March 24, 2004
European Union Issues Strict New Ruling on Microsoft
By PAUL MELLER
BRUSSELS, March 24 Microsoft
was handed its greatest legal challenge to date today when the European
Union not only declared the software company an abusive monopolist, but
levied penalties designed to prevent similar abuses in the future.
The ruling orders Microsoft to sell two versions of its Windows
operating system to manufacturers of personal computers such as Hewlett-Packard,
Dell and Fujitsu Siemens. One version must remove Microsoft's
audio-video playing software, called Media Player. The ruling ordered
the company to produce the alternate version within 90 days.
More than 95 percent of personal computers in the world are powered by
Windows software. The European Commission, which enforces European
Union competition law, ruled that such a dominant product cannot be
used to help Microsoft leverage its might in other markets.
The commission's ruling also forces the company, within 120 days, to
divulge previously proprietary information about the way Windows works
in order to allow rivals the chance of making software suitable for
Windows users. Sun
Microsystems, whose complaint in 1998 first began the commission's
investigation, persuaded the European regulator that by holding back
vital Windows code from competitors, Microsoft was bringing its
operating system dominance into the market for server software that
runs networks of personal computers.
The commission levied a $613 million fine ($497.2 euros) and said it
would set up a new advisory group to examine Microsoft's compliance.
Microsoft said today that it would appeal the ruling.
"Microsoft believes a settlement would have been better for European
consumers," said Tom Brookes, Microsoft spokesman in Brussels,
according to The Associated Press.
At a news conference, the European competition commissioner, Mario
Monti, said, "I am confident that we have produced here a decision that
will stand before any appeal."
Media software like Microsoft's allows PC users to download, listen to,
organize and copy to hand-held players music that has been converted to
digital form. Companies like RealNetworks
Computer have tried to make money in this field, but have
complained that they are held back by the proliferation of Media Player.
"Consumers ought to be able to choose their media player, not
Microsoft," Mr. Monti said at the news conference. "Media Player is a
separate product. There is a separate demand for media players."
The commission is not requiring a price difference between the two
Windows versions. "Microsoft must refrain from using any commercial
technological or contractual terms that would have the effect of
rendering the unbundled version of Windows less attractive or
performing," the commission's statement said, adding that Microsoft
must not give PC makers a discount if they buy Windows with its own
"We are simply ensuring that anyone who develops new software has a
fair opportunity to compete in the marketplace," Mr. Monti said,
according to The A.P.
Mr. Monti said he decided to limit the order to Europe "in deference to
the competition authorities of the United States and other countries."
"We could legally have imposed explicitly a worldwide geographic scope,
given the global nature of these markets," he said, according to The
A.P. "We have not done so."
By going further than the United States Department of Justice in
punishing Microsoft in 2000, the European Commission is trying to build
an image of being the toughest antitrust regulator in the world. The
sanctions eventually agreed to in Microsoft's settlement of the United
States case are widely seen as being ineffectual.
According to some commentators, this is partly why Mr. Monti decided to
come down hard on Microsoft that the remedies in the United States case
were insubstantial enough that it added urgency to the European case.
The antitrust problems in the European case emerged later than the
issues dealt with in the United States. The Justice Department was
investigating accusations that Microsoft had effectively crushed the
Internet browser Netscape by bundling in its own browser, Internet
Explorer, into Windows.
In the end, it settled with Microsoft, allowing the company to escape
with what many saw as only modest changes to the way it does business.
The part of the European case concerning Media Player is similar to
that of Netscape, although the technology emerged later. By being found
guilty of unfairly bundling again, Microsoft has showed itself to be a
Rich Sherlund, a managing director and technology analyst at Goldman
Sachs, said the commission's decision was not "terribly draconian."
"I am not really concerned about the fine," Mr. Sherlund said in an
interview on CNBC television this morning. "It represents about two
weeks of cash flow for Microsoft. And unbundling the music player is
something they can live with."
Mr. Sherlund said he believes the real issue for Microsoft is the
European Commission's decision to appoint a trustee to effectively look
over the company's shoulder "and potentially put restrictions on them
"You don't want a panel approving or disapproving things you want to
do," Mr. Sherlund said.
That issue is likely to remain in limbo for some time, he added, since
Microsoft will appeal the ruling.
That said, Mr. Sherlund said that today's decision removes a cloud that
has been hanging over Microsoft shares for some time.
Within the "next couple of months," Microsoft will make a decision
about what they intend to do with their enormous pile of cash, Mr.