Perhaps the next time Brad Smith heads to Brussels, it will be for a vacation.
After years of wrangling with Microsoft, the European Commission announced an accord with the software giant Wednesday on several fronts that seems poised to put an end to its antitrust concerns with Redmond.
Brad Smith
(Credit: Microsoft)In the wake of the announcement, I spoke to Smith, Microsoft's general counsel, about the decision, what it means for the future of Windows, and whether the company sees its spot on the antitrust hot seat now being taken up by other companies, including Google.
Here's an edited transcript of our conversation:
Q: Is this really it as far as Europe is concerned?
Smith: This is definitely a major milestone for Microsoft. Today's announcement reflects a broad set of agreements that really address a wide array of issues. At the same time, we obviously need to keep our eye on the ball. Antitrust issues will continue to be important for us, just as they are going to continue to be important for a number of other leaders in our industry. We're going to have to do an excellent job implementing these agreement. We are going to have to do an excellent job addressing any new issues that arise in the future. Having said all that, I also think it is fair to say, as Commissioner [Neelie] Kroes did when she spoke in Brussels, this does represent the closing of one chapter and gives us the opportunity to open a new chapter. We're definitely enthused about that opportunity and we're committed to ensuring the next chapter is a positive and constructive one.
One of the things that Steve Ballmer talks a lot about in terms of antitrust issues is getting legal clarity on what one can and can't do. Do you feel like you now have that understanding with the EU?
Smith: I think this gives us a great deal more clarity. I think it gives the industry as a whole more clarity. It's perhaps most helpful in the area of interoperability because it really implements a new framework. It applies to a broad array of Microsoft products--Windows, Windows Server, Exchange, SharePoint--and for all of these products it has certain principles that we have to adhere to. It addresses the way we implement file formats.
At the same time, no advance on any single day can ever answer all questions for all companies for all time.
Essentially the EU has said through its very objections that you can't put a media player in Windows and you can't put a browser in Windows. What do you feel Microsoft can include in future versions?
Smith: There are two things to think about. First is what gets included in Windows, and second, what's the right way to address something that is included.
Our basic approach is to include in Windows, software that has APIs (application programming interfaces) that will be beneficial for other applications to call on and use. The browser is definitely an example of that. It's quite probably even more important in that role today than it was, say, when the browser issues first arose in the 1990s. The media player plays a similar role in terms of some broad APIs that are used by a wide variety of other applications.
There are other things that we have put in Windows in the past that don't necessarily involve the same role. A good example of that is Windows Live Messenger. We had Windows Messenger in Windows XP. It's not in Windows Vista or Windows 7 We're trying to make thoughtful decisions about what is included.
Then the second question that arises is how do things get included. How do we document APIs that our browser is using so that other browsers can use them as well? That's part of the U.S. consent decree.
How do we ensure that [computer makers] have flexibility to offer competing choices? How do we ensure that consumers are aware of competing choices and can use them if they wish. That latter part is an area where different governments have chosen different approaches at different times. The U.S. Department of Justice chose one approach in its consent decree. The Korean Fair Trade Commission chose a second approach. The European Commission in the media player case in 2004 chose a third approach. Today's announcement on the browser reflects the European Commission choosing a fourth approach.
Some people have the opinion that as a result of these different antitrust issues, Microsoft really finds itself with one hand tied behind its back as it competes in the battles of today. Do you believe Microsoft in the current antitrust environment competes on an even footing with some of the other Internet giants?
Smith: I do believe it is very important for all technology leaders in our industry to follow the same laws and obey the same rules. The rules don't necessarily apply in the same way when a company has a small market share as it does when a company has a large market share. But there are a number of companies that have large market shares for very important products. We've taken a number of steps to get into line with new legal rules in this field. The law has evolved and we've needed to evolve to address these new obligations.
We do believe our competitors need to play by the same rules. They've often been at the forefront of asking regulators to evolve the law in new directions. Now that the regulators have done so, we believe they need to pay attention as well.
Do you anticipate a period of time over the next few years where Microsoft is more likely to be the subject of antitrust inquiries or the company on the other side of the table for a change?
Smith: I think that we have addressed a very wide array of issues. Perhaps, in part because we were the first company to have to go through these inquiries, at least since the dawn of the PC era. We've probably had to go farther and sooner than other companies have had to do. We're now in an era where a different company seems to be in the headlines for competition law issues, if not every day, at least every month.
