Microsoft Takes Softer Line to Dissuade EU

Times Staff Writer

In this city known for international diplomacy, software giant Microsoft Corp. today will launch a campaign of persuasion in an attempt to negotiate itself out of tough antitrust sanctions in Europe.

The European Commission, the executive arm of the European Union, has threatened to fine Microsoft billions of dollars and force it to modify its flagship Windows operating system unless the company can refute "strong evidence" that it unfairly monopolized European markets for computer server and audiovisual software.

The penalties would be the most significant ever lodged against Microsoft, which has battled European and U.S. regulators for years over what critics call its heavy-handed and anti-competitive tactics.

Microsoft will present its case in closed-door proceedings that run through Friday. The company will face representatives from the 15 EU governments. Competitors and customers who claim they have been harmed by the Redmond, Wash.-based software maker will get their say as well.

The commission is expected to issue its judgment in the spring and can impose a fine of up to 10% of Microsoft's global sales. In practice, such fines rarely exceed 1%. Microsoft posted sales of $32 billion in the year that ended June 30.

With the stakes high, Microsoft has departed from the aggressive stance it took in reaching a landmark antitrust settlement with the U.S. Justice Department two years ago. The company's combative chairman, Bill Gates, won't attend the proceedings and Microsoft issued a conciliatory statement signaling its willingness to cooperate.

The statement said the company "remains committed to finding a constructive resolution to the case that addresses any concerns of the commission while preserving the company's ability to innovate and to improve its products."

The sentiments were echoed at a Microsoft shareholder meeting Tuesday.

"We would welcome the opportunity to resolve these things in an amicable way," said Brad Smith, Microsoft's senior vice president for law and corporate affairs.

This week's hearings conclude four years of investigation by the European Commission, and come three years after a U.S. federal appeals court found that Microsoft maintained an illegal monopoly, in part, by bundling its Explorer Web browser into Windows to crush rival Netscape.

The Bush administration reached an out-of-court settlement that allowed Microsoft to keep integrating its Web browser into Windows. That deal required the company to allow computer makers to bundle rival Web browsers with Windows and forced Microsoft to disclose more of the operating system's code to rival software developers.

Last week, a federal appeals court questioned that pact but gave few hints about whether it might impose tougher penalties on Microsoft.

There is less ambiguity in Brussels, where company critics and sources close to the European Commission think Microsoft will face significant sanctions.

Having been judged a monopoly in the United States, "I think Microsoft recognizes that their conduct is such that they are liable under European laws," said Ed Black, a Microsoft critic who is head of the Computer & Communications Industry Assn., a Washington, D.C., trade group that represents several Microsoft rivals.

Black added that, unlike in the U.S., where a presidential election helped Microsoft escape the tough antitrust sanction that had been sought by the Clinton administration, "they don't appear to have the same political tools to undermine a serious remedy here."

Although the sanctions would be tougher on Microsoft than the Justice Department settlement, they would fall short of rivals' calls for a breakup of Microsoft and more extensive disclosures of its Windows software code.

The European Commission proceeding centers on Microsoft's attempts to dominate the market for industrial-strength software for computer servers and the company's bundling of its Media Player audiovisual software into Windows.

The commission wants Microsoft to remove its built-in Media Player from Windows or to include rival players. It also wants Microsoft to disclose more details about Windows' underlying software code to competitors in the computer server market.

Microsoft has invested heavily on digital-media technologies in hopes of making its software the standard for music and movies delivered electronically. Media Player is the most popular audiovisual software in the United States.

Removing Media Player from Windows could complicate Microsoft's efforts in the digital-media market.

Although any order requiring Microsoft to jettison Media Player would apply only to products sold in the EU, Microsoft has argued that creating different versions would be financially burdensome and complex. Europe is the company's biggest single software market, but is carved up by a variety of languages -- all of which require customized versions of software.

"Microsoft will argue that the U.S. cure is sufficient and proportionate and that going any further will be excessive," said Davina Garrod, an antitrust lawyer at McDermott, Will & Emery in London. "They'll amass as much evidence as possible to back up claims that if its intellectual property isn't protected, then its incentive to invest and innovate will be reduced."

Times wire services were used in compiling this report.

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