The long-awaited decision—one of the most important in European Union trade history—will not only force the American software giant to revamp its business strategy, it also promises to make hardline Europe the battleground for future global antitrust battles and could force a new caution among technology market leaders. “I am deeply surprised by this ruling,” says Rony Gerrits, managing partner at Brussels-based law firm Morrison and Foerster who specializes in European antitrust law. “This will have profound and far-reaching effects on global antitrust law and technology companies.”
The case dates back to 1998, when a routine inquiry on the part of the European Commission into Microsoft ended up spiraling into an enormous conflict involving a number of Microsoft rivals, teams of lawyers and international politicians. Ultimately, Microsoft stood accused of abusing its market dominance on two fronts: first, by bundling a media software player into its Windows operating system, thereby squeezing out competitors that had no such highway onto consumers’ computers. Second, and more importantly, Microsoft was accused of failing to supply critical information about Windows to rival companies that would enable them to easily connect their computer servers to Microsoft-run desktops.
In March 2004 the European Commission found Microsoft guilty on both charges, and fined the company $684 million. Microsoft immediately appealed, claiming that the decision would force it to hand rivals proprietary technical information that was protected by copyright. As such, the software giant refused to abide by sanctions requiring it to share some information with the open market. (Microsoft’s failure to comply on this issue has already cost the company $338 million in daily fines.)
This morning, however, the European Court upheld the commission’s 2004 ruling, meaning Microsoft will have to hand over those secrets after all (and also pay 80 percent of the commission’s legal fees). This will change the global software landscape by enabling rivals to make their server operating systems run smoothly with Microsoft’s Windows-run computers and servers. In a statement welcoming the ruling, Neelie Kroes, Europe’s competition commissioner, said this morning that it will “give consumers more choice in software markets.”
Major software makers will indeed be taking note. Interoperability is a huge issue not only for Microsoft but for leading technology companies across the board. Apple’s iTunes Web site, for example, is famous for working only in conjunction with Apple’s own iPods.
Software isn’t the only industry that will be affected. The court’s decision clearly demonstrates that Europe takes a much harder line on monopoly issues than courts in the United States, where a similar regulatory battle in 2002 left Microsoft relatively unscathed. In particular, the European Commission’s ongoing antitrust probes of leading global companies like Intel, Rambus and Qualcomm now look likely to prove very problematic for the companies involved. Furthermore, the Microsoft decision is likely to spur smaller rivals of dominant companies in various industries to take their complaints to the EU on a more widespread basis. “This will result in an increase in antitrust cases in Europe,” says Gerrits. “The enforcement balance will shift from the U.S. to Europe.”
Some forward-thinking companies, seeing the writing on the wall, have already started treating the European Commission with kid gloves. Google, which has run into problems with the commission over its proposed purchase of online advertising company DoubleClick, is setting a standard of overt cooperation. In June, for example, when a European Union committee accused Google of retaining the personal search information of its customers for too long, Google responded almost immediately via an open letter promising to reduce the life of its “cookies” (individual users’ search data) from 30 years to just two.
For Microsoft, however, it might be too late. Although the software company is expected to appeal today’s decision to Europe’s highest court, the European Court of Justice, the rules state that the company can appeal only small specific points, not the overall ruling. Microsoft Senior Vice President Brad Smith already had an air of resignation about him when he told journalists at a press conference just after the decision was announced this morning, “It’s very important to us that we comply with European law. If there are additional steps that we need to take, we will take them … We have been working hard over the past few years to address these issues.” Looks like the hard work is far from over.
