Updated at 8:33 a.m. PST January 17, with comments from Opera and antitrust attorneys in Brussels.
European regulators notified Microsoft it believes the software giant is in violation of the region's antitrust laws by bundling its Internet Explorer browser in Windows, the company said Friday.
The European Commission, which received a complaint in 2007 from rival browser developer Opera that Microsoft was using its market dominance in bundling IE into the Windows operating system, opened its investigation into the tying issue last January.
According to a statement issued by the European Commission:
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 percent 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.
The Commission is concerned that through the tying, Microsoft shields Internet Explorer from head to head competition with other browsers which is detrimental to the pace of product innovation and to the quality of products which consumers ultimately obtain.
In addition, the Commission is concerned that the ubiquity of Internet Explorer creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer which ultimately risks undermining competition and innovation in the provision of services to consumers.
A spokesman for the commission declined to comment on whether there has been any discussion on whether Microsoft would offer a version of Windows with the browser and one without, much like it did after the Commission ordered it to separate its Windows Media Player from its operating system and offer a version with and without the operating system.
A spokesman for Microsoft declined to comment, noting it would not make statements beyond its press release.
Microsoft, in response to the Commission's statement of objections, said:
We are committed to conducting our business in full compliance with European law. We are studying the Statement of Objections now.
Microsoft will have two months to respond in writing to the European Commission's objections and also will be given an opportunity to request an oral hearing. After assessing Microsoft's written and/or oral response, the commission will issue a final decision on the matter, which could include a fine, an enforcement order, or a remedy.
Microsoft, meanwhile, further noted in its statement that the commission indicated in its "statement of objections" that the remedies put in place by the U.S. courts in 2002, following antitrust proceedings in Washington, D.C., do not make the inclusion of Internet Explorer in Windows lawful under European Union law.
In reacting to the commission's objections, rival browser maker Opera applauded the move.
"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.
Antitrust attorneys in private practice in Brussels said the commission's "statement of objections," is not a light matter and is likely to pose challenges for the software giant.
David Anderson, an antitrust attorney and partner with Berwin Leighton Paisner in Brussels, said, "The commission's continued pursuit of Microsoft's tying of its operating system to Media Player and now Internet Explorer sends a clear signal to dominant companies in Europe: the commission is serious about exclusionary tying and bundling."
Anderson added, however, that if the commission ultimately requires Microsoft to offer a version of Windows with and without IE bundled in, pricing will play a key role.
The commission won the battle but lost the war on its Media Player order, said some antitrust experts. Microsoft was able to offer versions of Windows with and without the Media Player for the same price and, as a result, computer makers and users loaded the Windows version with the Media Player.
But while pricing may be a key issue if the commission opts to require Microsoft to unbundle IE, European antitrust regulators may be reluctant to demand such an order because it would require them to set pricing, and enforce and monitor adherence to the order, Anderson said.
One well-informed antitrust lawyer in private practice in Brussels said the commission would not likely require Microsoft to unbundle IE from the operating system, since that remedy did not work well with the Media Player.
Instead, the commission may consider proposing that Microsoft offer more than one browser with its operating system, noted the antitrust attorney.
And although some antitrust attorneys say they expect similar tying cases to arise with the commission and Microsoft, this antitrust attorney disagrees.
"The commission will only go after the really important applications that result in platform monopoly maintenance, in the long term," said the antitrust attorney.
The attorney cited Microsoft's Windows, IE, and Office, as well as its server operating software, as examples of a platform monopoly. And, more recently, the attorney said Microsoft is looking to the Internet as its next platform for Web applications that will be made dependent upon Windows to run and look their best.
The European Committee for Interoperable Systems raised the same issue, noting in a statement:
By tying Internet Explorer to Windows and using proprietary IE standards, and making Web applications and Web content dependent on Silverlight and .Net, Microsoft seeks to establish itself as the Web's gatekeeper.
Meanwhile, Anderson noted that Microsoft may also face an emboldened commission staff, given the same set of attorneys who won the Media Player case before the European Court of First Instance are the same ones overseeing the IE issue.