Microsoft in Europe: The Real Stakes 1

By Jennifer L. Schenker

Microsoft's legal battle with Europe's competition regulator will reach a climax on Sept. 17, when Europe's second-highest court, the Luxembourg-based Court of First Instance, hands down a judgment that could determine the future of antitrust policy in the technology sector, as well as the commercial and legal strategy of the U.S software behemoth.

The immediate issue before the court is whether to uphold the European Commission's landmark 2004 antitrust decision against Microsoft (MSFT) or to side with Microsoft in its appeal. But the stakes are much higher than just one case. If the Luxembourg court validates the Commission's order, Microsoft could face a future in which its product design decisions and licensing policies are subject to scrutiny by governments around the world. If the court sides with Microsoft, it could signal the death knell for any serious attempt by policymakers anywhere to rein in the software giant.

The issue is of vital importance in Europe and beyond. Even as both sides have waited for a ruling from the appeals court, a group representing Microsoft rivals, including IBM (IBM), Oracle (ORCL), and Nokia (NOK), filed yet another complaint against Microsoft with the Commission last year. They argue that with the new Vista version of Windows and Office 2007, Microsoft is trying to extend its dominance into even more areas of the market—and threatening the open nature of the Internet.

If the court overturns the Commission's 2004 decision, it would eviscerate Europe's antitrust effort—and likely stop movement on the new complaint. But if the justices affirm that Microsoft employed unlawful business tactics in the past, "the Commission will be empowered to prohibit their use in the future," says Thomas Vinje, a partner at the law firm Clifford Chance in Brussels who represents a coalition of tech companies behind the latest complaint. Microsoft almost certainly will press on, even if it loses: The company is expected to appeal a negative ruling to the European Court of Justice, the highest body in the bloc and final arbiter.
Moment of Truth

Microsoft has been in the crosshairs of European antitrust officials since 1998. In March, 2004, the EU's Competition Directorate, under the leadership of Mario Monti, ordered the company to offer a version of Windows without a built-in, or "bundled," digital Media Player. Microsoft also had to share proprietary technical information to help rival software products communicate better with Windows desktops and servers. And the EC ordered the company to pay a $613 million fine, imposing an additional $390 million penalty in July, 2006, for Microsoft's failure to comply with the technical disclosure remedy.

Microsoft appealed, and now, at last, the moment of truth has arrived. Legal experts familiar with the Microsoft case—as well as with the Court of First Instance and Europe's skimpy collection of antitrust precedents—are deeply divided on the likely outcome. Some predict a split decision, with Microsoft winning on the media player (bundling) component of the case but losing on the interoperability (disclosure) part. One way or another, the Sept. 17 ruling will determine how effectively the European Commission can go forward with legal challenges to companies such as Microsoft and Intel (INTC).

That's critical because even while waiting for the appeal ruling, the Commission has launched an antitrust investigation against Intel (BusinessWeek.com, 7/27/07). On July 27, it issued a "statement of objections" that alleges Intel broke European Union law with the aim of excluding its main rival, AMD (AMD), from the market for the widely used x86 computer chip.