the IT dept and load more crap software on my machine for testing purposes, than most people could name.

Next thing we know - there will be complaints about Office - after all Microsoft has bundled word, excel powerpoint, outlook and Access all together.
Posted by Scrowshaw (25 comments )
Reply Link Flag
Why should office be bundled???

If all I need is a word processor, then indeed why should I pay for Excell, Powerpoint and all that other stuff. If I go to a shop to get a hammer, I don't expect that I have to buy a saw and glue along with it. Same goes for Windows, if I don't need IE, media player, movie maker, MS JVM, ... Why paying for it. Sure MS says it's for free, but those apps also need development, the guys that write the stuff also need to be paid. So it IS included in the price I have to pay for the bloated XP I got pre-installed on the PC I bought (I could even choose not to have it at all)

And for the spy/ad-ware in other apps, that is just what this is all about. MS monopolises the market in such a way that the only way for companies to make a living is to do this.
Winamp also needs to be developed, the people that develop it also need to get paid. But if they cannot charge for their product because MS offers a similar tool for free, then adware is perhaps the only way to go for them.
As a result of that the user is unhappy, because he is installing adware, so he ditches the software, as you did with Realplayer, so no business for the company.

And M$ wins again...
Posted by Steven N (487 comments )
Link Flag

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