Microsoft weighs options after EU defeat

Updated: Microsoft said Monday it will take the necessary steps to comply with a European Union ruling after an appeal court gave the software giant a stinging defeat. Now Microsoft will have to share code with rivals to ensure interoperability.

Specifically, The EU's second highest court backed a European Commission ruling that Microsoft abused its power to thwart rivals. The biggest issue: Whether Microsoft has to share code to make software interoperable (see Techmeme).

European regulators issued an antitrust ruling in 2004 that Microsoft hurt consumer choice by tying new applications to Windows. The 2004 decision ruled that Microsoft must offer a version of Windows without media player software and also provide interface information for the server operating system to competitors.

Microsoft had appealed in a long-running dispute with the EU, which had fined the software giant $689 million. The case dates back to 1998. According to UBS analyst Heather Bellini, Microsoft has already paid $1 billion in fines.

In a statement, Neelie Kroes European Commissioner for Competition Policy, said the following:

The Court has confirmed that Microsoft cannot regulate the market by imposing its products and services on people. The Court has confirmed that Microsoft can no longer prevent the market from functioning properly and that computer users are therefore entitled to benefit from choice, more innovative products and more competitive prices.

In confirming the interoperability part of the Commission’s decision, the Court has confirmed the importance of interoperability for consumer choice and innovation in high tech industries. If competitors are unable to make their products "talk to" or work properly with a dominant company's products, they are prevented from bringing new innovative products onto the market, and customers are locked into the products of the existing provider. Consumers want interoperable products, and companies that want to meet consumers’ demands should be able to provide them. In this case, the Court has confirmed that Microsoft has to make available indispensable interoperability information on reasonable and non-discriminatory terms to allow competitors to make workgroup server products that work properly and on an equal footing with Microsoft products. Consumers have a right to the increased choice and innovation, and the decreased prices that competition brings. Competition in this market requires interoperability. Companies should not practice interoperability only where they are forced to compete in a particular market, because that increases its chances of winning market share.

Microsoft can appeal on points of law, but not the facts of the case.

Microsoft General Counsel Brad Smith tread carefully, noting that the court was "objective" and that the company needed time to read the complete ruling. If Microsoft needs to change business practices it will, said Smith.

In a press conference, Smith said Microsoft was "100 percent committed to complying with the European Commission's decision." Smith added that some issues will have to be worked out. For instance, European regulators have said the prices Microsoft charges for communications protocols--1 percent of revenue of the product using it--are too high. Trade secrets are another issue that has to be weighed, said Smith.

Smith added that he was heartened by European regulators decision to allow Microsoft to sell a full version of Windows in Europe. Microsoft also sells a Windows N version, which doesn't include a media player.

Here's what Smith had to say in a statement:

It is nonetheless clear that the court has agreed with the Commission on a number of the Commission's points, and I do want to simply start by expressing our gratitude to this court for the lengthy consideration that it gave to these issues. These are obviously complicated and important topics, and we appreciate all of the objective and thorough work that went into the decision that was issued today.

We appreciate the court's judgment on the trustee issue and the monitoring mechanism, an issue where the court agreed with us, and yet I would be the first to acknowledge that I don't think anyone would say that is the most important part of this case or this decision.

It's clearly very important to us as a company that we comply with our obligations under European law. We'll study this decision carefully, and if there are additional steps that we need to take in order to comply with it, we will take them.

It will take us a little bit of time, at least over the next few hours, to read the decision carefully, but certainly that is one of our strongest convictions as we go forward.

We have been working hard over the last few years to address these issues. Everyone agrees, for example, that the version of Windows that we offer in Europe today is in compliance with the Commission's 2004 decision, and I'm also gratified that we were able to have the kinds of constructive discussions with the European Commission last year that enabled us to bring to market Windows Vista in conformity with the Commission's 2004 decision.

In addition, there's obviously a lot of work that has gone into our efforts to comply with the Commission's terms with respect to communications protocols and our duty to license them, a duty that obviously was reaffirmed by the court's decision today. We've made a lot of progress in that regard, and yet we all have to acknowledge that there are some issues that do remain open.

As we read today's decision more carefully, we're hopeful that some aspects of it may add some clarity that will help us all implement these remaining parts of the decision. And as I said, if we need to take additional steps in order to comply with today's decision, we will do so.