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| EU Refuses to Stay Penalties |
| Dec. 27, 2004 |
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An appeals court has refused Microsoft's request to stay penalties levied by the European Commission (EC), and the company says it will comply with the order while considering an appeal. Specifically, Microsoft will create a program to license certain protocols used by Windows clients and servers to communicate with one another and begin offering a version of Windows without the Windows Media Player to OEMs in Europe. However, this decision is only the first step in a long appeals process, and Microsoft continues to challenge the EC's original ruling in court. The Scope of the Judgment On Mar. 24, 2004, the EC—the administrative body that handles antitrust law for the European Union (EU)—ruled that Microsoft had abused its near-monopoly in desktop OSs to compete unfairly in the markets for server OSs and digital media. At that time, the EC ordered Microsoft to do the following:
Microsoft appealed the EC's ruling but put money into an escrow account to cover the fine (this payment was counted against Microsoft's earnings in the quarter ended Mar. 31, 2004). However, Microsoft argued that the EC's other penalties would cause irreparable harm and therefore should be stayed until all appeals in the case had been exhausted. Although the European Court of First Instance delayed these penalties for a few months, on Dec. 22, 2004, it ruled that they will not cause irreparable harm and that Microsoft must begin complying immediately. What Happens Now? Microsoft General Counsel Brad Smith said the company was considering an appeal of this judgment to the European Court of Justice, which could result in the penalties being delayed even further or stayed altogether until the entire case is resolved. Any such appeal would have to be filed within 60 days. Regardless of whether Microsoft appeals this judgment, Smith laid out the following timeline: Take applications for protocol licensing now. Microsoft has created a new program, the Work Group Server Protocol Program (WGSPP), through which organizations can license the protocols covered by the EC ruling. The program is similar to Microsoft Communications Protocol Program (MCPP), which was ordered by the U.S. Department of Justice and implemented beginning in 2002, in that organizations must pay licensing fees and sign agreements restricting what they can do with the protocols. Although many details of the WGSPP were not public as of Dec. 2004, licensees will probably not be able to share information about the protocols with nonlicensed competitors or incorporate Microsoft source code into an open-source application. According to Smith, the WGSPP will cover more protocols than the MCPP. (Presumably, if Microsoft decides to appeal the Dec. 2004 judgment and receives a stay, the company will reject WGSPP applications and/or revoke licenses granted through the WGSPP.) Ship stripped Windows in January. In Jan. 2005, Microsoft will begin offering a version of Windows without the Media Player to OEMs for shipment in countries in the European Economic Area (the EU plus Iceland, Liechtenstein, and Norway). PCs with the new OS, which Microsoft has dubbed Windows XP Reduced Media Edition, will become available to consumers in February. OEM demand for this version of Windows will probably be limited, as OEMs will get no discount on them and may receive more support calls as consumers receive new error messages or prompts to download the Player. However, there are some cases in which OEMs might find such a product appealing. For example, RealNetworks might strike a deal with an OEM to ship PCs with the RealPlayer installed in place of the Windows Media Player, or Sony might seek to bolster its digital media platform by shipping PCs with its own Sony Connect playback software in place of the Windows Media Player. (Presumably, if Microsoft appeals the Dec. 2004 judgment and receives a stay, it will delay or cancel its plans to ship this version of Windows.) Appeal of full case moves forward. Regardless of whether Microsoft appeals this particular judgment to get a further stay of the EC's penalties, the company will continue to appeal the EC's Mar. 2004 ruling—a process that could take several years to complete. The President of the Court of First Instance, Bo Vesterdorf, hinted in the Dec. 2004 judgment that he sees some validity to Microsoft's challenge. For instance, he acknowledged that Microsoft and competitors have integrated media playback functionality into OSs "for many years," and said that there may be positive market effects of standardizing on a particular platform (in this case, the Windows Media platform) even if that standardization is driven by a dominant company rather than the "competitive process" or "standardization bodies." The Court of First Instance is accepting written briefs in the case through June 2005 or later, and oral arguments are expected to begin in the fall. Resources A summary of the Court of First Instance's decision is available in PDF form at http://curia.eu.int/en/actu/communiques/cp04/aff/cp040103en.pdf. The full text of that decision can be found by visiting http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en, entering the case number "T-201/04 R 2" (with exact spacing) in the form, and clicking on "Submit." Microsoft's statement responding to the judgment is at www.microsoft.com/presspass/press/2004/dec04/12-22CFIRulingPR.asp. Two teleconference transcripts in which Smith discusses the judgment are available at www.microsoft.com/presspass/exec/bradsmith/12-22-04USCFITranscript.asp and www.microsoft.com/presspass/press/2004/dec04/12-22CFIRulingPR.asp. The full text of the EC's Mar. 2004 ruling is available at europa.eu.int/comm/competition/antitrust/cases/decisions/37792/en.pdf. To request information about the WGSPP, see www.microsoft.com/mscorp/legal/eudecision/. Microsoft's MCPP page is at members.microsoft.com/consent/info/default.aspx. |
