Microsoft loss in court may punish others

Times Staff Writer

Microsoft Corp.’s defeat in a European courtroom Monday hurt the giant software maker -- and other U.S. companies that dominate their markets could feel the sting too.

Europe’s second-highest court slapped Microsoft for abusing its dominance in computer operating systems, rejecting the company’s appeal of a 2004 antitrust ruling and record $689-million fine. Antitrust experts said Monday’s decision validated the aggressive approach recently taken by the European Union’s competition commission -- especially when compared with the Bush administration’s more hands-off approach to regulating companies that exploit their market supremacy.

And Europe’s importance to American companies guarantees the sharpness of its corporate watchdog’s teeth. The tougher standards will dictate how multinational companies that are dominant in their spheres -- including Apple Inc. in digital music, Google Inc. in Web search and Intel Corp. in computer chips -- compete around the world.


“The case is historic and good news for consumers, not just in Europe but in the United States and worldwide,” said Robert H. Lande, a University of Baltimore law professor and director of the American Antitrust Institute, a consumer-focused think tank in Washington. “Europe is the vigilant cop on the beat, and the United States . . . is strolling around with the nightstick behind its back.”

The European Court of First Instance in Luxembourg sided with competition officials on almost every major aspect of the Microsoft case, which centered around complaints that the software giant’s business practices were designed to squash its rivals.

The court agreed that the Redmond, Wash., company had improperly tied its Windows Media Player to its dominant Windows operating system and refused to adequately disclose software code to other companies so their products would work with Microsoft’s.

But the emphatic confirmation of Europe’s leading role on antitrust enforcement did not go over well with some in Washington.

Thomas O. Barnett, head of the antitrust division in the U.S. Justice Department, criticized the decision, saying it protected competitors rather than competition. He said it could harm consumers “by chilling innovation and discouraging competition.”

Rep. Robert Wexler (D-Fla.), chairman of a House subcommittee overseeing U.S. relations with Europe, promised to hold a hearing on the ruling, which he derided as a “new form of protectionism.”


“I am concerned that American high-tech companies, including Microsoft, are being unfairly targeted by zealous European Commission regulators,” he said. “It would be disastrous if the court’s decision against Microsoft leads to a deluge of new antitrust cases . . . which appear to already be starting.”

Although the ruling has important ramifications for Microsoft -- including the record fine and threats of more if it doesn’t comply -- many of the issues it addresses are less relevant because of technological change.

The complaints behind the case date to 1998, before the rise of the Internet as a major computing platform.

Microsoft’s Windows operating system runs the software that enables people to perform tasks with their computers, giving the company great power to favor its own programs such as e-mail, word processors and music players. But Windows’ importance has been blunted in the last decade because many of those tasks can now be done through online programs accessed through Internet browsers.

As a result, Monday’s ruling isn’t expected to have much immediate effect on U.S. computer users. For example, Microsoft already has been fulfilling one EU requirement by selling a version of its Windows software without the integrated Windows Media Player in Europe. But it has no plans to sell a similar version in the U.S.

Investors shook off the news, sending Microsoft shares down 32 cents to $28.73.

But, in the long term, the EU’s antitrust stance might create challenges for Microsoft’s high-tech brethren, even ones with which it competes.


Cupertino, Calif.-based Apple, Santa Clara, Calif.-based Intel and San Diego-based Qualcomm Inc. are facing investigations into allegations that they used anti-competitive behavior -- and that consumers paid higher prices or received lesser products as a result.

“I think you’re going to have to be nervous,” Ted Henneberry, co-chairman of the European practice group at the law firm Heller Ehrman, said of executives at those companies. “With the ruling as strong as it was, it will leave an open invitation to the competitors of these companies to complain that they are being blocked from being able to compete.”

Neelie Kroes, European commissioner for competition policy, noted that the ruling applied specifically to Microsoft. But she also said that it sent “a clear signal that super-dominant companies cannot abuse their position to hurt consumers and dampen innovation by excluding competitors.”

Nevertheless, Kroes said, the victory was “bittersweet because the court has confirmed the commission’s view that consumers are suffering at the hands of Microsoft.”

Brad Smith, Microsoft’s senior vice president and general counsel, called the decision “disappointing” and said the Redmond, Wash., company had not decided whether to again appeal.

He said Microsoft was “100% committed to complying with every aspect of the commission’s decision.”


Smith said Microsoft had changed its practices, noting the different versions of its Windows XP and Vista operating systems in Europe without Windows Media Player and the company’s work with the commission to share the technical specifications for its communications protocols.

The sharing of those valuable protocols has been an issue in the long-running antitrust case brought by the U.S. government and several states, including California, in 1997, a year before the European case began.

Under a 2002 settlement agreement, U.S. oversight of Microsoft’s business practices is scheduled to end Nov. 12. California and some other states have asked that it be extended. Last year, U.S. District Judge Colleen Kollar-Kotelly agreed to extend oversight until 2009 for technical data related to communications protocols.

Smith said the European court ruling held broader implications for technology companies that dominate their markets, such as Apple and Google.

“The decision quite clearly gives the commission quite broad power and quite broad discretion,” he said.

But Kroes said Microsoft’s market dominance was rare.

“Let me be clear -- there is one company that will have to change its illegal behavior as a result of this ruling: Microsoft,” she said. “Other companies will benefit from increased opportunities to compete, to the greater good of consumers.”


Anthony Woolich, head of competition law at London-based law firm LG, predicted the ruling would not trigger an avalanche of European antitrust cases. But he said it did serve as a warning to companies.

“In the European Union, it is not a problem simply to have a dominant market position. That is not unlawful,” he said. “What can be a problem is if you abuse that dominant position.”