End game looms for Microsoft, EU

Court of First Instance ready to rule on antitrust issues

A European court is set to rule Monday on the monumental nine-year battle between Microsoft and European Union regulators. It's a ruling that could affect the entire software industry's future.

The Luxembourg-based EU Court of First Instance will rule on Microsoft's appeal against the European Commission's March 2004 decision that Microsoft had unfairly abused the market dominance of its Windows operating system to muscle out rivals.

The commission — the EU's antitrust authority — fined Microsoft €497 million ($685 million) in 2004 and ordered the software giant to change its Windows package to make it compatible with rival systems. With 95% of the world's computers using Windows, the ruling will be studied far beyond just Microsoft and provide a reference in future European antitrust cases, particularly ones in the fast-changing world of information technology.

The court ruling hinges on two issues. The first is the question of whether Microsoft was attempting to abuse its dominant position in the software market by including its own music and movie-playing Windows Media Player in its operating system. Microsoft's opponents say that it forced computer-makers to choose the WMP if they wanted to run Windows on their machines — shutting Microsoft's competitors out of the market.

The second issue is that of interoperability, or the extent to which servers created by different companies can communicate with one another's operating systems. The commission's 2004 decision said that Microsoft was deliberately withholding key information that servers depend on to talk.

Lawyers say the two issues are fairly distinct, and a court decision to uphold one element would not necessarily affect the other. However, the issue of interoperability has more financial repercussions for Microsoft. Last year, the commission ruled that it had still not complied with the 2004 decision, and fined it a further €280.5 million ($389.4 million) for failing to disclose the critical information fully and at a reasonable price.

Microsoft says the issue revolves around whether innovative companies can continue to reap the rewards of their research and development. It claims that releasing server interoperability codes would allow competitors to copy its products, thereby benefiting from its own research efforts and infringing its copyright.

"It will determine under what circumstances market-leading companies can improve their products for consumers," said Erich Andersen, vp and associate general counsel for Microsoft in Europe.

However, commission officials say this is a smokescreen, as the software industry as a whole believes that interoperability codes should be freely available.

"The issue here is whether Microsoft should be able to regulate the market from a super dominant position, or whether the market should determine which products should gain access to consumers," EC spokesman Jonathan Todd said.

"It is no exaggeration to say that the IT industry's future development depends on the outcome of this case, because it will determine whether the IT industry develops according to the Microsoft model or to a competitive model," said Clifford Chance partner Thomas Vinje, who heads the legal team of the European Committee for Interoperable Systems.