September 17, 2007 12:21 PM PDT

EU ruling deals setback to Microsoft

A European court dealt a severe blow to Microsoft's competitive ambitions in Europe Monday by siding with regulators in an antitrust case against the company.

In its ruling, the Luxembourg-based Court of First Instance upheld European Commission claims that Microsoft abused its dominant position in the operating system market. Microsoft's allies and competitors have been closely following the case since the Commission imposed antitrust sanctions against the company in early 2004.

The court's decision is expected to have far-reaching implications for consumers, computer makers, Microsoft competitors and, perhaps most pointedly, the Commission's ability to regulate technology companies on antitrust matters, legal experts and industry observers say.

"The court ruling is...welcome for its confirmation of the Commission's decision and its underlying policy, but nevertheless, it is bittersweet," Neelie Kroes, the Commission's Competition Commissioner, said during a press conference Monday. "Bittersweet because the court has confirmed the Commission's view that consumers are suffering at the hands of Microsoft."

Kroes added that should Microsoft comply with the Commission's order, she expects to see a "significant drop" in Microsoft's overwhelming market share.

And while she gave no estimate of how steep she expects that drop to be, Kroes noted that it would likely be more than a few percentage points as more competitors enter the market. Microsoft's Windows operating system runs on about 95 percent of the world's personal computers.

Related video
Court rules against Microsoft
Luxembourg-based court orders Microsoft to share protocols with its competitors and pay a $613 million fine the EC had required.

"A market share less than 95 percent is a way to measure the success (of the order)," she added. A spokesman for Kroes later clarified that a fall in market share would be a logical consequence of fairer competition.

The top antitrust regulator for the Commission also noted that it is "too early" to discuss whether there are any antitrust issues in Vista. But she added that some information may be available "not too far from now."

The 13-member court ruled that the Commission was justified in requiring Microsoft to share certain technical specifications, or protocols, with rivals so their products would work with Microsoft's Windows operating system. The Commission is also requiring Microsoft to offer an unbundled option to consumers when tying together two separate products, such as Windows and the company's Media Player software.

The court also upheld the $613 million fine imposed by the Commission, according to documents detailing the ruling.

Monday's verdict could ultimately force Microsoft to change its business practices, at least in Europe, observers say. It could also embolden antitrust regulators to pursue Microsoft in other countries.

However, the ruling likely will have no bearing on Microsoft's business in the United States. The company settled a long-running antitrust case here in 2002.

Related video
EC reacts to victory against Microsoft
Commissioner calls the ruling bittersweet and expects to see a significant drop in Microsoft's market share if company complies with order.

The U.S. Department of Justice on Monday issued a statement critical of the Commission's decision. "We are...concerned that the standard applied to unilateral conduct by the (Court of First Instance), rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition. In the United States, the antitrust laws are enforced to protect consumers by protecting competition, not competitors," Thomas O. Barnett, assistant attorney general for the department's antitrust division, said in the statement.

Microsoft has not indicated whether it will pursue an appeal of Monday's verdict to the European Court of Justice, the highest court in Europe.

"The decision is not what we had hoped for and to say anything less would be less than candid," Brad Smith, Microsoft general counsel, said during a press conference on Monday.

While acknowledging that the court sided with the Commission on key points, the company took some solace in the fact that the court annulled the Commission's imposition of an independent trustee to monitor compliance, Smith said.

He added that Microsoft has made progress on the interoperability issues, but that more work needs to be done and will be addressed as quickly as possible.

Previously, the Commission believed the pricing Microsoft was going to charge for licensing its protocols was too steep, but the software giant responded by dropping the fee to 1 percent of revenues generated from its products, Smith noted.

"If the European Commission still believes that is still too high, we want to understand (their concerns) and quickly address it," he said.

Microsoft, however, believes it has a "complete and accurate" set of technical specifications that companies have begun to license, and Smith noted that he hopes even more licensees will sign on.