I think that what we are going to see in the next decade is this field of law being applied to a wide number of technology leaders that have high market share. We're going to see that, not only in Washington and Brussels, but we're likely to see that in more countries around the world simply because the global economy has evolved.
Have you expressed concerns specifically to Europe or Washington, D.C., about some of Google's behaviors?
Smith: We were very transparent last year when Google entered into its agreement with Yahoo. We felt that that was an illegal agreement that Google had entered into for the sole purpose of preventing Microsoft from becoming a more successful competitor, together with Yahoo, in the search space.
It was only when the Department of Justice informed the parties that it was on the verge of filing suit that Google decided to drop that agreement. We have not been shy about raising concerns when we have them.
It was only a couple hours after you guys settled with Brussels that we heard from D.C. with regards to Intel. When you initially heard that the FTC was filing suit against Intel, did you have feelings of empathy toward what their lawyers are going through, or what were your initial reactions?
Smith: I obviously know from a lot of firsthand experience the challenges that arise when a company needs to address these kinds of issues. Our road was a long one and it had its share of difficult moments. Antitrust issues are never easy for company to address.
This isn't a case where Microsoft has taken a public stance or even voiced to the regulators a position, is it?
Smith: We have not taken any public or nonpublic positions on the issues.
Are you guys looking to reach an agreement with Plurk? You guys said that you used code you shouldn't have? I'm curious if you are trying to negotiate some sort of settlement with them?
Smith: I wouldn't want to say anything that goes beyond the public statement we put out.
It does seem when I look at any particular issue with regards to the Internet, Microsoft tends to have a much more cautious approach. It seems like it is tough to compete when others are bundling more than you.
Smith: I think our goal is to be thoughtful but also fast-moving. As we look at the Internet today, it is increasingly a regulated space. That wasn't the case a decade ago. I think a thoughtful company needs to really think through how its products and services are going to comply with the regulations that are going to be enforced or likely to be applied in many different countries around the world. At the same time, one cannot let that get in the way of moving forward quickly. I think it's striking that balance that is really quite important. One needs to move fast. One shouldn't move faster than speed of thought and yet one shouldn't be so thoughtful that one simply analyzes problems and fails to solve them.
Do you think Microsoft has erred a little too much on side of caution in recent years?
Smith: I don't know that we've erred too much on the side of caution, but I do think it's extremely important we move quickly. This is a very dynamic space it is certain to remain a very dynamic space. Customers are interested in deploying new products and services, whether it is on the client, on the server, or on the cloud. The real key is to develop the capability to be both thoughtful and fast moving.
Microsoft met a deadline this week to respond to European Commission charges that its inclusion of a browser in Windows violates antitrust laws there.
In January, the European authorities filed a new complaint with a preliminary finding that Microsoft had broken the law by bundling a browser into Windows.
Microsoft's response was not made public and the company did not offer a comment, but it's fair to say the company disagrees with the finding.
The stakes are high. In addition to potential fines, Microsoft has noted in regulatory filings that European authorities may seek to force Microsoft to include rival browsers with Windows as well as forcing the company to disable parts of Internet Explorer for users who select a different browser.
In other Microsoft news, the company has hired Cyrus Krohn as director of online services programming, a new position reporting to MSN executive producer Scott Moore. He will start on May 4, Microsoft said.
Most recently, Krohn served as director of the eCampaign division for the Republican National Committee and was at Yahoo from 2005 to 2007. Krohn also worked at Microsoft from 1996 to 2005 in various capacities, including as publisher of the online magazine Slate.
Meanwhile, as noted by CNET colleague Jessica Dolcourt, Microsoft has started talking about a new version of its Tellme program for Windows Mobile. Microsoft is counting on Tellme's voice technology to help make its upcoming release of Windows Mobile 6.5 a more compelling experience.
The software is available now for phone makers to start including in their devices and will be available this fall for consumers to download.
While European regulators are showing a continued interest in regulating Microsoft, the Obama administration may have its sights set elsewhere.
In a speech in June, the woman nominated to be the new administration's antitrust chief said that Google, not Microsoft, is the big competitive worry.
