Blue Bubble could blow Monti’s legacy

For Microsoft's top lawyer, Brad Smith, the stakes were high last week as the company sought to overturn the European Commission's 2004 anti-trust ruling at the Court of First Instance in Luxembourg.

"The outcome of this case is critical not only for Microsoft, but for future innovation in our industry. Companies need to have confidence they won't be forced to hand over their valuable intellectual property to their competitors," Smith said at the end of the five-day hearing.

But after 13 judges, led by the court's President Bo Vesterdorf, had listened to around 40 hours of presentations and replies to questions, it remained unclear whether the court would back Microsoft or the Commission.

The world's largest software company was trying to convince the court that Mario Monti had been wrong in his ruling against the company in 2004, when he was a competition commissioner. Monti concluded that the company had abused the near monopoly position of its Windows PC operating system to shut out rivals in the server and media player markets. He imposed the largest single fine in the history of EU antitrust cases, �497 million and ordered Microsoft to offer a version of Windows without its own brand of audio/media player and provide information to allow rivals to develop products to interoperate with its servers.

But it was possible to draw some conclusions from the hearings. First, it was clear that the remedy imposed by the Commission on the media player issue had not been effective. The Commission had argued Microsoft, by pre-installing Windows Media Player (WMP) as the default player in Windows, had unfairly limited potential market share for rivals like RealPlayer. It ordered Microsoft to offer a version of Windows without WMP. The company complied, developing an alternative called Windows XP N. But, as many had warned at the time, by not forcing the company to offer the stripped-down version at a lower price, there was no incentive for consumers to opt for the version without WMP. At the hearing Microsoft announced that none of the major PC-makers (who account for the vast majority of machines bought and for whom pre-installed software packages are an essential incentive to customers) had ordered XP N.

Only 1,787 copies of the WMP-free version have been sold to retailers and many of these are still sitting in warehouses, the company said. By comparison, Microsoft sold 35.5 million copies of the full version of Windows over the same period.

But it is the question of interoperability that has become the central focus of the case. As part of the remedy, the Commission ordered Microsoft to ensure that rival software makers could develop products which could interoperate or run smoothly with Microsoft's workgroup servers. Micro-soft argues that what the Commission told it to do would infringe its intellectual property rights by forcing it to hand over "trade secrets" to its rivals.

Microsoft illustrated its point at the hearing with a picture of the 'Blue Bubble' within which there are stacks of servers that are constantly communicating to maintain services such as databases and file directories.

The company's technical experts and lawyers argued that the workgroup server network within the bubble would not work if one removed a Windows server and tried to install a rival's machine. Providing the data required to enable this would allow rivals to develop a clone of the Windows product, Microsoft said. Nor was it possible to combine other workgroup servers such as those from competitors such as Sun Microsystems and Novell, company representatives said.

But this view was contested in one of the most powerful presentations given last week. Andrew Tridgell, creator of the Samba open source server software, said that systems such as Samba and Unix could work together without problems. He said that Microsoft had withdrawn from efforts to ensure interoperability of different systems in the late 1990s, once it believed it had a product that could corner the market.

The court's verdict is expected around a year from now. While its leanings are difficult to fathom, it is clear that the stakes for Microsoft are huge. Losing would threaten its global business model based on adding more and more new products and features to updated versions of Windows, such as Vista, due out in 2007.

For the Commission, losing the case would be a serious blow to its credibility as an antitrust regulator and a rejection of its attempt to ensure that Microsoft could not repeat its past predatory behaviour.

Major analysis feature on a week-long hearing at the European Union's Court of First Instance (CFI), Luxembourg, 24-28 April 2006, in a case brought by Microsoft against an antitrust ruling by the European Commission in 2004. The Commission had imposed a fine on Microsoft of € 497m and told it to open up its systems to rival companies. Author suggests that it was not possible at the time to predict the ruling in the case which was expected to be made around 12 months from the hearing.

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