As for Media Player, Smith said Microsoft has offered an unbundled version of its Windows operating system and Media Player for more than two years, and, as a result, believes it is in full compliance with the Commission's 2004 order.

Minor victory
Microsoft took some solace in the minor win the Court awarded it over the Commission's use of a monitoring trustee, Smith said.

As a result of the ruling, Microsoft is not responsible for paying all the costs associated with the monitoring trustee. The court also reined in the power of the trustee, finding that the Commission has no authority to compel Microsoft to grant the trustee powers that the Commission is not authorized to confer on a third party.

Smith emphasized the progress Microsoft has made over the years to comply with the Commission's order and said he remains hopeful the court's order will bring further clarity to the issue.

"We have been working hard over the last few years to address these issues," Smith said. "Everyone agrees, for example, that the version of Windows that we offer in Europe today is in compliance with the Commission's 2004 decision."

Nonetheless, the court chided Microsoft on its behavior regarding interoperability issues.

"The court considers that the Commission was correct to conclude that the work group server operating systems of Microsoft's competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably...the absence of such interoperability has the effect of reinforcing Microsoft's competitive position on the market and creates a risk that competition will be eliminated," the court said in its ruling.

Microsoft and the Commission had particularly contentious disagreements over the issue of interoperability, with Microsoft and the Commission clashing on the extent to which the company's technical information should be shared with rivals.

"The court rejects Microsoft's claims that the degree of interoperability required by the Commission is intended in reality to enable competing work group server operating systems to function in every respect like a Windows system and, accordingly, to enable Microsoft's competitors to clone or reproduce its products," the court said.

CONTINUED: Competitors applaud decision…
Page 1 | 2

See more CNET content tagged:
antitrust, commission, market share, court, European Union

39 comments

Join the conversation!
Add your comment
This "European court...
... along with the so-called regulators in the EU should stop wasting people's time and other resources by trying to focus attention on non International Organisation for Standardisation (ISO) approved products; just when are they going to wake up to real threats (not the U.S. based Microsoft Corporation) such as global warming! How many French citizens and residents died on 9/11? Now, that was a real and present threat! Microsoft should tell the EU to go to hell and pull all of their operations out of the EU market!
Posted by Commander_Spock (3123 comments )
Reply Link Flag
Go ahead Microsoft, make my day!
> Microsoft should tell the EU to go to hell and
> pull all of their operations out of the EU market!

What? And do Europe a favor?! ;-)

Sure, in the short run it would be very painful, but in the long run
they (and the rest of the world for that mater) would be much
better off.
Posted by KonradK (65 comments )
Link Flag
You just don't understand business
All the EU is doing is trying to get Microsoft to offer alternative versions of Windows that don't bundle software like Media Player, Internet Explorer, etc and allow Apple iTunes/Quicktime, Real Player, Opera, Firefox, and others be installed as standard on a new PC build.

It is not about the ISO, and the ISO by the way are corrupt and take bribes from special interest groups to approve standards anyway. It is all about money and running legacy software. Most legacy software runs on the 32 bit Windows platform, but Microsoft has to stop anti-competition practices like bundling software that competes with others out there.

The rest of your statement is political based nonsense, not even worthy of my time to analyze it and tell you how non-intelligent it really is in real life.
Posted by Fake Donald Trump (31 comments )
Link Flag
Commander Spock illogical
Spock says: "when are they going to wake up to real threats (not
the U.S. based Microsoft Corporation) such as global warming!
How many French citizens and residents died on 9/11? Now,
that was a real and present threat!"

Not only is this illogical, but absurd. Let's just let all the
criminals out of gaol because their crimes obviously pale in
significance compared to global warming and 9/11. The
Microsoft case is quite independent of these matters. Because
this is illogical you are obviously not the real Spock... what have
you done with him?
Posted by Ian Joyner (66 comments )
Link Flag
This European Court Done Real Right
Without dredging up digital sources, let's just have very brief look at the (antitrust) litigation filed against MS.