"For me, Microsoft is so last century. They are not the problem," Christine Varney said at a June 19 panel, according to Bloomberg News, which unearthed the comments this week. In the same speech, Varney said that Google poses a threat because it already "has acquired a monopoly in Internet online advertising."
Obviously, those comments were made long before Obama's victory and her nomination, so it's not exactly administration policy. That said, it seems unlikely that Obama would have picked her if he was looking for someone to go after Redmond.
Varney, who has been working as a partner at the law firm Hogan & Hartson, did not return a call from Bloomberg News seeking comment. White House spokesman Ben LaBolt told Bloomberg News that the president nominated Varney "to vigorously enforce the law" and "is confident that she can do so in a fact-specific and evenhanded way with every matter she will face."
It's not as if Varney is a blind Microsoft loyalist, either. Bloomberg noted that Varney once lobbied the Clinton administration on behalf of Netscape urging antitrust action against Microsoft.
But, Varney said, times have changed. She pointed to Google as the current threat with its monopoly in online advertising. That position, though lawfully obtained could give the company too much control over the emerging world of cloud computing, she said in the June speech.
"When all our enterprises move to computing in the clouds and there is a single firm that is offering a comprehensive solution," Varney said, again according to Bloomberg. "You are going to see the same repeat of Microsoft."
Unfortunately for Microsoft, Varney's updated world view has not taken hold in Europe, which last month issued a preliminary finding that the inclusion of a browser within Windows violated its antitrust laws. Microsoft cautioned in a regulatory filing last month that Europe might force Microsoft to distribute multiple browsers with Windows and perhaps even disable some Internet Explorer code if a user selects a different browser.
The European Union is considering forcing Microsoft to distribute rival browsers as part of Windows, the software maker disclosed in a regulatory filing this week.
As part of its quarterly filing with the Securities and Exchange Commission filed on Thursday, the software maker offered more details on the EU's statement last week that it believes Microsoft's inclusion of a browser in Windows violates antitrust law.
Microsoft said that the EU is considering forcing computer makers, known as original equipment manufacturers, or OEMs, to offer multiple browsers with new Windows PCs.
"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 said in the SEC filing. "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."
Microsoft also noted that the EU is also seeking to "impose a significant fine based on sales of Windows operating systems in the European Union."
The company reiterated that it will have the opportunity to respond in writing in the next two months and, after that, could also request a hearing.
And that's not the only area where Microsoft faces further EU action. Microsoft confirmed that an investigation into Office may still be ongoing.
"In January 2008, the commission opened an additional competition law investigation that relates primarily to interoperability with respect to our Microsoft Office family of products," Microsoft said. "This investigation resulted from complaints filed with the commission by a trade association of Microsoft's competitors."
In a case of convenient timing, Opera Software's top developer happened to be in CNET's office just after Microsoft disclosed that the European Union has objected to Microsoft's bundling of a Web browser into Windows.
"We think it is right of the EU, for the sake of the consumers, to be concerned about someone potentially misusing their competitive power," Chief Development Officer Christen Krogh told CNET News. The EU action stems from a 2007 complaint by Opera.
Krogh said the Internet is too important for consumer choice to be limited. Developers of software and services, he remarked, shouldn't have to "attach them to something which is proprietary."
The fact that Microsoft's market share has dropped, he said, doesn't ensure that true choice will win out. "There has been more competition before," he said, referring to the Netscape and pre-Netscape days. "Fair competition does not necessarily prevail. We still think whenever a platform has a sufficiently high market share, it should be open and easy for consumers to choose their component to access the Internet."
Even if IE's market share drops to below 60 percent in Europe, Krogh said, "we think that is sufficiently high to be concerned."
Krogh's comments were echoed by other Opera executives in a statement provided by the company.
"On behalf of all Internet users, we commend the Commission for taking the next step towards restoring competition in a market that Microsoft has strangled for more than a decade, wrote Jon von Tetzchner, Opera's CEO. "The Commission's Statement of Objections demonstrates that the Commission is serious about getting Microsoft to start competing on the merits in the browser market and letting consumers have a real choice of Internet browsers."
Opera noted that it follows the same principles applied by the EU in 2004, when it held that Microsoft could not tie its media player to Windows and ordered the software maker to offer a version with the media player stripped out.
