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Microsoft's EU loss may have ripple effect on Apple, Intel
Posted: 20 Sep 2007

Although Microsoft's appeal on the 2004 antitrust ruling of the European Commission (EC) did not succeed, the approximately $1 billion fine doesn't close the issue either for the software giant or the rest of the technology industry. The outcome of the case could influence the very nature of competition among the dominant players in the technology industry, forcing players like Intel, Apple and others to share or open their technology to outsiders or refrain from certain competitive practices.

Several looming European cases may now draw from the decision on Microsoft. The same section of the treaty that got Microsoft into trouble, a section that talks about "abuse of a dominant position within the common market," also spurred on-going formal probes of both Intel and memory chipmaker Rambus.

Meanwhile, the European Union (EU) will hold antitrust hearings later this week to investigate whether Apple and major record labels are engaging in unfair pricing practices for digital media. That concern arises partially out of Apple's dominance in digital media sales, where some have complained that Apple creates its own vendor lock-in by not allowing any other media devices but the iPod to work with iTunes. Also, European competitors have alleged that Qualcomm is overcharging for patent royalties on mobile technology, spurring a potential another EU probe. Even Microsoft is subject to another complaint from rivals that Office 2007 and Windows Vista create some sort of lock-in.

No more lock-ins
"At long last, this decision opens the prospect for dynamic competition in the software industry," said Thomas Vinje, legal counsel for the European Committee on interoperable systems, which has represented the interests of Microsoft competitors such as IBM in this case. "No more user lock-in, no more monopoly pricing." If Microsoft stops bundling new capabilities with Windows, the thought goes, consumers and businesses will have more choice and have to pay Microsoft less.

The EC seems to want even more, as a matter of principle against monopolies. "A significant drop in market share is what we would like to see," European Competition Commissioner Neelie Kroes said at a news conference Monday. "When we observe a situation where one producer has a share of 95 percent of the market, it's a monopoly. It's not just a monopoly-like situation."

In response to a question from a reporter, Microsoft general counsel Brad Smith bristled at Kroes' words. "These are rules that speak more to how one competes more than who should win the race," he said. "The decision very clearly gives the commission broad power and very broad discretion. There are many companies in our industry that have very large market share." He pointed to Apple in digital media, Google in search, and IBM in mainframe computers, suggesting that any one of them could become targets of the EU with this ruling.

Opponents say Microsoft is just crying wolf. "Immediately what Microsoft has always said is, this isn't always about us, this is about all software companies' ability to innovate," says Ken Wasch, president of the Software & Information Industry Association, the largest trade association in the software industry, which has filed briefs against Microsoft in both the earlier Department of Justice anti-trade case and in this case. "Last I checked I wasn't locked into the Google search engine."

Multiple Windows versions
The specific issues here are two prongs of how Microsoft competes: whether Microsoft should be able to bundle certain technologies where Microsoft is also the dominant company, like it was with media players earlier this decade, with Windows, and whether Microsoft should be forced to share communications protocols with competitors to ensure interoperability. However, the decision and how the company is forced to comply could have wider implications for the entire industry.

"This decision will make it difficult for a company with high market share to expand the functionality of its software or other products when sold in Europe," Nicholas Economides, an economics professor at New York University, said in an interview. "Microsoft will have to keep selling a different version of Windows for Europe, and may be forced to develop other products with less functionality for the European market. Other software firms, such as Oracle, may have to do the same."

Microsoft's loss means the company will have to continue to offer versions of Windows for Europe without Windows Media Player and possibly have to unbundle some other technologies in Windows. The company recently decided to allow users to switch their default desktop search engine in Windows Vista SP1 upon criticism from Google. Microsoft itself had argued that setting precedence by forcing Microsoft to unbundle Windows Media Player would make for "idiosyncratic versions of Windows, with no assurance that applications, such as graphics, would work on other versions of Windows" and for less manageable computer networks with various Windows versions on them, according to the European court's decision.

The software giant will also have to make licenses for Microsoft communications protocols available at a cheaper rate, but what that exactly means has yet to sort itself out. Some have argued that this means Microsoft will have to give technical details of its communications protocols away, but Smith argued that the decision says no such thing. "There's also questions about trade secrets, and the protection of trade secrets," Smith said. The spill-over here may make dominant companies share information if they are being less than open in regards to interoperability.

The competitive landscape in technology has a tendency to shift often; a point Microsoft's Smith suggested was a potential obstacle to the court's decision in this case. Smith claimed that the industry has changed significantly—with even Microsoft moving toward a recognition of the need for interoperability—since the EU started investigating Microsoft back in 1998 after Sun complained that the company wasn't being open enough. He also hinted that the EU has been proven wrong on the issue of the fairness of Microsoft's media player monopoly, as the rise of Apple's iTunes and the online ubiquity of Adobe's Flash Media Player have demonstrated, and may be so again.

"We've sought to be open and transparent, and we've sought to strengthen our ties with the rest of our industry," he said, pointing to recent interoperability agreements with Novell and Sun, which are arguably selective at best, and to discussions with EU leadership on how Microsoft should improve consumer choice of security applications in Windows Vista. No matter, as the ruling effectively means that the EU still believes Microsoft abused its monopoly position before 2004.

Global effect
According to Lars Liebeler, an antitrust attorney with Microsoft supporter CompTIA, the decision also could make the EU a staging ground for forum shopping by companies with antitrust gripes against their competitors, especially since in a global economy any decision in Europe would likely have a worldwide effect, such as sharing of protocols with competitors has had. "It places the EU in the role of a product approver, not just for Microsoft but anyone who has a large market share. It's very difficult to come up with a result that keeps it narrowly confined to Microsoft." he said in an interview.

- J. Nicholas Hoover

This article was printed from EE Times-Asia located at:

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