Microsoft

Microsoft met a deadline this week to respond to European Commission charges that its inclusion of a browser in Windows violates antitrust laws there.

In January, the European authorities filed a new complaint with a preliminary finding that Microsoft had broken the law by bundling a browser into Windows.

Microsoft's response was not made public and the company did not offer a comment, but it's fair to say the company disagrees with the finding.

The stakes are high. In addition to potential fines, Microsoft has noted in regulatory filings that European authorities may seek to force Microsoft to include rival browsers with Windows as well as forcing the company to disable parts of Internet Explorer for users who select a different browser.

In other Microsoft news, the company has hired Cyrus Krohn as director of online services programming, a new position reporting to MSN executive producer Scott Moore. He will start on May 4, Microsoft said.

Most recently, Krohn served as director of the eCampaign division for the Republican National Committee and was at Yahoo from 2005 to 2007. Krohn also worked at Microsoft from 1996 to 2005 in various capacities, including as publisher of the online magazine Slate.

Meanwhile, as noted by CNET colleague Jessica Dolcourt, Microsoft has started talking about a new version of its Tellme program for Windows Mobile. Microsoft is counting on Tellme's voice technology to help make its upcoming release of Windows Mobile 6.5 a more compelling experience.

The software is available now for phone makers to start including in their devices and will be available this fall for consumers to download.

Google wants to help the European Commission prove antitrust charges against Microsoft related to the software giant's dominance of the Web browser market.

The Web search giant, which recently released its Chrome Web browser, announced Tuesday that it is applying to be a "third party" in the European proceedings, which will entitle it to receive access to confidential documents in the case and the ability to voice objections. Sundar Pichai, a Google vice president for product management, explained the company's reasoning in a company blog:

Google believes that the browser market is still largely uncompetitive, which holds back innovation for users. This is because Internet Explorer is tied to Microsoft's dominant computer operating system, giving it an unfair advantage over other browsers. Compare this to the mobile market, where Microsoft cannot tie Internet Explorer to a dominant operating system, and its browser therefore has a much lower usage. The value of competition for users (even in the limited form we see today) is clear: tabbed browsing, faster downloads, private browsing features, and more.

The request follows the EU's recent decision to grant third-party access to Mozilla, the organization behind the popular Firefox browser. Mitchell Baker, Mozilla's chair, voiced concerns similar to Google's--that tying IE to the Windows operating system harms competition for Web browsers and reduces consumer choice.

The Commission, which is the European Union's executive arm, formally put Microsoft on notice in mid-January, objecting to the bundling of the Internet Explorer browser with the Windows operating system. The Commission's decision, which initially stemmed from a complaint filed by rival browser maker Opera, gave Microsoft two months to respond to the allegations, and also opened the case up to third-party involvement.

Microsoft's share of the browser market has been declining steadily during the past year, largely due to Firefox's growing popularity. In January, IE controlled 67.55 percent of global browser market share, a drop of more than 7 percentage points in a year, according to Web metrics company Net Applications. Meanwhile, Firefox gained more than 3 percentage points to 21.53 percent.

Apple's Safari rounds out the top three with 8.29 percent of the browser market. Google's Chrome browser, launched in September 2008, has 1.12 percent of the market, having overtaken Opera in November. Opera's share of the market now stands at 0.7 percent.

This is not the first time Google and Microsoft have locked horns on antitrust issues. In 2006, the search giant expressed concern over Microsoft embedding Web search functionality into its Vista operating system. Microsoft ultimately agreed to make changes to the desktop search feature to head off a further antitrust battle with U.S. regulators.

Google also opposed Microsoft's failed bid to acquire Yahoo, saying it raised "troubling questions."

Microsoft recently opposed Google's proposed ad-sharing deal with Yahoo, which Google ultimately abandoned in the face of antitrust scrutiny.

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."

Note: Below is the text of a press release from the European Commission regarding Microsoft's tying of Internet Explorer to the Windows operating system.

Brussels, 16th January 2009

Antitrust: Commission confirms sending a Statement of Objections to Microsoft on the tying of Internet Explorer to Windows

The European Commission can confirm that it has sent a Statement of Objections (SO) to Microsoft on 15th January 2009. The SO outlines the Commission's preliminary view that Microsoft's tying of its web browser Internet Explorer to its dominant client PC operating system Windows infringes the EC Treaty rules on abuse of a dominant position (Article 82).

In the SO, the Commission sets out evidence and outlines its preliminary conclusion that Microsoft's tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice.

The SO is based on the legal and economic principles established in the judgment of the Court of First Instance of 17 September 2007 (case T-201/04), in which the Court of First Instance upheld the Commission's decision of March 2004 (see IP/04/382), finding that Microsoft had abused its dominant position in the PC operating system market by tying Windows Media Player to its Windows PC operating system (see MEMO/07/359).

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% 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.

Microsoft has 8 weeks to reply the SO, and will then have the right to be heard in an Oral Hearing should it wish to do so. If the preliminary views expressed in the SO are confirmed, the Commission may impose a fine on Microsoft, require Microsoft to cease the abuse and impose a remedy that would restore genuine consumer choice and enable competition on the merits.

Background

A Statement of Objections is a formal step in Commission antitrust investigations in which the Commission informs the parties concerned in writing of the objections raised against them. The addressee of a Statement of Objections can reply in writing to the Statement of Objections, setting out all facts known to it which are relevant to its defence against the objections raised by the Commission. The party may also request an oral hearing to present its comments on the case.

The Commission may then take a decision on whether conduct addressed in the Statement of Objections is compatible or not with the EC Treaty's antitrust rules. Sending a Statement of Objections does not prejudge the final outcome of the procedure.

In the March 2004 Decision the Commission ordered Microsoft to offer to PC manufacturers a version of its Windows client PC operating system without Windows Media Player. Microsoft, however, retained the right to also offer a version with Windows Media Player (see IP/04/382).

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.