EU to rule on Microsoft antitrust appeal Sept. 17

The European Court of First Instance will give its long-awaited verdict in Microsoft’s antitrust appeal on Sept. 17, people involved in the matter said Tuesday.

It is by far the biggest antitrust case ever referred to the European Union’s second highest court. The outcome of the appeal, which will have taken more than three years, will influence the future shape of the software industry and be a reference point for future antitrust cases, especially those in the fast-changing world of information technology.

The European Commission ruled in 2004 that Microsoft had abused the dominant position of its Windows OS to muscle in on other sectors of the software market.

By bundling Windows Media Player, its audio and video playing software, into Windows, Microsoft competed unfairly against rivals such as Real Networks and Apple, the Commission ruled. And by failing to share technical information about how to interoperate with Windows PCs, Microsoft managed to steal a march in the market for low-end server operating systems.

Microsoft appealed both threads of that ruling, and in April last year the court held a three-day hearing at which the Commission and Microsoft, together with their respective software industry allies, tried to convince the judges of their arguments.

There are four possible outcomes of September’s decision, two of which are clear cut but unlikely, and the other two mixed and more probable.

First clear-cut but unlikely outcome: the court sides with the Commission on both parts of the case — media player and server interoperability. It deems Microsoft an obstacle to innovation in the software industry and orders the immediate break-up of the company, effectively appropriating the Windows operating system and making it a public utility.

Second clear cut but unlikely outcome: the court sides with Microsoft on both counts. It declares that the break-neck speed of change in the IT industry is defined by a string of monopolies and that one monopoly is inevitably overtaken by another in time. Therefore, regulators should not apply antitrust laws too strictly, and should allow dominant operators such as Microsoft to use all means to prolong and expand their dominance of a market.

More likely, the court will give a mixed ruling. It may side with the Commission on interoperability but uphold Microsoft’s appeal of the bundling ruling. Microsoft is ordered to release all interoperability information to rivals immediately. The result would be growth of Microsoft’s largest direct rivals, at its expense, and a flattening of the software market as we know it today, with Microsoft brought slightly more into line with the likes of Sun Microsystems, Oracle and IBM. It would also open up Microsoft Office to open source software rivals, who until now have been marginalized in the lucrative desktop application market.

However, Microsoft would no longer need to sell a second version of Windows with the Media Player stripped out, which it has been forced to do in Europe today, and it would most probably bundle more and more features with Windows in future, to the likely detriment of any halfway successful innovation from a software developer such as Google.

In a nutshell, this outcome would restore fair competition in the software markets that existed in the 20th century but it would do nothing to impede Microsoft from muscling in on new markets that have already started to emerge this century.

Alternatively, Microsoft could lose the bundling argument but win on the interoperability side. The Court orders Microsoft to set up a separate company to sell a completely unbundled version of Windows, a turbo-charged “edition N,” if you like (the name for its version of Windows without Media Player). This separate entity would be free to compete with the fully bundled version, and free to strike partnerships with any other software developer.

However, Microsoft could still withhold information about Windows from rivals to handicap them in some markets, such as the low-end server operating system market. This would allow Microsoft to dominate the traditional, office-based computing environment, at the expense of rivals such as Sun Microsystems, IBM and Oracle.

Put simply, this outcome would secure Microsoft in all the fat, but mature markets connected to the office environment, but would limit its ability to fend off challenges in new fields linked to the Internet.

The third of these outcomes is the likeliest, according to lawyers following the case, although none would be quoted predicting the court’s decision.

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