Microsoft’s intransigent behavior has finally caught up with them. To recap the story: in December 2004, Microsoft lost its final appeal on an EU antitrust case in which it was found guilty of tying its operating system to its media player, undermining competition and hurting consumer choice, and for failing to give rivals the information they needed to compete fairly in the market for server software, The Redmond company was fined a record $613 million.
To address the server complaint, Microsoft was ordered to license technical information to enable outside companies to design products that would run well on Windows (called API, the application program interface). Note that this isn’t a particularly onerous request. Microsoft makes that sort of information available for free except in areas where it is trying to leverage its monopoly.
Microsoft acted in less than good faith through this entire exercise. It appeared to be delaying rather than complying. For example, Microsoft was asked to propose royalties for its API. Now consider Microsoft’s response: up to 5.95% of revenues. The EU’s technical expert, Neil Barrett, who was recommended by Microsoft, calculated that it would take software companies 7 years to recover their development costs. Now how many products last 7 years? And in particular, how many software products last for 7 years? Cost recovery looks like a fantasy. Barrett determined that even a 1% royalty would be too high, and 0% would be more appropriate.
In a stinging rebuke to the world’s largest software maker, the second-highest European court rejected today a request by Microsoft to overturn a 2004 European Commission antitrust ruling that the company had abused its dominance in computer operating systems.
The European Court of First Instance, in a starkly worded summary read to a courtroom of about 150 journalists and lawyers here, ordered Microsoft to obey a March 2004 commission order and upheld the €497.2 million, or $689.4 million, fine against the company.
The court’s presiding judge, Bo Vesterdorf, reading a summary of the decision on his final day in office, said, “The court finds the commission did not err in assessing the gravity and duration of the infringement and did not err in setting the amount of the fine. Since the abuse of a dominant position is confirmed by the court, the amount of the fine remains unchanged.”
“The court said the commission wins on virtually everything,” said Thomas Vinje, a partner at the law firm Clifford Chance and part of the legal team for the European Committee for Interoperable Systems, a coalition that includes Microsoft opponents like I.B.M. “The court has spoken. The commission was right.”
Bloomberg notes that further European actions against Microsoft are pending:
The company faces another possible probe in Europe. In February 2006, the European Committee for Interoperability Systems, a group that includes International Business Machines Corp. and Oracle Corp., claimed that Microsoft uses dominance in word processing and spreadsheets to thwart rivals.
Today’s decision “establishes principles for the behavior of this company which it will have to abide by in a broad variety of contexts and with respect to a broad variety of products,” said Thomas Vinje, a lawyer at Clifford Chance in Brussels who represents ECIS.
Kroes said today the commission, which is still weighing whether to open a formal probe of ECIS’s complaint, will comment on the case “not too far from now.”
The Financial Times reports that this was a key victory for the EU anticompetition regulator:
Monday’s ruling is likely to have big repercussions both for the regulator and for Microsoft and its rivals. A defeat for the Commission would have seriously weakened Brussels’ ability to pursue fresh cases against Microsoft and other dominant groups, and would have dealt a big setback to similar efforts by regulators in countries like South Korea.
The European Court of First Instance, which issued the decision, is the EU’s second highest court. Microsoft has not yet said whether it would appeal the decision.