Microsoft vs EC: The story so far

Analysis: The software giant has begun its appeal against an EC ruling which saw the company fined hundreds of millions of dollars for breaking competition laws

With Microsoft's appeal against the European Commission's antitrust ruling due to start this week, ZDNet UK looks back over the last two years since the EC handed down its ground-breaking ruling.

It all started on a brisk spring day in March 2004...

Well, actually it didn't. It started more than five years earlier when the Commission started investigating whether Microsoft had violated EU competition rules by abusing its monopoly.

But on that day in March '04, the Commission hammered its stake into the ground, fining Microsoft a record-breaking €497.2m and demanding that it develop a version of Windows without Windows Media Player within 90 days and produce server interoperability documentation within 120 days.

A race against the clock?

So did Microsoft rush off to comply with the judgement. Mmm, not quite. Following the lead of the plucky Oliver Twist in the movie of the same name, it asked the Court of First Instance, "please sir, can I have some more [time]?". Unlike the master of the workhouse, the Court of First Instance was more generous and temporarily suspended the order requiring Microsoft to start offering Windows without a media player.

Microsoft also got busy writing documents that protested its innocence, and started paying off its rivals.  In April, it released a position paper accusing the Commission of creating a new law that could damage all industries across the world.

"The Commission is seeking to make new law that will have an adverse impact on intellectual property rights and the ability of dominant firms to innovate," Microsoft said. "This adverse impact will not be confined to the software industry or to Europe." Overly dramatic? Microsoft given to dramatics, surely not?

Money can't buy you love, but it can buy you friends
A few large companies and organisations had worked with the European Commission in its investigation against Microsoft, including RealNetworks, Novell, Sun and the Computer & Communications Industry Association.

The first of its rivals in the antitrust case to be paid off was Sun. For the princely sum of $1.95bn (£1.1bn), Sun agreed to resolve issues with Microsoft, including antitrust and patent problems.

Later came a $536m settlement with Novell and a comparatively paltry $19.75m deal with the CCIA. RealNetworks held out the longest, but in October 2005 it caved and agreed to a whopping $760m settlement.

'Don't take away our livelihood!'

One of Microsoft's main arguments against the antitrust ruling has been that they are being asked to give away vital intellectual property to rivals. In June 2004 it filed a 100-page appeal to the Court of First Instance, asking it to annul the Commission's fine and measures.

At the time, one of Microsoft's lawyers said: "The Commission's decision undermines the innovative efforts of successful companies, imposing significant new obligations... to license their proprietary technology to competitors, and restricts companies' ability to add innovated improvement to their products."

The company even suggested that customers would be keen to switch from Windows if only they could, and that the lack of interoperable platforms was the only thing stopping them.

"It is this switching cost that has given customers the patience to stick with Windows through all our mistakes, our buggy drivers, our high TCO [total cost of ownership], our lack of a sexy vision at times, and many other difficulties […] Customers constantly evaluate other desktop platforms, [but] it would be so much work to move over that they hope we just improve Windows rather than force them to move. In short, without this exclusive franchise called the Windows API, we would have been dead a long time ago," said Microsoft general manager Aaron Contorer in an internal memo in 1997, according to an EC report on the Microsoft case.

But, I'm sure you're all holding your breath to see what happened in this epic battle. Did the EC get its way and create a happy world where every company has an equal chance of getting their media player installed on Windows, and where any company can create beautiful software that works with Windows servers?  Or, did Microsoft get its way and make sure the poor little rich kid wasn't punished for being too successful?

Be careful what you ask for... you might just get it
Nine months after the Commission ruled that Microsoft should produce a version of Windows without a bundled-in media player, the European Court of First Instance backed up the request.

Microsoft raced off to comply, and after a temporary problem where changes that it made to Windows had the unforeseen consequences of preventing rival players from working properly. [Microsoft: "How were we to know that deleting the files would stop it from working?"], the media player-free Windows was unveiled.

Microsoft bravely bore the disappointment of not being able to name the product, "Reduced Media Edition" — instead being asked by the Commission to call it Windows XP N — and equally bravely bore the disappointment that no-one wanted to buy Windows XP N.

When Windows XP N was released in June, the four largest PC vendors — Dell, Hewlett-Packard, Lenovo and Fujitsu Siemens — said they had no firm plans to install Windows XP N, citing a lack of customer demand. "Give it time," said the Commission. "Don't jump to conclusions."

UK retail chain PC World also said it wouldn't be stocking Windows XP N because it was the same price as the standard version of XP but with less features, and therefore represented worse value to customers. Almost six months after Windows XP N was released, major PC vendors and PC World still have no plans to sell the product. But, the Commission has still got what it asked for — a version of Windows without a bundled media player. Nobody said anything about it having to sell.

Server interoperability ping pong
The Commission also asked Microsoft to produce documentation on the server protocols needed for interoperability. The first version of the documentation was denounced by Samba co-founder Jeremy Allison for charging "monstrous" royalties. Microsoft and monstrous in the same sentence, what a travesty!

The EC came up with a similar, but more tactfully worded complaint, rejecting the proposed licence for its unjustifiably high royalty fees and its exclusion of open source vendors, among other things.

Microsoft generously offered to cut the licence fees, but said it couldn't allow open source vendors to release the source code of products created using the licence because it would impact the "confidentiality of Microsoft's intellectual property". It then started another lawsuit, claiming that the EC was violating its intellectual property rights by requesting that the server protocol information can be used in open source projects.

In the second version of the licence, Microsoft proudly proclaimed that it was offering some server interoperability information free of charge. But an open source consultancy that evaluated this licence said the information offered free was already available and in some cases incorrect. Surely they must have been mistaken though.

Where do we go from here?
Microsoft was granted a hearing in March, which was its final chance to argue why the Commission shouldn't fine it up to $2.4m a day for not complying with the original antitrust ruling. The European Commission is now analysing the information that Microsoft presented at the hearing, and may decide in the next few weeks to fine Microsoft.

But analysts say the prospect of fines is less of a worry for the company, than the risk of another antitrust case against Windows Vista. It looks like the antitrust case against Microsoft could end up dragging on for a few years yet.

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