1. Netscape. Where the Bush Administration, the DOJ and the Judiciary practically rewarded MS.
Remember, in one instance, when a fine was imposed on their anticompetitive behaviour, the penalty was that MS would supply to schools THEIR OWN SOFTWARE, to the tune of about $600 million,
thus seeding schools with their software, and getting a giant foothold.

2. Java-Sun negotiatated a settlement, which was MS' intention; let the victim litigate like hell until he the victim gives up.

3. SCO-Linux: MS could not cover their tracks here, there was no doubt that the litigation was driven solely by MS's self interest.

4. Apple-that was a long time, when Windows 95 came out. I think Steve Jobs finally agreed to a negotiated out-of-court settlement.

IBM, at one time, was the king of the digital world. Big Blue was synonymous with IT in the
70s and early 80s. But IBM learnt some hard lessons from from the big bruising antitrust
suits filed against it. IT CHANGED.

Enough to look at a new world-view. Enought to drop some of its businesses closely identified with the company: PCs and laptops. And move to a new business model where it is now the leader in IT Integration, Tech Outsourcing, BPOs, Call Centres, et al. It is today a big champion of Open Source. And Linux.

Microsoft's mindset, unfortunately cannot embrace anything that does not bear the MS tag. If there's any hint of a competitive threat, it works to spread FUD. The systematic campaign, sponsored polls and reports on total cost of ownership (TCO) vis-a-vis Linux, the threat of suing users of Open Source products because they allegedly violated 258 of MS patents, all these
suggest it will be very hard for MS to change.

And, maybe it's too late. Companies like IBM, which have a huge stake in Open Source, will battle Microsoft every inch of the way.

The EU defeat will now tell on MS in other ways. The loss of an affirmative ISO vote for OOXML is now going to be a definite negative one, come
2008, when a final vote is taken.
Posted by bhushan bhaagii (127 comments )
Link Flag
microsoft likely to pull out of Europe - don't think so
I think MS is not unhappy with the (surcharge) money european consumers have to pay for MS software. It's obvious that the "free market" has a problem with pricing of operating systems and software from microsoft. One interesting issue is that the price looks almost the same in the US as in the UK. However there is a dollar-sign in North America and a pound-sign in England. A pound is worth almost two dollars.....To be fair we shall not blame microsoft for the dollar exchange rate - but a similar real price would not be unwelcome.
A question, computer hardware has dropped dramatically in price in the last decade - why has microsoft's productivity not been able to keep prices of software down? (Are indian wages to high :-)
Posted by mikeTheBike (7 comments )
Link Flag
How is this going to reduce market share?
Microsoft as 95% market share for desktop/client PCs, not servers. How will increased competition for "Windows compatible" workgroup server OSes reduce that?
Posted by NickH (127 comments )
Reply Link Flag
A Possible Solution
If the powers that be would really like to stop preditory practices, they have the power to do it. The patent/copy rights are granted by the governments. When an intity uses its monopoly to unlawfully thwart competition, and would pay any find to stop the practices, eliminate the problem. Take their patent/copy rights away.
Micro$oft was basically on trial for using all OS before XP. They weren't complient, they'd rather pay the fine, and continue to be out of compliance. Take their ability away to control the previous OS, they're not supporting them anyway. Anything in those OS would be available to anyone for developement. Anything in the new OS that is not in the old OS would still be protected. Some entity could take say Windows 98 SE upgrade it, sell the upgrade along with a copy of Windows 98 SE which is now available for copy and distribution without Micro$oft's ability to stop it. Walla almost instant competition. to present day Micro$oft.
It would also deter Micro$oft or any other monopoly from abusing an order to cease in desist. Make them more willing to compy with requests from the powers that be. Governments take guns away if guns are miss used, cars, pets, children, why not a patent/copyright? They would only be taking away the protection they afforded to the intities now, not the product.
Posted by Paninteas (18 comments )
Reply Link Flag
Congratulations to EU
Congratulations to the EU for upholding the simple principle that if
you want to do business in the EU you need to obey the laws of the
EU.

