War or peace? Microsoft mulls response to defeat

The boundaries of EU antitrust law shifted decisively this week (17 September), with a resounding victory for the European Commission in its long-running battle against the most powerful IT company in the world.

The Court of First Instance ruling on Microsoft’s appeal against a 2004 Commission decision mandating changes in business practices and imposing a record €497 million fine was stunningly clear. The Commission won hands down on the two principle elements of the case, namely product bundling and code sharing.

Under the Commission’s 2004 ruling, Microsoft had been forced to release a version of the Windows operating system without Windows Media Player and to share code with rivals that would permit communication with Microsoft networks. The company’s failure to comply with the latter requirement has been an ongoing bone of contention. After issuing warnings about the pricing of technical information that had repeatedly been deemed inadequate, the Commission slapped a further fine of €280.5m on the company last year.

Microsoft’s general counsel, Brad Smith, put on a dignified performance in the wake of his company’s crushing defeat. Having congratulated European Competition Commissioner Neelie Kroes on the morning of the court ruling, he expressed Microsoft’s willingness to comply with the Commission’s 2004 decision. "It’s not our desire and it’s not our goal to have continuous arguments and disputes," he said, when asked if Microsoft would be appealing against the court’s decision.

Whether the company will go on to appeal remains unclear. As Smith himself signalled, alluding to Woody Allen’s famous quote on speed-reading War and Peace in 20 minutes and concluding it involved Russia, Microsoft will have to go through the 248-page judgement with a fine-tooth comb before making any decisions.

His early observation, however, on the need to discuss "a number of things not spelled out explicitly in the ruling" seemed to point to further tussles ahead.

Outstanding issues on the interoperability front, chiefly on the pricing of "over 800 pages of technical specifications that cost millions to develop" could take a while longer to resolve. Microsoft’s strong views on the protection of its trade secrets is unlikely to change overnight.

Lost in the commotion over the larger elements of the case, there was a small victory for Microsoft over the matter of the independent trustee which the Commission had ordered to oversee Microsoft’s compliance with the 2004 ruling. The court annulled the requirement. "We appreciate the court’s judgement," said Smith, "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."

Kroes emerged triumphant as head of what is now being proclaimed the world’s top antitrust authority. At a packed press conference, she claimed victory for consumer choice and innovation. Her assertion that the victory was "bitter-sweet" given the court’s confirmation of consumer suffering at the hands of Microsoft seemed a little disingenuous, but there were interesting observations on the dulling effects that the monopolist’s actions had exerted on venture capital markets and a stern warning about future compliance with the 2004 ruling.

The Commission could yet slap another non-compliance fine on Microsoft, estimated at around €1bn, by the end of this year. Buoyed by this week’s victory, Kroes may also decide to follow up concerns that the same abuses underlined by the 2004 ruling have been repeated in Microsoft’s new operating system Windows Vista, in Microsoft Office 2007 and on upcoming server software.

The court ruling could have an impact on ongoing antitrust investigations. Kroes can now pursue cases against chipmaker Intel and semiconductor firm Qualcomm with increased legal clout and a greater sense of authority. Striking a sober note, however, she played down the significance of this week’s court ruling. "Now and again losing a case is not the end of the world for us," she said. "It keeps us awake."

Keeping the Commission on its toes is a function that has been performed rather well over the past decade or so by Danish judge Bo Vesterdorf, who retired in great style from his high-profile position as president of the court hours after delivering the landmark judgement. Vesterdorf’s high-profile tenure at the court, which he helped to set up in the late 1980s, has featured a number of rulings that have forced the Commission to review its antitrust processes. He leaves office secure in the knowledge that he has left a deep imprint on the landscape of EU antitrust law.

The boundaries of EU antitrust law shifted decisively this week (17 September), with a resounding victory for the European Commission in its long-running battle against the most powerful IT company in the world.