November 4, 2002 6:54 AM PST

Microsoft looks to European resolution

WASHINGTON--Microsoft hopes to use its Friday antitrust victory as a starting point for resolving legal troubles in Europe.

In separate actions Friday, U.S. District Judge Colleen Kollar-Kotelly approved, with few changes, a November 2001 settlement between Microsoft, the Justice Department and nine states and then she issued the revised settlement as her remedy in continued litigation brought by nine other states and the District of Columbia.

Her ruling, which University of Baltimore Law School professor Bob Lande described as "basically appeal-proof," is likely to bring the four-year-old antitrust case to an end. But that doesn't mean Microsoft's problems with trustbusters are over.

The European Union's Competition Commission is investigating allegations Microsoft used its dominance in desktop operating systems to gain an unfair advantage in the server software market. A preliminary ruling is expected by the end of year.

On Monday, the EU said it must uphold European law in its own separate probe of the company. Commission spokeswoman Amelia Torres said the EU investigation into alleged anti-competitive practices by Microsoft was factually and legally different from the U.S. case.

"We are currently finalizing our assessment of this case. I cannot predict as to when the commission may be coming to a conclusion," Torres said.

Torres would not comment on statements by Microsoft lawyers suggesting the U.S. outcome should be a template for the conclusion of the EU antitrust case.

Redmond, Wash.-based Microsoft takes the stance that Friday's ruling could help resolve the investigation on the continent.

"The European case is the next closest to this one and the next closest to resolution," said Brad Smith, Microsoft's general counsel. "We do hope that the European Commission will consider (Friday's) decision as a reference point, and we do hope they will weigh this information carefully with everything else they may consider."

Smith also indicated that Microsoft would be willing to resume talks that might bring a quicker resolution to the European antitrust case.

It's hard to gauge what impact Kollar-Kotelly's ruling would have on the European Commission investigation, Lande said. "You have to wonder about the psychological effect on the EU," he said.

Smith was quick not to tie together too closely the two cases, which focused on very different issues. The U.S. case largely examined whether Microsoft had used its dominance in desktop operating systems to thwart Netscape Communications, now owned by AOL Time Warner, in the browser market.

"We wouldn't want to suggest that just because the court on one side of the Atlantic does something, that decision makers on the other side of the Atlantic will necessarily follow suit," Smith said.

Still, the company sees certain aspects of Kollar-Kotelly's ruling--particularly one regarding the removal of so-called middleware code from the operating system--as important reading for European trustbusters.

"The most important part of (Friday's) decision for the case in Brussels is the court's discussion on code removal and its clear rejection of code removal as something that would be harmful to the industry, consumers and the economy," Smith said.

The European Commission expanded its case last year to include media playback software that Microsoft includes with both desktop and server versions of Windows. Microsoft bundles--or integrates--the software into the operating system.

The plaintiff states attempted to similarly expand the scope of the U.S. case, but Kollar-Kotelly rejected the inclusion of so-called middleware technologies such as instant messaging and media playback in her remedy for Microsoft's antitrust violations. The states had asked the judge to compel Microsoft to release a second version of Windows from which middleware could be removed. They did this to address an appellate court finding that Microsoft's "commingling" software code between Internet Explorer and Windows 98 to be an anticompetitive act designed to hurt Netscape.

The plaintiff states sought "to broaden the view of commingling to encompass any circumstance in which operating system code is included in the same files as code that plaintiffs have characterized as non-operating system or middleware code," Kollar-Kotelly wrote in the memorandum accompanying her ruling.

While "plaintiffs have advanced a remedy that requires the removal of Windows source code," they "have been unsuccessful at distinguishing the code which comprises an operating system" from so-called middleware," she wrote.

During testimony at trial, Microsoft Chairman Bill Gates said removing so-called middleware code from Windows would break the operating system.

In another portion of her memorandum, Kollar-Kotelly noted that the plaintiff states presented no economic justification for removing the "non-operating system" code. The judge, in fact, accepted Microsoft's claims that removing the code would cause economic harm.

"That's fundamentally the same test that officials at the European Commission will be considering," Smith said, referring to the potential economic consequences.

But Glenn Manishin, an antitrust attorney with Kelley Drye & Warren in Vienna, Va., questioned the impact Kollar-Kotelly's comments on code removal would have on European trustbusters.

"I think the decision will only assist the EU's analysis if the EU agrees with her conclusions," he said. "It's a factual conclusion whether or not elements can be removed from Windows without hurting the integrity of the product. As a matter of fact, I think the EU is going to make its own judgment."

Analysts wonder if Microsoft might benefit more from recent legal setbacks in Europe than by any impact Kollar-Kotelly's decision might make.

A European Union court recently ruled against the Competition Commission on three merger prohibitions. Those setbacks could change the approach on Microsoft. Those decisions might deter Competition Commissioner Mario Monti "from taking an aggressive interpretation on dominance policy, called market dominance," Manishin said.

The Competition Commission could not be reached for comment.

But Rich Gray, a Menlo Park, Calif.-based attorney closely following the trial, noted that the other cases "were mergers, which follow a very different set of criteria than antitrust cases." Gray wondered if the European Commission might slow its investigation of Microsoft as the agency recoups from its recent losses.

Lande agreed, but only to a point. "Will they take more time to do it right or will they just back off?" he asked.

Reuters contributed to this report.

 

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