Legal Bytes: Why Is The European Union After Microsoft?
By John Brewer April 2004
Microsoft has had a running conflict with the U.S. Department of Justice and various States regarding alleged monopolistic practices by Microsoft. In late March of 2004, the European Union, after a five year investigation, found Microsoft had violated European Union law and levied a large fine for “near-monopolistic” practices.
The New York Times reported “The European Commission, the executive arm of the European Union, ordered Microsoft within 90 days to offer a version of Windows with its media-playing software stripped out. The commission also gave the company 120 days to disclose the necessary information about Windows to rival makers of software for computer servers to allow them to design products that work as easily with Windows as Microsoft's own server software. And it fined Microsoft 497 million euros ($603 million), its largest fine ever.”
“Microsoft, the world's largest software maker, said it would appeal the ruling to the European courts. Such an appeal could take as long as five years, and the company said it would also ask for a suspension of the commission's penalties days after filing its appeal. The European decision is "an unfortunate step and it's an unnecessary step,'' said Brad Smith, Microsoft's general counsel, noting that the Justice Department had already spent five years addressing similar issues.”
Microsoft can certainly afford a $603 million hit to its profit and loss statement but the other sanctions are quite interesting (from an observer’s perspective). What is so crucial about Windows Media Player? And, Microsoft has to be extremely concerned about the disclosure requirements specified within the ruling.
The New York Times article reported further that “Under the commission's order on Wednesday, Microsoft may still sell a version of Windows with Media Player in European Union countries, but this bundled version must not be favored in any way over the unbundled one. The commission did not order Microsoft to sell the unbundled version of Windows at a discount to the version with Media Player attached - an essential requirement for restoring competition, according to computer analysts and lawyers.” It is a certainty that RealNetworks is delighted by this ruling.
Sun Microsystems had initiated the EU investigation and had demanded that Microsoft provide better documentation as to how applications can interface with the Windows operating systems. Sun's vice president for legal affairs, Lee Patch, said, "This decision is important for consumers not only in Europe, but also for increased innovation and competition worldwide. The remedy concerning interoperability will result in a wave of new competitive products on the market. Users will be able to mix and match software from different vendors. They'll be able to choose the best product on the market, then six months later take advantage of the choice to pick the best product at that particular time.''
This is neither the first nor the last clash between Sun and Microsoft. The Java battle continued for years but appears to be resolved.
Microsoft responded to the ruling with a press release that expressed regret. “Microsoft Corp. today stated that its proposals to settle the European Commission investigation would have provided more choices for European consumers and more opportunity for software companies than the official decision announced today in Brussels, Belgium, by the European Commission. “
"We worked hard to reach an agreement that would address the European Commission's concerns and still allow us to innovate and improve our products for consumers," said Steve Ballmer, chief executive officer of Microsoft. "We respect the Commission's authority, but we believe that our settlement offer from last week would have offered far more choices and benefits to consumers."
“The company will seek legal review of the Commission's decision in the Court of First Instance in Luxembourg, according to Brad Smith, senior vice president and general counsel of Microsoft.”
Analysts are mixed in their opinions regarding the ruling by the European Union. CNet news reported, “The U.S. State Department has quietly expressed its concerns to European regulators about last week's decision to levy harsh penalties and a $613 million fine on Microsoft. The quiet protest from the Bush administration comes as concern is growing on Capitol Hill over the European Commission's penalties, which came after the Justice Department agreed to a consent decree that includes ongoing federal court oversight of Microsoft's business practices. The State Department has been involved in an off-the-record attempt to focus their attention on the harm the decision could bring about, a U.S. government official, who has direct knowledge of the concerns communicated to EU regulators, told CNET News.com on condition of anonymity. A State Department representative declined to comment.”
CNet reported further “This is not the first time that the United States and the Europeans have clashed over antitrust enforcement. Hostilities erupted after the European Union vetoed the proposed General Electric-Honeywell merger, which U.S. regulators had already approved. President Bush publicly criticized the veto, which was widely viewed as a protectionist move designed to help European competitors such as Airbus and Lufthansa at the expense of U.S. companies.”
In summary, globalization of commerce brings it own set of issues to business practices. It is a certainty that this episode is far from concluded. It moves now to an entirely different level as governments become involved. It is apparent the EU is flexing its political muscle. Since this is an election year and decisions such as this have a “ripple effect,” it will be interesting to see the reaction of the Bush administration to this problem. It is a certainty that Microsoft is expecting some degree of assistance from the administration in reciprocity for its large campaign contributions. However, the influence of the Bush administration in Europe is impaired by other political factors. An underlying issue may be the interrelation of differing political philosophies and the degree that these differences affect decisions such as this.
John Brewer practices law in Oklahoma City, is a member of the Governor’s and Legislative Task Force for E-Commerce, and enjoys issues relating to eBusiness and cyberspace. Comments and questions are welcome and can be emailed to:
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