Microsoft asks EU court to suspend remedies

Microsoft asked a judge to suspend the European Commission's antitrust ruling against it on Thursday, arguing that secrets revealed now cannot be retracted.

The software maker made its case during the first day of a two-day public hearing at the Court of First Instance (CFI) in Luxembourg, where the company is waging its battle to appeal a decision that could significantly impact the way in which it does business.

The hearings at the European Union's second-highest court are only focused on whether to suspend the antitrust remedies pending appeal. A decision, to come from CFI president Bo Vesterdorf, is not expected to be reached for around two months. It is within Vesterdorf's purview to suspend just one of the remedies, or both, or to fully deny the request.

After a five-year investigation, the Commission ruled in March that Microsoft had abused its dominance in the PC operating systems market to gain an edge in related markets, such as media players and server software, giving it an unfair advantage over rivals like RealNetworks Inc. and Novell Inc., respectively. It ordered the company to pay a fine of Euro 497 million, or around US$600 million, and offer a version of its Windows operating system in Europe without its Windows Media Player (WMP) software. It also ordered Microsoft to reveal enough Windows code to allow rivals to build competing server software that works with Windows.

Microsoft lawyers also argued that there is significant competition in the market, in an attempt to douse claims by opponents that the company has leveraged its dominance in the desktop operating system business to shut them out of the market.

The Commission's representative, Walter Moells, said that by insisting that Microsoft make available the specifications for its workgroup server software, the Commission aimed to prevent the company from extending its monopoly in the desktop PC operating system market into the client server market.

Moells also said that Microsoft failed to demonstrate serious and irreparable damage, a key requirement if the firm is to win a stay of execution. Instead, it "simply claims that its intellectual property and patent rights are being infringed. It does not even claim that the market would evolve against its favor."

Giving protocols to rivals indefinitely would reduce the incentive to innovate, Microsoft claimed in the hearing. Microsoft lead counsel Ian Forrester compared Microsoft's market lead to the advantages of an architectural firm that builds 100-story buildings while its competition can only manage buildings half as high. Forcing Microsoft to abide by the Commission's decision would be akin to forcing the architectural firm to hand over its secrets and allow the competition to build equally high buildings, Forrester said.

Novell counsel Christopher Thomas rebutted that argument. "Microsoft is not technically ahead in directory services or workgroup operating systems in general," he said. "Novell was first, and the remedy will give Novell the ability to interoperate with Windows. It's not a free or generous ride. It's competition on its merits."

Novell counsel James Flynn added that those who want to benefit from interoperability want nothing more than that: "It's not about getting the recipe for Coca-Cola."

Vesterdorf asked if it would be possible to impose a time limit so as not to give competitors a free ride, and pondered whether a lack of limitation could be considered contrary to the principal that the remedy should be proportional to the offense.

The judge then focused on the point of irreparable harm, asking Microsoft if there is any way it could make technical changes at a later date to the specifications it shares with competitors, in order to protect its intellectual property.

"It's possible in principal to create all new protocols but impossible in practice," said Microsoft representative Roy Hirst.

While the court weighs the arguments, Microsoft said that it has already "spent millions" to be able to comply with the Commission's demands to change Windows, should it lose its appeal.

Microsoft claimed that it set up a special group within the company to prepare interoperability specifications for its server software. Those specifications would be ready three to four weeks after the court makes its ruling, the company said.

Microsoft is putting all of its legal firepower behind appealing the Commission's decision, which is seen as being far stiffer than the settlement the Redmond, Washington, company reached with U.S. antitrust authorities, in that it affects the way in which Microsoft packages its products together.

Both sides claimed a win on Thursday.

"The exchanges revealed some fundamental weaknesses in the Commission's case on interoperability," said Microsoft General Counsel Brad Smith. "Today was a very constructive start to this process, and it is clear that the court has identified the key issues at the heart of this case."

Meanwhile, Ed Black, president of the anti-Microsoft lobbying group Computer and Communications Industry Association, said the testimony favored the Commission's side. "This morning's testimony ... made crystal clear what we already know: Microsoft has no case at all for why the immediate disclosure of interoperability information to other workgroup server system vendors would cause it irreparable harm," he said.

Friday's hearings will focus on the section of the remedy that calls for an unbundling of its media player software from Windows.

The request for a suspension of the remedies is just the beginning of an appeal process that legal experts have estimated could take anywhere from two to five years.

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