Microsoft in Europe: The Real Stakes 2

Slow-Moving Regulators

In recent years, the European Union increasingly has taken on the role of global regulator for the tech industry, filling the vacuum left behind as the U.S. Justice Dept., under the Bush Administration, took a much less active role in pursuing antitrust cases. The EU push continues under Competition Commissioner Neelie Kroes, who replaced Monti in 2004. Analysts say the outcome of this case will determine if the Commission's Competition Directorate has the legal toolkit to enforce antitrust law in the complex and fast-changing technology business.

Indeed, many observers complain that regulators and courts are far too slow ever to be effective at shaping tech competition. During the years Microsoft has squared off with the EU, its market share in server operating software has grown to more than 70%, while Windows still holds a 93% share of desktop operating systems and Microsoft Office commands a 97% share of personal productivity applications.

That's why rivals are prodding the EC to go after Microsoft again. They argue that Vista and Office 2007 demonstrate a longstanding strategy by Microsoft to eliminate alternative platforms that threaten its market control. "Microsoft continues to protect and extend its monopolies through bundling and selective denial of interoperability information," says attorney Vinje, who represents the group of tech companies going after the software giant in the latest protest. Besides IBM, Oracle, and Nokia, the coalition, which filed its complaint as the European Committee for Interoperable Systems, or ECIS, includes Sun Microsystems (JAVA), Adobe Systems (ADBE), RealNetworks (RNWK), and open-source software maker Red Hat (RHT).
Antitrust Decision's Weaknesses

The ECIS argues that the European Commission should take action to restore competition in the server market and preserve the open-source operating system Linux and the Internet as alternative computing platforms. If it doesn't, the risk is that much of the world will be locked into using Microsoft software for the next 10 years, says Carlo Piana, a partner at Milan law firm Tamos Piana & Partners who represents the Free Software Foundation Europe, an industry group that champions open-source software.

Brussels antitrust lawyers say it is possible the new complaint will go forward even if the Commission loses on several counts on Sept. 17. The EC's 2004 decision does have some potential weaknesses, say antitrust lawyers. The remedy to fix Microsoft's Media Player monopoly failed miserably, for instance: The EC forced Microsoft to sell a version of its Windows operating system without Media Player software bundled in—but only a few thousand copies of the stripped-down version were ever sold. And RealNetworks, despite the ruling, became irrelevant in the media player market.

Another problem is Microsoft has negotiated private settlements with five of the major rivals who supported the original European case: Time Warner (TWX), Sun Microsystems, Novell (NOVL), the Computer & Communications Industry Assn., and RealNetworks. That means all the evidence submitted by companies such as RealNetworks was stripped from the record before being submitted to the Court of First Instance.
Appeal Possible from Either Side

The court could, in fact, rule against the Commission on procedure, fact, or remedy. What is essential for the Commission is that the legal grounds for its decision are upheld. Without that, it may lack the legal precedent—and gumption—to proceed with new cases.

Microsoft is hoping for victory, of course, though it couches its ambitions in diplomatic language. "This isn't really a question of win or lose," says spokesman Tom Brookes. "Microsoft hopes it will get clarity on some of the big questions regarding what its responsibilities are, and hopes that will form a basis for a constructive conversation with the regulators and with the industry so we can all move forward."

Either side has two months and 10 days to appeal the judgment of the Court of First Instance to the European Court of Justice. If that happens, it is likely to take at least another 18 months for a final decision to be reached.

Schenker is a BusinessWeek correspondent in Paris.