Beyond Binary

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."

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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.