Remedies may not help Microsoft's competitors

IT industry watchers and legal observers were skeptical Wednesday of the significance of a ruling by a European court that Microsoft must comply with antitrust remedies imposed by the European Commission. Analysts doubted the power of the remedies to achieve their stated goal of boosting competition in two key software markets: workgroup servers and media players.

On March 24, the Commission gave Microsoft 90 days to unbundle its media player software from its operating system and sell a version of Windows without Windows Media Player, and 120 days to give its competitors access on reasonable and nondiscriminatory terms to the technical interface information needed to make non-Microsoft workgroup servers interoperable with Windows PCs. Microsoft appealed the decision and, separately, asked the European Court of First Instance to suspend the remedies until the appeal was heard.

The court announced Wednesday that it had dismissed Microsoft's request for a suspension, and to have decided otherwise would have effectively neutralized the Commission's antitrust decision, according to Anthony Woolich, a partner at Lawrence Graham specializing in European competition.

Microsoft already has a version of Windows without Windows Media Player ready for market, according to the Commission, which expects the unbundling remedy will allow media player software vendors like Apple Computer and RealNetworks to convince computer manufacturers to install their technology in place of Microsoft's. However, analysts and Microsoft alike are skeptical of the benefits of the ruling to competitors.

The unbundling remedy is a minor irritant for Microsoft, as the prevalence of Windows Media format files already in circulation means users will have no choice but to install the Microsoft player, according to Philip Carnelley, research director with Ovum.

Woolich, the lawyer, thinks the bundled version of Windows with media player will remain popular: "The way that part of the ruling was phrased doesn't prohibit Microsoft from supplying Windows with Media Player at the same price as the version without, so there's very little room for competition in the market place. If you can get something for free, why would you not take it?" he said.

Microsoft will still be able to use products like the Media Center Edition of Windows, or Portable Media Centers, to push adoption of Windows Media Player, according to Paul Jackson, principal analyst at Forrester Research BV in the Netherlands. "For Microsoft, it's slightly inconvenient having to take some stuff out of Windows, but because of their power in other areas ... it's not going to have much effect," he said.

Companies like Hewlett-Packard (HP) and Apple may benefit from the ruling because of their broad alliance, Jackson said: HP sells Apple's iPod portable music player through its Web site and installs Apple's QuickTime media player software on new PCs. "Apple has tied all those iPod users in," he said, but everyone else is going to end up with music players compatible with Microsoft's Windows Media file formats.

"Real is left in the hinterland, a third option which doesn't have a dedicated device and doesn't come bundled with a PC. I don't think this (ruling) will be enough to turn the tide in their favor," Jackson said.

Microsoft, and its supporter the Computing Technology Industry Association (CompTIA), took a dimmer view of the ruling.

The remedies will bring very few benefits to competitors and consumers in Europe, said Microsoft. The unbundling remedy will force it to degrade Windows, and will hurt competition by undermining the integration of technology, which has driven the IT industry for three decades.

Regarding the interoperability remedy, CompTIA European Director of Public Policy Hugo Lueders fired off a strongly worded e-mail on hearing of the ruling, implying that innovation will stop if other companies are allowed to integrate their technologies.

"Consumers will suffer as a direct result of the ruling because IT companies will be less willing to innovate, fearing that their intellectual property will be appropriated by government intrusion into the marketplace," wrote Lueders. "Allowing competitors to use information that they did not create will create an unhealthy precedent and blunt incentives for all companies to develop intellectual property in the first place."

The Commission, however, emphasized the necessity of incentives to develop intellectual property in its statement about the ruling: Microsoft must be allowed to demand fair remuneration and set reasonable conditions for the use of intellectual property protected under European law, it said.

The European ruling requires Microsoft to offer its server-product communication APIs (application programming interfaces) in addition to the Windows operating system communication APIs the company was required to license as part of an antitrust settlement with the U.S. Department of Justice.

The interoperability remedy does pose a threat to Microsoft -- but not that envisioned by CompTIA's Lueders, according to Carnelley, the Ovum analyst. Without an industry regulator or a legal definition of what constitutes an operating system, Carnelley said, the remedy makes it unclear whether Microsoft can continue to make its products more attractive by bundling new functions, often at the expense of independent software developers.

While the company may still appeal Wednesday's ruling to the European Court of Justice, there are no legal precedents that would give reason to further suspend the remedies, the Commission said: The 90-day and 120-day grace periods proposed for the remedies expired long ago, and Microsoft must now respond without delay.

Meanwhile, Microsoft has not decided whether to appeal Wednesday's decision, Microsoft General Counsel Brad Smith said in a conference call with U.S. reporters after the ruling was issued. Company lawyers want to look more closely at the 90-page decision before deciding whether to appeal, he said.

Microsoft will begin complying with the decision immediately, Smith said. A version of Windows that doesn't include Media Player software will be made available to European PC manufacturers in January and to resellers there by February, he said. Microsoft has no plans to offer a version of Windows without Media Player outside of Europe, he said.

Smith also noted that the requirement that Microsoft license server APIs is limited to development and distribution of software in the European Union only.

(Additional reporting by Grant Gross in Washington, D.C.)

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