Microsoft Loses Antitrust Appeal in European Court

Published: September 19, 2007

by Alex Woodie

Microsoft was dealt a blow this week when Europe's second highest court sided with regulators in rejecting the software giant's appeal of the European Commission's landmark 2004 ruling that found Microsoft violated antitrust laws when it withheld access to server communication protocols and illegally bundled its media player with Windows. The Court of First Instance sided with the EC on all but one count, giving the EC strength as it pursues other cases against technology companies.

The European Commission is one of the last remaining holdouts in the antitrust movement against Microsoft that started in 1998. Almost all other entities, including the U.S. Justice Department and the vast majority of states, have long since arrived at settlements with the software giant. As the EC and Microsoft bickered through years of findings, hearings, rulings, and appeals, one has wondered whether the EC would eventually get frustrated and give up the fight against a foe with nearly inexhaustible resources. Instead, the EC has plodded through the process, steadfastly maintaining its assertion that what Microsoft did nearly a decade ago, and continues to do today, is wrong and damages competition.

With Monday's court ruling, the EC's position against Microsoft has been vindicated. The court agreed with the EC that Microsoft has failed to adequately share the so-called "communications protocols" that allow competitors to write applications that work with Windows server operating system, and that it hurts competition.

"The Court considers that the Commission was correct to conclude that the work group server operating systems of Microsoft's competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably," the Court said in its decision.

It made a similar finding regarding the bundling of Windows Media Player with Windows. "[T]he Commission was correct to find that there was a significant risk that the tying would lead to a weakening of competition," the court noted in its decision.

Microsoft has one last appeal--to the European Court of Justice, the highest court on the continent--but the company's chances of emerging victorious from this lengthy legal battle are greatly diminished.

In a press conference held after the ruling was handed down, Brad Smith, Microsoft's chief counsel, said the company needed time to fully absorb the court's ruling, which is more than 200 pages, before making its next step, such as filing one last appeal.

"It's clearly very important to us as a company that we comply with our obligations under European law," Smith said. "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."

Microsoft's lone victory occurred with respect to the monitoring trustee. The EC sought to implement an independent body that would monitor Microsoft's adherence to the initial 2004 ruling. This body would be granted considerable access to Microsoft's business, and have the right to seek access to all information, documents, premises, and employees relevant to its job, and the cost for running the operation would be paid by Microsoft.

"By establishing the mechanism of a monitoring trustee, with his own powers of investigation and capable of being called upon to act by third parties, the Commission went far beyond the situation in which it appoints its own expert to advise it during an investigation," the court stated.

In the end, the court's ruling could have the effect of thrusting the EC into the role of the world's preeminent regulator of corporate competition. In late July, the EC sent its preliminary "statement of objections" finding that two other high-tech companies, Intel, the world's largest chip maker, and memory manufacturer Rambus, are abusing their dominant market positions. The EC is reportedly investigating several other high tech companies for market abuses.

However, the CFI annulled the decision in so far as it orders Microsoft to submit a proposal for the appointment of a monitoring trustee with the power to have access, independently of the Commission, to Microsoft’s assistance, information, documents, premises, and employees and to the source code of the relevant Microsoft products and in so far as it provides that all the costs associated with that monitoring trustee be borne by Microsoft.

Neelie Kroes, commissioner of the EC's competition group, stated: “The Court has upheld a landmark Commission decision to give consumers more choice in software markets. That decision set an important precedent in terms of the obligations of dominant companies to allow competition, in particular in high tech industries. The Court ruling shows that the Commission was right to take its decision. Microsoft must now comply fully with its legal obligations to desist from engaging in anti-competitive conduct. The Commission will do its utmost to ensure that Microsoft complies swiftly."

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