March 24, 2004 8:28 AM PST

EU's statement on end of Microsoft investigation

As expected, the European Commission on Wednesday came down hard on Microsoft after a long antitrust investigation.

Regulators imposed a fine of more than $600 million and demanded changes to some of the company's software applications. This is the summary of the commission's ruling:

Brussels, 24 March 2004

Commission concludes on Microsoft investigation, imposes conduct remedies and a fine

The European Commission has concluded, after a five-year investigation, that Microsoft Corporation broke European Union competition law by leveraging its near monopoly in the market for PC operating systems (OS) onto the markets for work group server operating systems(1) and for media players(2). Because the illegal behaviour is still ongoing, the Commission has ordered Microsoft to disclose to competitors, within 120 days, the interfaces(3) required for their products to be able to 'talk' with the ubiquitous Windows OS. Microsoft is also required, within 90 days, to offer a version of its Windows OS without Windows Media Player to PC manufacturers (or when selling directly to end users). In addition, Microsoft is fined ? 497 million for abusing its market power in the EU.

"Dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition on the merits and does not harm consumers and innovation" said European Competition Commissioner Mario Monti. "Today's decision restores the conditions for fair competition in the markets concerned and establish clear principles for the future conduct of a company with such a strong dominant position," he added.

After an exhaustive and extensive investigation of more than five years and three statements of objections(4), the Commission has today taken a decision finding that US software company Microsoft Corporation has violated the EU Treaty's competition rules by abusing its near monopoly(5) (Article 82) in the PC operating system.

Microsoft abused its market power by deliberately restricting interoperability between Windows PCs and non-Microsoft work group servers, and by tying its Windows Media Player (WMP), a product where it faced competition, with its ubiquitous Windows operating system.

This illegal conduct has enabled Microsoft to acquire a dominant position in the market for work group server operating systems, which are at the heart of corporate IT networks, and risks eliminating competition altogether in that market. In addition, Microsoft's conduct has significantly weakened competition on the media player market.

The ongoing abuses act as a brake on innovation and harm the competitive process and consumers, who ultimately end up with less choice and facing higher prices.

For these very serious abuses, which have been ongoing for five and a half years, the Commission has imposed a fine of ? 497.2 million.

Remedies
In order to restore the conditions of fair competition, the Commission has imposed the following remedies:

• As regards interoperability, Microsoft is required, within 120 days, to disclose complete and accurate interface documentation which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers. This will enable rival vendors to develop products that can compete on a level playing field in the work group server operating system market. The disclosed information will have to be updated each time Microsoft brings to the market new versions of its relevant products.

• To the extent that any of this interface information might be protected by intellectual property in the European Economic Area(6), Microsoft would be entitled to reasonable remuneration. The disclosure order concerns the interface documentation only, and not the Windows source code, as this is not necessary to achieve the development of interoperable products.

• As regards tying, Microsoft is required, within 90 days, to offer to PC manufacturers a version of its Windows client PC operating system without WMP. The un-tying remedy does not mean that consumers will obtain PCs and operating systems without media players. Most consumers purchase a PC from a PC manufacturer which has already put together on their behalf a bundle of an operating system and a media player. As a result of the Commission's remedy, the configuration of such bundles will reflect what consumers want, and not what Microsoft imposes.

• Microsoft retains the right to offer a version of its Windows client PC operating system product with WMP. However, Microsoft must refrain from using any commercial, technological or contractual terms that would have the effect of rendering the unbundled version of Windows less attractive or performing. In particular, it must not give PC manufacturers a discount conditional on their buying Windows together with WMP.

The Commission believes the remedies will bring the antitrust violations to an end, that they are proportionate, and that they establish clear principles for the future conduct of the company.

To ensure effective and timely compliance with this decision, the Commission will appoint a Monitoring Trustee, which will, inter alia, oversee that Microsoft's interface disclosures are complete and accurate, and that the two versions of Windows are equivalent in terms of performance.

The investigation
In December 1998, Sun Microsystems, another US company, complained that Microsoft had refused to provide interface information necessary for Sun to be able to develop products that would "talk" properly with the ubiquitous Windows PCs, and hence be able to compete on an equal footing in the market for work group server operating systems.

The Commission's investigation revealed that Sun was not the only company that had been refused this information, and that these non-disclosures by Microsoft were part of a broader strategy designed to shut competitors out of the market.

This relegated to a secondary position competition in terms of reliability, security and speed, among other factors, and ensured Microsoft's success on the market. As a result, an overwhelming majority of customers informed the Commission that Microsoft's non-disclosure of interface information artificially altered their choice in favour of Microsoft's server products. Survey responses submitted by Microsoft itself confirmed the link between the interoperability advantage that Microsoft reserved for itself and its growing market shares.

In 2000, the Commission enlarged its investigation, on its own initiative, to study the effects of the tying of Microsoft's Windows Media Player with the company's Windows 2000 PC operating system.

