Analysis: EC antitrust ruling - Microsoft may yet have the last word

The European Commission finally reached its verdict on the Microsoft antitrust case today, finding the Redmond firm guilty of abusing its dominance in the desktop PC market after a five-year investigation.

Only marginally less surprising than the ruling and the record €497m fine is Microsoft's decision to appeal the verdict and get the sanctions forcing it to open up its source code and ship a 'stripped-down' version of Windows suspended until it has had its day in court.

Microsoft was found guilty of breaching the 'refusal to supply' and 'tying' aspects of EU competition law. The former relates to Microsoft's refusal to allow rival software vendors access to its APIs and protocols so they can make their server software 'talk' to the Windows desktop OS more easily. The latter relates to Microsoft's bundling of its Windows Media Player with the OS.

EC competition commissioner Mario Monti hailed the decision as precedent-setting and a victory for consumers and innovation.

"The advantage conferred on Windows MediaPlayer induces content providers and software developers to base their products on Windows Media technology," he said. "Consumers and hardware manufacturers, not Microsoft, should be able to determine what media player software they want."

But most observers agree that Windows MediaPlayer is not the real issue here. Whether or not the ruling is actually successful in curbing Microsoft's "abuses" depends on the EC's ability to take advantage of the legal precedent and enforce sanctions over Microsoft's future conduct, particularly around the opening up of its closely guarded source code to rivals.

Matt Rosoff, analyst at Directions on Microsoft, said: "It is narrower than the US DoJ judgement but I think it goes deeper. The EC wanted there to be some precedent for what Microsoft could and couldn't do with its operating systems in the future. What the EC is trying to do is set a precedent."

And it is some precedent. Effectively the EC is advocating the compulsory licensing of Microsoft's source code to its rivals – a route Microsoft is understandably keen not to go down.

But Mike Pullen, head of the EU and competition group at law firm DLA, said the ruling is likely to open the floodgates for more lawsuits against Microsoft.

"This decision is going to set a precedent in the technology area and that is going to impact right across the board. It will kick off a round of antitrust suits," he said. "Microsoft will have 'form' where it has always negotiated its way out in the past. It is a serial offender."

Storm clouds already seem to be brewing in that direction for Microsoft. There are other antitrust suits on file with regulators around the world, while software rivals have indicated their intention to pursue Microsoft individually through the courts following this verdict. The EC's Monti also hinted at future investigations.

"The precedent-setting nature of this decision relates to how to deal with similar allegations against Microsoft in different product markets," he said.

Sun Microsystems, for one, said it "applauds" the EC's decision. "This decision is important for consumers not only in Europe but also for increased innovation and competition worldwide," said Lee Patch, VP of legal affairs at Sun, in a statement. "For the first time in many years, IT managers will be able to choose from a variety of work-group servers, confident that they will interoperate with Microsoft desktops."

As for the fine, it may be a record at €497m but it is not likely to make much of a dent in Microsoft's vast coffers.

Simon Topping, EU and competition lawyer at SJ Berwin, said: "I'm not sure it makes a huge difference to Microsoft when it is sitting on a pile of something like £50bn. But just having the case down on record does give the EU a precedent."

It seems unlikely, however, that the 'stripped-down' Windows sanction will have any major impact on the media player market - not least because the stripped down version will sell for exactly the same price as the all-singing, all-dancing OS.

David Mitchell-Smith, VP and research fellow at Gartner, likened it to the 'browser wars' with Netscape in that Microsoft has already ensured its dominance, but he said it would have been difficult for the EC to resolve that by enforcing a price differential on the two versions of Windows.

"That's the challenge with any legal process," he said. "Even if they had arrived at a price they would be starting to go down a slippery slope most regulators don't want to go down – setting prices."

That was echoed by Monti, who claims a competitive market is the way to ensure a better deal for consumers.

"We are not price regulators. We believe that competition puts a pressure on prices to be lower than they would be in a non-competitive scenario," he said.

And most consumers either already use a mix of media players or they just don't care, according to DLA's Pullen. "Your average Joe Punter is not a techie."

So was the EC's investigation a pointless waste of money? Microsoft certainly won't take it lying down – if only for the fact the ruling sets a precedent that threatens its core business model of bundling and adding on features to its operating system.

Brad Smith, general counsel at Microsoft, said: "This case has another four or five years of litigation ahead of it. The EC has had the first word but the European courts will have the final word."

And if the case does drag on for a few more years the sanctions against Microsoft will probably remain on hold as well until a final ruling, ensuring that Microsoft is able to carry on taking advantage of its "virtual monopoly" with 'business as usual'.

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