European Court Upholds Microsoft Antitrust Ruling

Published November 1, 2007

The European Court of First Instance in Luxembourg in September upheld a 2004 European Commission (EC) decision finding Microsoft illegally leveraged its dominance in PC operating systems (OS) when it bundled its Windows Media Player application with its Windows OS software.

The court left intact a $613 million penalty, the EC’s largest, roughly equal to about 3.3 percent of Microsoft’s global operating income in its past fiscal year. Additional fines and penalties could reach $2.1 billion. The court also upheld the EC’s order for Microsoft to share elements of the Windows server software code in order to improve the performance of competitors’ software in environments where the two must operate together.

Different Standards

The ruling brought into high relief the different standards U.S. and Europe regulators use for antitrust, and it is of note because the plaintiffs in the case are mostly U.S. companies that failed to get their case heard on this side of the Atlantic.

In Luxembourg, European prosecutors focused largely on Microsoft’s 95 percent market share and charged it had leveraged its market power to compete in other software segments such as media players. Prosecutors did not demonstrate that leverage actually hurt consumers.

The court apparently disregarded the fact that Microsoft’s version of Windows without Media Player, which the EC ordered the company to supply across the continent, sold few copies, suggesting popular satisfaction with Microsoft’s bundled product.

“Microsoft made Windows Media Player available for free and got fined a billion dollars for it,” said David Kopel, research director for the Denver-based Independence Institute. “When you think of music, media, and movies on the Internet, you don’t think of Microsoft. You think of Apple and Real Networks.”

Nonetheless, EC Competition Commissioner Neelie Kroes told reporters consumers are “suffering at the hands of Microsoft,” saying she hoped the decision would force a “significant drop” in Microsoft’s OS market share.

Licensing Requirement

In the second part of the case, the court also agreed with the EC’s earlier ruling that found Microsoft had abused its position by refusing to license elements of its Windows server software to competitors such as Sun Microsystems and IBM. The EC ordered Microsoft to license the software code to those who requested it.

“This decision marks the start of a dark period for [information and communications technology] companies–large or small–with a high degree of uncertainty around the protection of their intellectual property [IP],” said Jonathan Zuck, president of the Association for Competitive Technology, in a press statement.

“The precedent will threaten the ability of any successful company to protect its innovations,” Zuck continued. “The conditions under which Microsoft will be obliged to give away its IP-protected information will be the key to gauging just how bad this is for the technology start-ups who depend on the value of their IP.”

Government Intrusion

Microsoft maintained its competitors were not seeking interoperability with Windows as much as they were looking to duplicate its complete functionality. Throughout the case, Microsoft attorneys maintained the EC was confusing interoperability with interchangeability.

Kopel said the decision reflects the protective nature of European regulators and their penchant for centralized industrial policy to slow the pace of disruptive change. “There’s still a feudal mentality geared toward protecting companies and sectors in a way U.S. antitrust law doesn’t,” Kopel said. “Companies with cases that would be laughed out of court in the States go to Europe to reduce competition.”

In a statement, Lars Liebeler, antitrust counsel for the Computing Technology Industry Association (CompTIA), agreed.

“This decision encourages competitors to bring legal action against each other rather than compete aggressively in the marketplace,” Liebeler said.

“Rather than focus on fundamental principles of consumer choice and market economics,” Liebeler continued, “the court has made clear that government officials will play a central role in determining the contours and direction of technology markets and the design of products in those markets even if that involvement is contrary to consumer wishes.”

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.