EU Gives Microsoft Ultimatum

Time is running out on the world’s largest software company. Microsoft Corporation has just one "last opportunity" to answer to charges that it has unfairly crushed competitors or face the prospect of fines and enforced guidelines for changing its business practices in Europe.

The European Commission, the executive arm of the European Union, has accused Microsoft of exploiting its domination in the computer market to unfairly promote its own products such as Media Player and to further its position in the market for low-end servers which run Web sites and e-mail.

Competitors such as Oracle Corporation and Sun Microsystems have filed complaints with the Commission and have called on Competition Commissioner Mario Monti to sanction Microsoft for breaking antitrust rules. Under European Union monopolies law, if Microsoft is found guilty of unfair competition practices, Brussels may fine the software giant as much as 10 percent of global sales, or $3.2 billion according to Bloomberg news.

Brussels vs. Seattle

Citing a four-year EU antitrust investigation and a recent survey of consumers, Monti on Wednesday said Microsoft was guilty of using its Windows operating system, which runs on more than 90 percent of the world’s personal computers, to control markets for computer networks.

He also accused the software giant of relying on its Media Player software, which allows users to play videos on PCs, to prevent competing programs such as Apple Computer’s Quick Time from gaining a foothold in the multimedia sector.

The European probe was triggered in 1998 after Sun, one of the biggest makers of computers running Web sites, complained of Microsoft’s unfair market domination. The Commission’s initial findings at the time showed that Microsoft withheld information about Windows and engaged in discriminatory licensing. Since then, regulators have gathered enough evidence to show that the Seattle-based software giant’s "abuses are ongoing."

If the case goes to court this time, the Commission is confident it will win on the strength of its findings. Competition spokesman Tilman Lüder said that Brussels had gathered extensive evidence and had compiled "such a substantive file" that any decision the Commission takes will "withstand the scrutiny of the European Court of Justice."

"It would be at the company’s own peril and the lawyers’ own peril to ignore this" Lüder said in a press conference discussing the Commission’s intent to proceed with the case against Microsoft.

The European enforcer

In the course of its investigation and preparation of the case, the Competition Commission sent Microsoft a "statement of objections" explaining its findings and recommending changes such as stripping Media Player from the Windows operating system and complying with "core disclosure obligations." Although Microsoft would not be forced to reveal the source code that powers Windows, it would be obliged to reveal interface information that would be indispensable for competing software to operate with Windows-run PCs and servers.

"The statement of objections... gives Microsoft the last opportunity to comment before the Commission concludes the case," Monti said in a statement. "We are determined to ensure that the final outcome of this case is to the benefit of innovation and consumers alike," he said.

Under EU law, Microsoft has one month to respond to the Commission’s findings and is entitled to a hearing. Competitors are then allowed another chance to respond. If the company is found guilty, it will be faced with fines and a set of restrictions designed to keep its market domination in check.

History of antitrust violations

The case against Microsoft has a history of dragging on. Back in May 2002 Commissioner Monti said he expected the case to be completed by the end of the year. Since then, the investigation has only continued to gather more evidence as the EU regulators failed to meet prior deadlines to rule on the case.

Two years ago Microsoft was found guilty of market abuses in the United States, but the regulatory authorities decided that tough fines would impair the company’s ability to innovate. Instead the company was forced to implement new measures to change the way it promotes the Windows software.

Now Microsoft is pointing to the earlier U.S. case arguing with Brussels that its settlement with the U.S. Department of Justice along with previous guarantees it has made to the European Commission should fulfill the antitrust requirements.

But the EU, which is intent on differentiating the U.S. case from its own, has said that Microsoft has continued to take advantage of its dominant market position to squeeze out smaller competitors. Although Commission spokesman Lüder, has said the EU will press hard against the company if the accusations hold up in court, he said there is "no reason why the decision should have an impact on transatlantic ties."