"The Court of First Instance's judgment was clear that Microsoft illegally tied Media Player to Windows," said Jason Hoida, deputy general counsel at Opera. "We are not surprised that the Commission has issued a Statement of Objections based on the principles in that judgment. We are confident that the Commission will ultimately conclude that Microsoft has violated European competition law again and that it will take all necessary actions to restore competition and consumer choice in this important market."
The European Union's new complaint against Microsoft really takes one back. Like, a decade or so.
Its objection--that bundling a browser into the operating system violates antitrust law--is the same one that U.S. regulators raised in 1996.
The newest allegations stem from a 2007 complaint by Norway's Opera that Microsoft was hurting competition by including Internet Explorer in Windows and by not better adhering to Web standards.
What is most odd about the EU taking up the issue is its timing. The EU spent years going after Microsoft on antitrust matters related specifically to its bundling of products with Windows and didn't focus on the browser. Plus, the move comes as Microsoft's browser share is at its lowest point since the Netscape days.
Firefox is particularly strong in Europe, the area over which the EU has oversight. According to XitiMonitor, IE had a 59.5 percent share in Europe as of November, compared with 31.1 percent for Firefox. Opera had about 5 percent, and Safari half of that. Microsoft lost a full 5 percentage points of market share since April alone.
That doesn't mean that Microsoft will have an easy time in Brussels. As it has shown in the past, the EU is willing to take a tough line with Microsoft, and it is not averse to fining the company and issuing harsh decrees.
David Anderson, an antitrust attorney and partner with Berwin Leighton Paisner in Brussels, said that Microsoft may well face a challenge ahead in persuading the Commission to set aside its preliminary assessment, saying the commission tends to review matters thoroughly before issuing such "statements of objections."
Further he noted that the commission staff may feel emboldened after having won its previous case against Microsoft. It also has the same set of attorneys that worked on that case pursuing the IE issue, Anderson said.
Microsoft is choosing its words carefully at this point, electing not to go beyond a statement that is more procedural than confrontational. But I can only imagine the words being used behind closed doors in Redmond.
In defending itself, Microsoft will find itself against one particularly familiar foe. Opera's chairman, William Raduchel, is a longtime Microsoft critic, dating back to his time at Sun Microsystems, which brought antitrust actions of its own against Microsoft before eventually settling.
For those who need a refresher course in the browser wars, Netscape had the dominant program in the Web's early days, controlling more than half the market as late as 1997. By 1999, though, Microsoft's IE had more than three-fourths of the market.
It has held the dominant position ever since, accounting for greater than 90 percent of the market through 2004, when Firefox began to make serious inroads. Its share has been on the decline since, according to Net Applications.
Microsoft's browser had an 87 percent share in 2005, but by 2007, its share had dropped to 79 percent. Last year alone, IE's market share dropped from 75 percent in January to 68 percent by December.
CNET News' Dawn Kawamoto contributed to this report.
LOS ANGELES--Despite having just been hit with a record fine, Microsoft CEO Steve Ballmer said Wednesday that his company is actually in full compliance with European regulatory demands.
"This is not news today," Ballmer said in an interview with CNET News.com. "We are in compliance, they agreed we are in compliance. This is a fine for activities that pre-date the compliance activities that Ms. Kroes talked about last fall. It says there was a past transgression and they assessed a fine for that past transgression."
Microsoft's big bid for Yahoo
However, Ballmer stopped short of saying that Microsoft's regulatory hurdles were behind it.
"I think as a company with a big market footprint, we will constantly be looked at by regulators in all parts of the world," he said.
Ballmer said that Microsoft did know the fines were coming when it made its big interoperability announcement last week.
"We knew it was pending," Ballmer said. "We didn't know it was this week, but we knew it was coming at some point."
As for Yahoo, Ballmer had little new to say. He declined to say what Microsoft's next step would be. "If there's news, I'm sure you guys will be the first to know."
Asked whether he was surprised it has taken this long. "Many acquisitions, they take this long," he said.
Finally, he declined to say outright whether Apple's enterprise news next week will include an announcement that it has licensed the right to connect directly to Microsoft Exchange servers.
"We don't comment specifically about whether they're a licensee, but certainly it would be consistent with our interoperability principles to enable Apple to do that work," he said.
I'll have more Thursday on what Ballmer had to say on other topics, such as the economy, Apple, and Google, among other issues.
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