Microsoft: The Hot Ticket in Brussels
By Andy Reinhardt
The setting: A subterranean meeting center in an unremarkable modern building in the heart of Brussels. It's the media-briefing area for the European Commission, decked out with an auditorium, café, lounge, and workrooms fitted with banks of phones, plugs, and jacks. At 11:30 am, it's sparsely populated with people reading the morning papers and sipping cappuccinos. Yet there's an air of tension and anxiety: In 45 minutes, European competition commissioner Mario Monti will announce his decision in the long-running antitrust case against software giant Microsoft (MSFT ).
At 10 minutes before noon, commission staffers wheel out a trolley groaning under the weight of hundreds of copies of press releases. Translated into English, French, German, Spanish, Italian, Portuguese, Swedish, and Dutch, the documents outline the commission's case against Microsoft. Though all the details have long since appeared in the press, the gathering crowd of journalists rushes forward, jostling to grab press releases in the hope of discovering new nuggets of information. Cell phones whip into action.
At noon, the press conference begins. First, 10 minutes of interminable announcements about upcoming briefings, today's visit by a coalition of African leaders, a few scattered questions about topics other than Microsoft. Then Monti enters the room. Photographers rush the stage, their cameras flashing like a fashion show. Monti's spokeswoman asks for calm. After five years of investigation into Microsoft's business practices, hundreds of depositions, and months of negotiations with Microsoft, the moment has arrived.
Monti begins, speaking in English: "The Commission has taken a decision today which finds that Microsoft has abused its virtual monopoly power over the PC desktop in Europe." Based on that finding, says the courtly Italian academic, the Commission has ordered Microsoft to release two versions of its ubiquitous Windows operating system within 90 days. One will include Media Player software, which lets consumers play audio and video files on their computers, and one will not. In theory, this will pry open the market for media-player software and allow rivals, such as RealNetworks (RNWK ) and Apple Computer (AAPL ) a chance to propagate their alternatives to PC buyers.
In addition, Microsoft will be required to disclose within 120 days the esoteric technical specifications that govern the communication between Windows PCs and network computers running Microsoft's server version of Windows. Competitors such as Sun Microsystems (SUNW ) and Novell (NOVL ) had complained that Microsoft's proprietary interfaces made it impossible for their server software to fully participate in networks of Windows PCs and servers.
Recognizing that the interface specifications are Microsoft's intellectual property, the Commission allows that Microsoft will be required to license the information on reasonable terms -- not just give it away. "We're not expropriating Microsoft's intellectual property," Monti tells the audience.
To compensate European consumers for the economic losses they have suffered as a result of Microsoft's behavior, Monti ordered the company to pay a fine of $613 million -- the largest amount ever ordered in a European competition decision. Still, that represents just 1.6% of the company's worldwide revenues last year -- or 8% of its sales in Europe, the Middle East, and Africa. The money will go into the European Union's general operating fund.
Microsoft aims to fight all parts of the decision and has already said it will appeal to the European Court of First Instance in Luxembourg, the EU's second-highest court, as the first step in an appeals process that could drag on for more than five years.
Long before that, Microsoft hopes to convince the court's president, who has sole jurisdiction in such matters, to stay the ordered remedies pending appeal. That could be tough: The hurdle for such "interim relief" is high, and the court president has already affirmed in public statements his disinclination to stay EC decisions. But Microsoft's legal and public relations teams are already hard at work trying to move opinion.
THE CAMEL'S NOSE.
So what, exactly, are the implications of the EC decision? One surprise is that the EC made no requirements concerning the pricing of future versions of Windows. Microsoft will be free to charge the same amount for the version without Media Player as it does for the full-featured version -- which means PC-makers will have scant reason for choosing the lesser version. But Monti's No.2, Philip Lowe, told reporters after the press conference that price isn't the issue. It's about providing market access to rivals that have been shut out, and affording consumers more choice.
Between the lines, it isn't even about the Media Player. After all, most Net-connected PC owners already have more than one media player installed on their PCs. It's about putting a stake in the ground and finding something -- anything -- that regulators can use as an excuse to set a precedent for reining in Microsoft.
The Media Player is just the camel's nose in the tent: The real objective in Brussels was to get a law onto the books that characterized Microsoft as an abusive monopolist. That will give the Commission and private plaintiffs a foundation for pursuing future cases about bundling new software features into Windows. "The principles crafted in this particular case are a framework for the future," explained Monti in an interview with BusinessWeek.
TASTE OF DEFEAT.
The requirement to disclose server interfaces is more troubling. Monti made a point of noting that it has actually gotten harder for non-Windows servers to communicate fully in Windows-dominated networks. Microsoft, he implied, had consciously developed proprietary specifications that exclude rival products -- with no discernible benefit to users.
Yet any requirement to disclose intellectual property faces tough legal hurdles. In several past cases, the Court of First Instance and Europe's highest tribunal, the Court of Justice, have ruled in favor of companies protesting forced sharing of intellectual property. And even if the EC's order stands, international laws may make it difficult for U.S.-based companies such as Sun to use information disclosed to them in Europe in products sold elsewhere in the world.
Still, given the amount of time spent working up this investigation and the painstaking efforts by Monti and his team to build a bulletproof case, Microsoft could be facing its Waterloo.
LONG ROAD AHEAD.
True, the EC's decision is no carte blanche for rivals to knock out every new feature Microsoft adds to Windows -- they'll still have to file cases and adjudicate them through the EU's administrative and legal systems. But the precedent established by the EC is a huge shot across the bow. Going forward, Microsoft will have to more careful when considering which features to add to Windows and how proprietary its internal specifications should be.
As Monti concluded the press briefing, cameramen and reporters mobbed him on stage. Yet he showed no signs of smugness or satisfaction at all the attention. For the world's most notorious trustbuster, today was just the first step in a potentially decades-long process of determining how to apply antitrust law to the rapidly changing global technology industry. The reporters filing out of the briefing may have worn an air of professional nonchalance, but each of them knew they had witnessed an important moment of history.
Reinhardt is covering the Microsoft-EU battle for BusinessWeek in Brussels