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More Court Dates for Microsoft

By Jay Greene It's bad enough for Microsoft (MSFT) that a European judge ruled on Dec. 22 that the software giant will have to disclose proprietary technical information to rivals and sell a version of Windows with its audio and video player stripped out. But the ruling's real damage is far more subtle. Microsoft had hoped that it would win a modest point, a setback for the European Commission that would bring it back to the negotiating table. But its victory was so sweeping that the EC has little impetus to resume talks. And that means Microsoft will continue to slog this case out in court.

Microsoft lost its bid to delay the implementation of remedies from the EC's Mar. 24 decision that found Gates & Co. violated European competition law. Bo Vesterdorf, president of the European Court of First Instance in Luxembourg, dismissed Microsoft's appeal, saying the outfit failed to show that it would suffer "serious and irreparable damage."

RESIGNED TO NOT TALKING. Microsoft hasn't decided if it will appeal Vesterdorf's ruling. But even if it doesn't, the case is far from over. Microsoft now heads to a panel of judges at the court who'll decide the merits of the case itself, a process that could continue well into 2006.

For now, though, Microsoft will have to comply with the ruling. To that end, it launched a Web site just hours after the decision so rivals that develop operating systems can start the process of licensing the proprietary communications protocols to help their software operate better with Windows. And Microsoft has vowed to make a new version of Windows that doesn't include the Windows Media Player available to PC makers in Europe by January. (The EC also fined Microsoft $612 million, a tab it has already paid.)

As much as the software giant wants to resume settlement talks, it seems resigned to the fact that negotiations aren't on the horizon. Microsoft General Counsel Brad Smith acknowledged that it can't jump-start the talks on its own: "We obviously don't get to control whether discussions take place, but certainly, as we head into the new year, we remain committed to pursuing all constructive dialog."

WHO'S INTERESTED? It doesn't seem like Microsoft will get very far. The EC said the ruling supports its case, and it has no plans to resume settlement talks, which fell apart in early 2004, thus leading to the Mar. 24 decision.

That tosses a wrench in Microsoft's mostly successful efforts to date to put its significant legal matters behind it. Ever since Smith took over as general counsel in 2002, Microsoft has become a settlement machine. It has put nearly two dozen cases behind it, shelling out nearly $5 billion in the process. The European case, along with a private antitrust suit filed by Seattle digital media pioneer RealNetworks (RNWK), remain the two biggest cases pending against the software giant.

However, the ruling may not have a meaningful impact on Microsoft in the short run. The companies most interested in the Windows protocols are those that make competing operating systems. But the business that brought the initial claims against Microsoft to the EC, Sun Microsystems (SUNW), settled with Microsoft and received a license to those protocols as part of that deal. It's unclear how many other concerns are interested in the technology.

REAL CHEERS. The impact of unbundling Windows Media Player from the operating system may be even more muted. Sure, it's the first time ever that a court has told Microsoft what it can and cannot put inside Windows. But Smith acknowledged that Microsoft would charge the same price for both versions of the operating system. That gives computer makers little incentive to sell Windows lite, particularly because they register enormous costs from product-support calls and would likely see those climb as users fumble to try and play music on their PCs or watch a video. Smith said he was unaware of any computer maker expressing an interested in selling a PC without the Windows Media Player.

Even so, the ruling brought cheers from RealNetworks, the outfit whose complaint about digital media technology led to the unbundling remedy. After settling with nearly every legal foe but the EC and Real, Microsoft sought to isolate the duo as inflexible litigants. "This really punches a hole in that," says Real Deputy General Counsel Dave Stewart. And it may knock the wind out of Microsoft's efforts to settle every last bit of significant litigation. Greene is BusinessWeek's Seattle bureau chief

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