Microsoft Loses Fight Against EU Sanctions
A European judge Wednesday ordered Microsoft Corp. to sell a version of its flagship Windows operating system without a music and video player.
The ruling by Court of First Instance President Bo Vesterdorf marked the first time in a decade of antitrust litigation that the software giant would be forced to make significant changes to a product.
Vesterdorf rejected Microsoft’s request to temporarily suspend the sanctions imposed in March by the European Commission, and the company promised to comply with his order next month. Microsoft said it would charge the same amount for the operating system with or without Windows Media Player.
As a result, manufacturers may start offering their European customers personal computers equipped with a media player from RealNetworks Inc. or Apple Computer Inc. instead of Microsoft’s player.
RealNetworks has paid PC makers in the past to install its player, and it might be willing to pay more if Microsoft’s player is excluded.
“We’re going to do our best to make good on the opportunity,” said RealNetworks Deputy General Counsel Dave Stewart. He declined to predict how popular any PCs with only RealNetworks’ media player might become.
Apple and the biggest PC makers declined to comment.
Unless it fares better in the next step of its appeal of the European Commission sanctions, Microsoft might be forced to take other features out of future editions of the Windows operating system, which powers more than 90% of the world’s PCs.
The European Commission, the administrative arm of the European Union, hopes the upshot will be more competition in the software market.
“We’ve been waiting for this day to know whether Microsoft would be obliged by laws to change its business practices in Europe, and now it will have to,” said antitrust lawyer David Wood of Gibson, Dunn & Crutcher in Brussels. “The difficult question for Microsoft is to what extent.”
Wednesday’s ruling, issued in Luxembourg, could hamper Microsoft’s efforts to woo the entertainment industry as it figures out how to deliver content in a digital age.
Until now, the company could guarantee movie studios, record labels and other content providers that anything they produced in Microsoft’s format could be played on any Microsoft PC.
Without such a guarantee for a third of Microsoft’s market, “there’s at least a chance of competition on the merits,” said University of Baltimore antitrust law professor Robert Lande.
The Court of First Instance president also rejected Microsoft’s plea that he suspend the other penalty imposed by the European Commission, requiring the company to disclose some programming techniques to rivals. Microsoft now must reveal, for a fee, details about how its PC software communicates with its server software for controlling networks and about how those server computers talk to each other.
The disclosures are designed to give such rivals as Novell Inc., Sun Microsystems Inc. and providers of the free operating system Linux a better chance at catching up to Microsoft’s 60% share of the European server market. Sun filed the complaint that triggered the European probe more than six years ago.
On both issues, Vesterdorf held that Microsoft failed to show that the harm it would suffer outweighed the urgency to put the measures in place. Microsoft could follow the terms of the interim ruling while appealing, but Vesterdorf’s decision probably ends the debate about when the remedies will kick in.
A separate court panel will eventually weigh Microsoft’s full appeal.
Microsoft executives Wednesday said the company wanted to negotiate a final settlement with the European Commission that would end the main appeal and remove the uncertainty hanging over the company.
Microsoft has already settled with the U.S. Justice Department and resolved almost every significant private lawsuit brought by rivals, with the exception of RealNetworks.
The company’s dollars might not go as far in Europe. Microsoft lawyers had said previously that they would have the best chance of cutting a deal if Vesterdorf issued a split decision.
European Commission spokesman Jonathan Todd said the body hadn’t made a decision on Microsoft’s renewed offer to talk. It hadn’t been receptive beforehand, he said, and “there is nothing in the wording of today’s decision by the Court of First Instance president to make negotiations more likely.”
Not everyone agreed because the judge determined that Microsoft had an arguable case on the merits on some points.
“There should be just enough to put some self-doubt in the minds of the commission,” said Shearman & Sterling antitrust lawyer Christopher Bright in London. Besides, he said, a settlement would preserve the limited precedent established in the case so far.
“We all think of this case as being Microsoft against the commission,” Bright said. “But it’s to some extent about how the European Commission is going to deal with monopolies over the next decade or even two decades. If the commission loses, its platform is really going to fall away.”
A complete Microsoft victory had been seen as unlikely, and the company’s stock dipped just 10 cents Wednesday on Nasdaq to $26.97.
The most significant long-term questions are whether Microsoft will shy away from bundling more products into Windows and, if it doesn’t, whether the European Commission will intervene again.
Microsoft’s Smith said the company would have to keep the player out of some copies of the next major version of Windows, expected in two years, if the main appeal remained undecided.
Beyond that, he said, Microsoft doesn’t plan to alter its ways.
“If the court had been dismissive of all of our arguments on the merits, that would have been one thing,” Smith said. “But that’s not what the court did. It included a number of statements that are encouraging.”
