EU Court Holds the Antitrust Line Against Microsoft, but May not have Stemmed its Dominance Tide

Yes, I am a bit late on this one. I had a couple items on the blog TODO a bit longer than I anticipated. I’m working my way through those now, but will still post the items I think are especially important.

So, as you’ve surely heard by now, the EU dismissed the Microsoft anti-trust appeal. From Andy:

In what the New York Times is calling a “stinging rebuke,” the European Court of First Instance issued a much-awaited judgment at 9:30 AM today in Luxembourg affirming almost all of the March 23, 2004 holdings by the European Commission that Microsoft had abused its dominant position to further expand its market share. The Court also affirmed the remedies against Microsoft, including fines of approximately US $1 billion. Only those parts of the original decision that would appointed a trustee to monitor Microsoft’s compliance with the EU’s orders were rejected, as exceeding the powers of the Commission. But while the victory is a significant one for the European Commission, how great a defeat is this in fact for Microsoft? Perhaps less than first meets the eye, on which more below.

Today’s decision is but the latest event in an almost 10 year history of investigations, trials, appeals, and new allegations that initially focused only on Microsoft’s activities involving server software, but eventually grew to involve allegations of abuses in the office software marketplace as well. All of these accusations involved contentions that Microsoft was limiting the ability of its competitors to create products that would interoperate with its own, thus further entrenching itself. With time, open source advocates and trade associations filed lodged complaints as well, as Linux gained market share and greater vendor interest, and OpenDocument Format (ODF) compliant products, such as OpenOffice, gained greater credibility.

In the decision announced today, the Court found that Microsoft had abused its dominant market through two types of conduct, and ordered Microsoft to remedy the situation as follows:

The first type of conduct found to constitute an abuse consisted in Microsoft’s refusal to supply its competitors with ‘interoperability information’ and to authorise them to use that information to develop and distribute products competing with its own products on the work group server operating system market, between October 1998 and the date of adoption of the decision. By way of remedy, the Commission required Microsoft to disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems.

The second type of conduct to which the Commission took exception was the tying of Windows Media Player with the Windows PC operating system. The Commission considered that that practice affected competition on the media player market. By way of remedy, the Commission required Microsoft to offer for sale a version of Windows without Windows Media Player.

At first you probably thought, wow – $1B! Andy puts that in perspective though:

While today’s judgment is significant, it is worth noting that the penalties that Microsoft has incurred to date – roughly $1 billion, plus an obligation to reimburse a far smaller amount of legal fees – are minute in comparison to the magnitude of the profits it has garnered over the ten-year investigative period. During that time, its market share in both of the subject markets has grown dramatically. As a result, while Microsoft has nominally lost in court, it continues to win at the bottom line, given that the only impact on its products to date has been more symbolic than effectual – the requirement to offer a version of Windows that does not bundle a free copy of its media player.

Stated another way, a billion dollars spread over ten years is $100 million a year. During the same period, Microsoft revenues have grown enormously, to over $50 billion a year, fueled primarily by the continuing growth of its operating system and Office products. It has been a tiny cost of business to pay, and a shrewd and cynical business decision to incur, a liability to pay one fifth of one percent of annual gross revenues to retain the freedom to dominate so lucrative a market in spite of the 2004 judgment.

Suddenly it doesn’t sound like all that much money, does it. That aside, it’s good to see some follow though from the EU. The Microsoft PR machine is in full swing, warning other US companies of the dire impact of this ruling. Two items on that note:

“Obviously, law that is made for Microsoft is going to apply to other market leaders as well. IBM, Google, Apple and others would have to look very carefully at the implications for their business models,” — Brad Smith, Microsoft General Counsel

“What this ruling will do is send a message to companies that if they establish a good market position with a successful product, they will be forced in Europe to essentially give up that product to their competitors.” — Robert Kramer, a vice president of public policy for CompTIA, [a Microsoft ally]

Of course, they are confusing marketing leading with market dominant && anti-competitive. Stephe and Mark explain and expand on that point better than I’d be able to.

In the end, while it’s good to see this ruling it may not have much material impact. Windows without Media Player is not what we need. If history is any guide, Microsoft may be able to convince the courts that it’s complying and being more open, while still stifling competition and innovation with unfair practices. One place this ruling may make a difference is on the recent OOXML ISO/IEC JTC1 proceedings. If OOXML is adopted and with some of the Microsoft actions in Europe during the process that have come to light, this ruling could come into play.


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