If you don't want to obey European laws please take your business
elsewhere.
Posted by Newspeak finder (79 comments )
Reply Link Flag
Which Microsoft should do....
Close all Microsoft offices, sales, support, manufacturing in the EU. Cease sales and support for Microsoft Products except those already licensed and close shop there.
Posted by fred dunn (793 comments )
Link Flag
Backfiring for US competitors
Now it's Microsoft. Regulators in EU now are fully embolded to go after (in order):
- Apple, for the monopoly in MP3 players
- Adobe, for the monopoly in editing tools and formats, and Flash.
- IBM, for monopoly of the last remaining mainframe systems (AS400 anyone?), which are the majority of EU banking backbone.
- Cisco, for monopoly in routers, etc.

And so on..

The trick is to identify what's a market and define the company's share on that. If you cut the pie the "right" way, even Sun, with its pathetic market share, is a monopolist in some area.

These court findings are just the justification EU has now to protect its local technology companies against any international competition through law, instead of quality and inovation, the same way they do with agricultural products, chemicals, etc.
The US companies that sided with EU this time for greed will soon realize that you sometimes should think twice before making your wish...

You might get more than you asked for...
Posted by Considerate One (30 comments )
Reply Link Flag
Partially agree
I am also worried about the long term consequences of the EU
Court ruling, not only for the US, but also the EU, and the rest of
the world for that matter.

On the other hand, this is Microsoft we are talking about and
they have used a lot of unethical business practices to get where
they are today. And their very recent activities (e.g., OOXML)
demonstrates that they must be kept on a tight leash.
Posted by KonradK (65 comments )
Link Flag
Oh Yeah, This just opened the floodgates...
I agree with your assessment in full and it may be that if an american company wants to do business in the EU it needs to spell out in no uncertain terms it's license disrepective of government regulations. If the government or individual cannot or will not agree then we can't do business.
Now it is time to start taking a look at EU exports to the US.
Posted by fred dunn (793 comments )
Link Flag
Oh?
Apple: no monopoly there - iPods play .mp3's and all commercial competitor's files w/o a hitch.

Adobe: Nope - there's more out there than Photoshop and Illustrator, esp. in the pro market ;)

IBM: Mainframes? Well, you need to Add Fujitsu, Amdahl (a subsidiary of Fujitsu now IIRC), and a whole host of other manufacturers in this (by now) niche market. PS: A/S-400's are more or less dead. zSeries and pSeries is what you can direct your bile towards if you'd like.

Cisco? Nope - Juniper runs quite strong out that way on the high end, as does Huawei, with HP , Netgear, and a whole host of other folks on the bottom and middle ends competing just fine w/ Cisco.
Posted by Penguinisto (5042 comments )
Link Flag
EU Antitrust accurate; US compromised
Differences in US and EU antitrust directions shows who can be bought/influenced/compromised.

Microsoft's marketshare hasn't remained so high based on competition and innovation but rather inertia and institutional bad practices.

The market may well provide remedy down the road because geographic wins can only go so far.
Posted by rcardona2k (318 comments )
Reply Link Flag
Well, we have different laws here in the USA
The USA has more of a free market.

You might not understand it, but many people here in the USA believe they should leave Microsoft alone as long as they are not doing anything like burning down the competitor's factories, murdering the competitor's employees, kidnapping their kids, etc.... You know, stuff that's REALLY criminal.

Europe leans more socialist. And, if you're going to do business in the EU, you have to follow the EU's rules.

