MS ANTITRUST : Unveiling of ruling reignites debate

Nearly a month after finding Microsoft Corp. guilty of monopoly abuse, the European Commission made public its 302-page ruling on Thursday, prompting a strenuous rebuttal from the company in a widely leaked internal memo.

Arguments made behind closed doors prior to the ruling last month are now being vented publicly, as both sides seek support ahead of an appeal of the ruling, to be submitted probably in late May or June, at the European Court of Justice.

Microsoft is fine-tuning its arguments why the Court should suspend the remedies demanded by the Commission pending an outcome of the appeal, which could be as much as five years away.

The ruling lacks any convincing evidence, and will have an “adverse effect on consumers, the computer industry and many other sectors by stifling competition,” said Horacio Guttierez, Microsoft’s chief legal counsel for Europe, the Middle East and Africa.

In its memo, Microsoft said “novel legal standards announced in the decision will affect all industries, altering market dynamics and reducing incentives for research and development that are essential to global economic growth.”

Meanwhile, the wording of the ruling is designed to make it as hard as possible for the Court to suspend the remedies, said Brussels-based antitrust lawyers.

“The wording of the decision has been formulated specifically to avoid a suspension of the remedies,” said Thomas Vinje, a partner in the Brussels office of law firm Clifford Chance, who has been representing Microsoft rivals during the Commission’s investigation.

The decision of the Commission — the European Union’s executive branch — demands that within 90 days of last month’s ruling, Microsoft must sell a version of Windows in Europe that has the Media Player software stripped out. Media Player is Microsoft’s audio and video playing software, which it currently sells as part of the Windows operating system.

The Commission concluded that by “bundling” Media Player into Windows, Microsoft was abusing its dominant position by putting rival players at a competitive disadvantage.

The ruling allows Microsoft to continue selling a version of Windows with Media Player, as long as the company does not give it an unfair commercial advantage over the unbundled one.

In addition, within 120 days Microsoft must reveal enough Windows code to rivals to allow them to build server software that works as well with Windows as Microsoft’s own server software does.

Withholding details about Windows from rivals has prevented them from competing on a level playing field with Microsoft in the server software market, the Commission ruled.

If the remedies are suspended pending the appeal “the harm will be irreparable,” said Ed Black, president of the Computer and Communications Industry Association, a vocal critic of Microsoft in antitrust actions against the software giant on both sides of the Atlantic. He added: “The longer it takes to impose these remedies, the less likely they will work.”

In the ruling, the Commission said the remedy designed to restore competition in the market for media players is particularly urgent, because Microsoft is gaining market share in this market each year. In the full text of the ruling, the Commission backed up its claim with detailed market analysis conducted by independent researchers, including IDC.

In five years makers of rival media players such as RealNetworks Inc. may have disappeared, just as Netscape, the Internet browser, has been almost totally eclipsed by Microsoft’s Internet Explorer, Black said.

The Commission’s ruling details all Microsoft’s arguments, then seeks to shoot each down. For example, Microsoft argued that to remove all media code from Windows would prevent the operating system’s narrator function for the visually impaired from working.

In response, the Commission pointed out that it isn’t ordering the stripping out of all media code from Windows — only the Media Player code, which doesn’t include the narrator function.

Similarly, when detailing the remedies for the server software market, the Commission reproduced Microsoft’s argument that an insistence that all Windows source code be revealed to rivals would result in the cloning of Microsoft products, and this would harm Microsoft’s incentive to innovate.

The Commission then points out that it has not ordered Microsoft to license Windows source code at all. “It bears repetition that the Commission does not envisage ordering compulsory licensing of Microsoft’s source code,” the ruling said.

“The Commission is belittling our argument,” said Guttierez, adding: “Our case was not limited to source code. We said that compulsory licensing of our intellectual property would result in the cloning or replication of our products.”

Last month when the decision against Microsoft was taken, some observers feared that the remedies to restore competition to the media player market wouldn’t work. After seeing the ruling some of those concerns have been lifted.

There is a clause saying that if the remedies fail, the Commission “retains the possibility to review the present decision and impose an alternative remedy that will put an end to the abuse.”

“The way the Commission has termed the remedies is solid,” Vinje said. “If I had to bet on it I’d say it is more likely than not that the court will refuse to suspend them. If this ruling doesn’t withstand a suspension order by the court, then I can’t see what ruling could,” he said. :

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