/ 24 April 2006

Microsoft, EU get ready to square off

Microsoft began a challenge on Monday before the European Union’s second-highest court of the European Commission’s landmark antitrust ruling against it, arguing that the future of innovation in the technology industry was at stake.

In an opening statement, Microsoft lawyer Jean-Francois Bellis said the commission made ”serious errors” in its decision two years ago that the company abused its dominant market position.

The hearing, expected to take five days, will focus on Microsoft’s behavior in the late 1990s, with EU regulators using evidence from the company’s rivals.

At its core, the hearing is focusing on two issues. The first is Microsoft’s bundling of Media Player as a core part of its operating system, the second is on the commission’s order that Microsoft share information and code with competitors to help them make software that works smoothly with Windows.

In 2004, the Redmond, Washington-based company was fined a record â,¬497-million after the commission found that Microsoft had taken advantage of its position as the leading supplier of software for PC operating systems to elbow in on rivals for work-group server operating systems and for media players.

The commission ordered Microsoft to share information and communications code with rivals and to market a version of Windows without the media player to give consumers a free choice of media software.

In opening arguments, Bellis claimed that stripping out Media Player from Windows XP left consumers without the ability to listen to more music or watch more videos.

On the commission’s order, Microsoft made available for purchase Windows XPN, which did not include the ubiquitous player. That, lawyers said, meant consumers could not listen to CDs or play music from providers like Yahoo or Napster.

”Many functions … were lost in creating Windows XPN,” Bellis said, adding that all media functionality in Windows is part of the platform. Furthermore, he said that no computer maker had shipped a PC or laptop with Windows XPN pre-installed.

”Not a single one,” Bellis told Judge Bo Vesterdorf, adding that only 1 787 copies of the operating system had been ordered as of March 31.

Both the world’s largest software company and its rivals argue that the right to innovate lies at the heart of the case. Microsoft says it must be allowed to enhance its programs and guard its intellectual property. Critics argue the giant cannot be allowed to use its dominant market position to strangle competitors.

”The ability to innovate is important for the success of any company and for the economic success of any country,” said Microsoft lawyer Brad Smith before the hearing. ”We think that the facts will show that there is strong competition and consumer choice.”

Smith said the EU court’s decision, which isn’t expected for a year to 18 months, would reverberate across the industry, regardless of the outcome.

”The impact of this case goes far beyond Microsoft,” he said.

The EU said in December that Microsoft has not done enough to help its rivals develop compatible software and threatened Microsoft with daily fines of up to â,¬2-million, backdated to December 15, unless it complied. It has not yet decided whether it will levy these extra fines.

In the hearing, EU regulators will use evidence from RealNetworks on the media-player case and IBM, Novell, Oracle and Sun Microsystems on systems compatibility

None of those companies are currently involved in the legal battle, although they are members of two broad industry coalitions — the European Committee for Interoperable Systems and the Software & Information Industry Association — that will back the commission.

In the aftermath of the EU’s ruling, companies have moved into offering their own work-server options, such as the popular Linux software that shares its code openly. — Sapa-AP