The EU Slaps MicrosoftAgain

The European Commission hit the software giant with another violation, but Microsoft is unlikely to settle the suit anytime soon

Microsoft absorbed another blow in its eight-year dispute with the European Commission when antitrust regulators said on Mar. 1 that the Redmond (Wash.) software giant had failed to make key information about its operating systems available to other software companies at a reasonable price. But the latest action isn't likely to break Microsoft's stride any more than previous decisions from the office of EU Competition Commissioner Neelie Kroes.

Microsoft (MSFT) has racked up $1.8 billion in fines or potential fines with the EU since 2004. Its competitors contend the maker of Windows and Office is willing to absorb the financial hit to maintain its market dominance. Microsoft is appealing the decisions that led to the penalties, as well as the penalties themselves.

Paying to Play

"They'd rather just pay the parking tickets and park where they like," says Thomas Vinje, a lawyer at Clifford Chance in Brussels, who represents the European Committee for Interoperable Systems, an industry group whose members include Adobe Systems (ADBE), IBM (IBM), Nokia (NOK), Oracle (ORCL), RealNetworks (RNWK), Red Hat (RHAT), and Sun Microsystems (SUNW).

Microsoft contends that it's complying with EU orders, or trying to. But Microsoft General Counsel Brad Smith complained that the EU hasn't been clear enough about what it wants. "It is sometimes very difficult to read the tea leaves and know what we're supposed to do," Smith said in a conference call with reporters.

The Commission and Microsoft have been at war since the EU's landmark 2004 antitrust decision against the software maker, primarily over whether Microsoft was in complete compliance with the order. In July, 2006, Kroes—who inherited the case from predecessor Mario Monti—slapped Microsoft with a fine of $356 million and threatened to tack on $3.8 million per day if the Commission remained unsatisfied with Microsoft's response (see, 7/12/06, "One More Hefty EU Fine for Microsoft").

Upping the Ante

The most recent European Commission action, known formally as a "statement of objections," asserts that Microsoft remains in violation of a previous order to set "reasonable" prices for access by third-party developers to roughly 50 protocols that are part of Windows. The protocols make it much easier for other software companies to develop products that work properly with Windows-based PCs and servers.

The Commission maintains that the protocols represent virtually no innovation on Microsoft's part and that only a nominal licensing fee is justified. Microsoft argues that the protocols, many of which are also used in the new Vista and Longhorn operating systems, are valuable intellectual property worth millions. Unable to agree on this point, the battle has drawn to a standstill, so the Commission is upping the financial stakes.

The Mar. 1 action sets the stage for yet another series of hearings and appeals in a case that began in 1998 and shows no signs of ending. Microsoft has four weeks to reply to the statement of objections and can ask for a hearing. If the Commission rejects Microsoft's arguments, as is likely, the company can appeal to EU courts, a process that generally takes years.

War of Attrition

"I don't know if it's to their advantage" to drag out the proceedings, says David Mitchell Smith, an analyst at market researcher Gartner (IT). "But it probably isn't to their detriment."

Meanwhile, there is no longer much competition in the market for server operating systems, except from open-source Linux. There is deep frustration among Microsoft foes at how long the case is taking to resolve and at what they perceive as Microsoft's determination to draw out the case until the underlying issues are no longer relevant. But lawyer Vinje says the group he represents does not plan to give up the fight. "I don't see any signs of white flags," Vinje says.

(For a review of the underlying legal issues in the Microsoft case and its appeal, see, 4/24/06, "A Window into Microsoft's Battle.")

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