I doubt any of this is going to have any effect, other than to punish Microsoft and their shareholders. At the end of the day, Microsoft will still have most of the market share, and most Windows users will have Media Player installed.
Posted by DougDbug (62 comments )
Link Flag
The European are showing what suckers they are!!!!
What exactly do they want???? To sell Windows, the media player, etc etc all apart so the consumer should pay double the price he pays now and that the retailer etc should make more profit.......
They are jealous that the Americans dominate the tech industry... So they want to make some money off it and hurt the consumer and big company. What I call "SOUR LOSER"
Posted by Joelieb1234 (8 comments )
Reply Link Flag
topic is about unfair competition
I believe the main reason for this whole affaire is that, right or wrong, Microsoft's programmers making word, excel etcetera - have an unfair advantage against other programmers e.g. at Lotus, Corel and other companies creating similar office applications.
In my mind the best solution, to create fair competition, would be to split Microsoft into one OS company and one applications company. The latter should then have insight into the OS as any other competitor - no less info, no more info.
Also with less links to a, too, dominant player on the market - consumer driven document standards would have easier to survive for the benifit of the consumer - not the producer.
Posted by mikeTheBike (7 comments )
Link Flag
Talk about sore losers...
They already pay more for it over there anyway, so what are you complaining about.

Why should 95% of all desktops in the world be controlled by one huge monopoly? Why do you feel so threatened? Are you a Microsoft shill or what? Is your complaining going to change anybody's mind?

I'm glad to see the wheels of justice flow towards other alternatives consumers can use.
Posted by b8375629 (89 comments )
Link Flag
Case study & wake up call for other courts in developing countries ?
Thank God, at least it gives hopes for a better competitive legal O/S and application software market in developing countries, where Microsoft control of legal software market share is also very dominant, it might abuse its dominant position (take it or leave it) by setting high price in Indonesia and other developing countries.

Consequently, prices of proprietary legal O/S software products can often be more expensive in Indonesia (developing country) than in USA or Europe,for instant in contrast with the price of Mac Donald hamburger or Kentucky fried chicken in global market which follow purchasing power of the people in a country (competitive & fair competition market).
Alternative legal products (GNU, Linux & Open Source) are still scarce and less popular, so many still end up using illegal software (pirated copy) that are readily available in the market.
Strong lobby of dominant players on the IPR and Anti Monopoly law also seen in many developing country such as Indonesia, where dominant position in IPR products issues are excluded from Anti Monopoly and Unfair Competition law, thus monopoly might exist for IPR products, which made the EU court ruling on unfair competition a start and a wake up call for other courts in global competition in many part of the world today.

Hoping it can be used as case study for other courts and countries globally to give fair competition to small players and customer of Microsoft global market dominant products.
Association of community internet center ( APWKomitel - Indonesia)
Posted by Rudi Rusdiah (5 comments )
Reply Link Flag
I sided with the EU based on principle
I hope I get what I wished for. Monopolies are bad for the people of the economy. Monopolies are good for a hierarchical caste system like the US, behooving only the heirs to the vested interests of the monopolistic businesses.

In siding with the EU, I'm agreeing that somebody else has no right to forcibly rob me of my life and work value and provide it to their own kids so their own kids can live a better life than me.
Posted by bcroner (12 comments )
Reply Link Flag
Bottm Line: Is TOO BAD!!!
>>>The ruling likely will have no bearing on Microsoft's business in the United States, however.<<<

I don't see why not. Microsoft has time and again been brought up on anti-trust cases. The only difference is that the EU doesn't have America's legal system on their side.

The legal system that allows unfair anti-trust practices to continue if you throw enough money to the lawyers!

The U.S. needs to learn from this and follow suit and PROOVE this Bottom Line to be false.

Walt
Posted by wbenton (522 comments )
Reply Link Flag
EU ruling, time for you to use something else.
Maybe it's time that Microsoft stops supporting the EU with it's Windows O.S. No more up dates, no tech support-nothing. It's time for the European Commission and anyone else who doesn't like or want Windows to uninstall Windows and go to Linux or Apple.
Posted by fullmoon2u (1 comment )
Reply Link Flag
 

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot

Discussions

Shared

RSS Feeds

Add headlines from CNET News to your homepage or feedreader.