Microsoft, E.U. give final arguments on remedy suspension

The war of words over Microsoft Corp.’s business practices continued at a Luxembourg court on Friday with the its opponents arguing that unless the company offers a version its operating system without Windows Media Player, Microsoft will extend its quasi-monopoly in the PC market over the digital media sector.

“If Microsoft secures another dominant position it’ll have the power of life or death over (digital media) formats, not just for computers but for mobiles and handhelds and other devices,” said James Flynn, counsel for the Computer Communication Industry Association (CCIA).

Speakers invoked the fate of the Internet browser Netscape as an example of what could happen in the media player market if Microsoft’s dominance is not tackled.

On the second day of the hearing at the European Court of First Instance in Luxembourg, President Bo Vesterdorf heard arguments from Microsoft and its supporters against the European Commission’s demand for Microsoft to offer a version of Windows without its media player.

Microsoft’s counsel, Jean-Francois Bellis, rejected the Commission’s argument that Windows Media Player (WMP) dominated the digital media market. He claimed that the rapid entry of Apple Computer Inc. and Sony Corp. into the music download sector showed that users could select from a range of digital media formats.

Bellis warned that forcing the Redmond, Washington, company to unbundle WMP would “strike at the heart of Microsoft’s business model”. The harm to the company’s reputation could not be undone by a later annulment, he said.

A Microsoft expert, Linda Averett, said that an unbundled version of Windows would increase costs for independent software vendors and Web site designers faced with the task of supporting customers or retrofitting their software. This was because a modified version of Windows would not be able to support the same range of features that the full version does, she claimed.

This view was contested by RealNetworks Inc. representatives who demonstrated an unbundled version of Windows that appeared to have no problems with digital content.

Bellis also argued that the Commission’s remedy would not achieve its aim of giving consumers easier access to other media players. “No rational end user would take (the unbundled version of Windows) because it provides no benefits.”

“Even if the remedy functions as the Commission envisages, media functionality in Windows will continue to have the same wide distribution as now,” he said.

This was seized on by Microsoft’s opponents who said it undermined the company’s arguments that unbundling WMP would cause the company serious and irreparable harm.

“Harm to Microsoft will only happen if (the unbundled version of Windows) was popular, but Microsoft has argued that there will be no demand for it,” said the CCIA’s Flynn.

David Evans, a Microsoft economist, said that there was no evidence that content providers were moving to WMP format as the Commission claimed. He cited research that showed 80 per cent of Web sites were encoded in RealNetworks’ format and that the average number of formats on a sample of 1,000 Web sites had risen from 2.1 in 2001 to 2.9 in 2004.

However, this claim was strongly rejected by Frederic Scherer, a former chief economist for the Fair Trade Commission, speaking for CCIA. He said that analysis of Web site user data showed that on average 56 per cent of Web sites streamed in WMP format only.

Despite the Commission’s argument that computer makers were not interested in shipping PCs loaded with multiple media players, Evans claimed that a recent study showed that the average computer sold in the U.S. had 4.3 players.

Summing up the Microsoft case, Bellis said that RealNetworks appeared to be motivated by the support the Commission’s case gave to its US$1 billion lawsuit against Microsoft for damages. Arguing that the court should force the company to comply with the demands on unbundling WMP, Commission lawyer Per Hellstrom said that Microsoft’s ubiquitous presence thanks to its dominant position on the PC market “induces content providers to use WMP” and “shields Microsoft from competition in the media player market.”

Scherer said that studies suggested forcing software developers to encode their products in more than one format added between 20 per cent to 100 pe rcent to the total costs of coding.

Hellstrom also argued that any harm suffered by the company would be easily reversed if the Commission lost the later case by use of automatic updates.

On the question of damage to third parties Hellstrom said the effect would be “negligible” and “outweighed by the public interest of securing competition in the media player market”.

Hellstrom referenced the history of Netscape, which saw its market share plummet from over 80 per cent to less than ten per cent, to show that “once Microsoft products have established their place in the market it can’t be reversed.” Six years ago, RealPlayer had twice as many users as WMP but now Microsoft’s products have twice as many users as RealPlayer, he claimed.

“As soon as Microsoft has its own products in the market it quickly reverses the competitive landscape,” Antoine Winckler, RealNetworks’ lawyer, said. “Netscape shows us we can’t afford further delay.”

On Friday afternoon the court’s president, who holds the sole authority to decide whether to suspend the measures until the trial concludes, will question the two sides.

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