This part of the investigation concluded that the ubiquity which was immediately afforded to WMP as a result of it being tied with the Windows PC OS artificially reduces the incentives of music, film and other media companies, as well software developers and content providers to develop their offerings to competing media players.



The European Union's sanctions against Microsoft are:

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As a result, Microsoft's tying of its media player product has the effect of foreclosing the market to competitors, and hence ultimately reducing consumer choice, since competing products are set at a disadvantage which is not related to their price or quality.

Available data already show a clear trend in favour of WMP and Windows Media technology. Absent intervention from the Commission, the tying of WMP with Windows is likely to make the market "tip" definitively in Microsoft's favour. This would allow Microsoft to control related markets in the digital media sector, such as encoding technology, software for broadcasting of music over the Internet and digital rights management etc.

More generally, the Commission is concerned that Microsoft's tying of WMP is an example of a more general business model which, given Microsoft's virtual monopoly in PC operating systems, deters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take interest in and tie with Windows in the future.

Note to editors
The European Commission enforces EU competition rules on restrictive business practices and abuses of monopoly power for the whole of the European Union when cross-border trade and competition are affected.

The Commission has the power to force changes in company behaviour and to impose financial penalties for antitrust violations of up to 10% of their annual turnover worldwide.

Commission decisions can be appealed to the European Court of First Instance in Luxembourg.

(1) These are operating systems running on central network computers that provide services to office workers around the world in their day-to-day work such as file and printer sharing, security and user identity management.

(2) A media player is a software product that is able to play back music and video content over the Internet.

(3) The interfaces do not concern the Windows source code as this is not necessary to achieve the development of interoperable products. The interfaces are the hooks at the edge of the source code which allow one product to talk to another.

(4) A Statement of Objections marks the opening of a formal investigation as the Commission states its charges or objections to the company(ies) concerned.

(5) Microsoft's operating systems equip more than 95% of the world's personal computers.

(6) The European Union plus Norway, Iceland and Liechtenstein.

4 comments

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The EU got it all wrong
It is incredible how a 5+ years case could end up like this. The EU trying to build a strong case took too much time to issue an undebatable and unappealable ruling, effectively regulating a past issue.

Considering this, the commision tried to predict the future and set a legal background that will make easier to correct any other wrongdoing the company does.

So far so good, but I imagine an scenario with microsoft becoming a legal "piƱata" for every single thing it bundles in the OS, and its competitors have proven that they can sue to death instead of just minding their business.

And why doesn't anyone sues apple for tying its music player and software to a incompatible format (AAC), this could be possible since apple is the number one online music seller.

Or even better, why doesn't anyone recognize Microsoft for standarizing the PC market, aleviating us from learning three word processors, two OSes, two spreadsheets, etc. How can a company innovate when you have to ask everyone what you can do?
Posted by oguie13 (2 comments )
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Finally?
This should have been sorted long before now, it has taken this long for people to realise how anti-competition Microsoft Truly are?

Anyone think microsoft might bring out a copy of windows that might read mac format floppy disks now?
Posted by (1 comment )
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When Pioneer makes a BetaMax adapter
Windows reading MAC formatted floppies is not necessary as the files can be transferred over the internet without the need for a particular disc format. You can then save to a pc formatted floppy and read on any pc. You can do the reverse to place files from a pc onto a MAC formatted disc. Besides, how many Digital Pictures will fit on one floppy anyway?
Posted by GregSalts (1 comment )
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MS is like the 800 (billion) pound Gorilla
Having worked for a call center that Microsoft helped to go bankrupt by refusing to pay over $2 million that they contractually owed for services rendered and business promised, I know that Microsoft's unfair and illegal anti-competitive behaviour goes far beyond what either the EU or the US courts looked into. They basically said that they would not pay what they had agreed to, to the company I worked for, and several other call centers. The companies could sue them, but their army of lawyers would bury any lawsuits against them.
Microsoft is the proverbial 800 (billion) pound gorilla that thinks they can do what they want, when they want to. And they don't do all that much innovation, they generally steal, purchase or copy the real computing innovations. While XP is their best effort to date, it is still years behind Macintosh in many areas including intuitive ease of use, system stability, security and virus vulnerability (have you installed your weekly security patch yet?). Wasn't it 2 or 3 years ago that Bill Gates said that MS "new" priority was security? Well patch this! and that, and this again...
I have used both Mac and MS operating systems for over 18 years and have always laughed when Windows users would find some "cool, new feature" in the latest version of Windows, that I had been using on a Mac for a few years. Name just one of Microsoft's innovations that they thought of first, designed, created on their own, brought to market first, and is successful.
One accurate way to view MS is that they are a rich, arrogant, very aggressive business that will do anything in their power to get what they want. It is about time that they got their wrists slapped, and with some $50 Billion in cash reserves, the EU's fine isn't going to hurt them.
Posted by brewster_13 (138 comments )
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