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Microsoft Case Goes to Court in Europe

Times Staff Writer

Revealing the inner workings of Microsoft Corp. programs could expose many of the world’s computers to new attacks, lawyers for the software giant will argue this week as they attempt to stave off tough sanctions imposed by European regulators.

The world’s biggest software maker is appealing a March order from the European Commission that would force it to disclose how key programs work and to sell a version of the ubiquitous Windows operating system without the Media Player for audio and video files.

In a two-day hearing that begins Thursday, Microsoft lawyers will ask the Court of First Instance in Luxembourg for a temporary stay of the sanctions while it pursues a complete reversal -- a process that could take years.

The European case is the largest remaining legal problem for Microsoft, which has spent much of the last decade battling antitrust claims.

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In confidential filings, Microsoft has argued that the European Commission wants so much information disclosed to the company’s rivals about how personal computers connect to networks that hackers would be likely to mount new attacks. Microsoft programs already are the favorite target of hackers because they power the vast majority of computers.

Microsoft General Counsel Brad Smith declined to discuss the level of risk revealing more of the underlying computer code could pose. He also declined to say how much it might cost to shore up weaknesses that might be revealed.

“It’s been hard for us to figure out how to talk about them in an open courtroom without saying too much,” he said. “There’s no doubt that it increases the risk to the security of the world’s computers.”

Legal experts said Microsoft stood a good chance of winning this week, in part because two previous European Commission orders that dealt with similar intellectual property questions were suspended pending appeals.

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“Microsoft must have a reasonably high hope and expectation that at least part of the decision will be suspended,” said David Wood, a former antitrust attorney for the commission.

If Microsoft fails, the new rules could take effect immediately.

The punishments imposed by the commission go beyond the restrictions imposed in a 2001 settlement between Microsoft and the U.S. Justice Department, which sued over other violations of antitrust laws.

Under that settlement, Microsoft must grant access to some of its programming techniques and allow computer makers to hide access to -- but not remove -- its media player and Web browser.

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European regulators went a step further when they ruled that Microsoft used its market power to unfairly muscle rivals.

In addition to fining Microsoft more than $600 million -- less than an average week’s sales -- the European Commission ordered the removal of Media Player from Windows. Potentially more damaging for Microsoft, the commission also ordered it to reveal vast amounts about how personal computers running Windows connect with Microsoft software powering larger machines and networks.

The point is to give competing makers of server software, including original complainant Sun Microsystems Inc. and companies that sell Linux, a fair shot, notwithstanding Microsoft’s monopoly on PC operating systems.

In its arguments, Microsoft will raise security issues and point out the success of rivals, including the operating system Linux and Apple Computer Inc.'s iTunes music store.

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Those gains show that Microsoft’s competitors aren’t in urgent need of government intervention, Smith said.

“This market is not tipping in our favor,” he said of the media player business. “More music is being coded in multiple formats, rather than less. There’s no reason to think we will wake up and find that Apple and Sony [Corp.] have left the marketplace.”

Under European law, Microsoft first must show that it has a solid argument against the commission’s decision. Then it has to convince court President Bo Vesterdorf of Denmark that the harm from implementing the ruling is grave and can’t be fixed if Microsoft eventually wins its appeal.

On the disclosure order, “it is not difficult for Microsoft to show it has an arguable case,” Wood said, adding that the company’s claims of irreparable harm are likewise solid. “Clearly, if you give away a secret, it’s no longer a secret.”

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But it will be harder for Microsoft to show that it faces such a serious threat from unbundling the media player, antitrust lawyers said.

“Providing people with choices is not irreparable harm,” said Dave Stewart, general counsel for rival media player maker RealNetworks Inc., which has submitted arguments on the side of the European Commission.

According to people who have seen them, Microsoft’s written filings maintain that independent companies would have to spend more to make their content work with all manner of media players, and that those firms would be unable to recover that expense if Microsoft wins its appeal later on.

The stripped-down version of Windows would have the same retail price as the mainstream version, Smith said. Makers of rival media players might pay computer makers to have their versions included when PCs are shipped.

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Vesterdorf is expected to ask the attorneys for Microsoft and the commission dozens of questions. Unlike court cases in the U.S. and most cases in Europe, the oral arguments and answers can be a major factor in the final ruling, which probably will come within two months.

The judge’s decision can be appealed to the European Court of Justice. But Smith said if Microsoft won at least part of the ruling, he hoped that the commission would return to the negotiating table.

“We have said consistently that these kinds of complex issues are best addressed through settlement,” Smith said.


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