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Rivals' evidence used by EU in Microsoft ruling

By Robert McLeod
Bloomberg News

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BRUSSELS — The European Commission's antitrust ruling forcing Microsoft to strip its audio and video player from some versions of Windows relied exclusively on evidence from the company's competitors, according to the written decision.

The European Union's Brussels-based regulatory arm provides no evidence in the 301-page ruling obtained by Bloomberg News that consumers are harmed by Microsoft's bundling of its media player with Windows, which powers about 95 percent of personal computers. It relies instead on evidence from rivals such as RealNetworks, equipment manufacturers and content providers.

"This ruling is like Lewis Carroll's 'Alice in Wonderland,' " said Michael Holland, who manages $500 million at New York-based Holland & Co. and owns shares of Microsoft. "This has nothing to do with consumers, who are supposedly the ones the commission is designed to protect."

Competition Commissioner Mario Monti last month levied a record 497 million-euro ($594 million) fine on Microsoft and ordered it to share secret programming data and offer a version of Windows without a music and video player. The EU said the software maker illegally used its operating system to quash competition from developers of rival media players. Microsoft said it will appeal.

At the time, the commission gave few details about what led to its decision, nor did it release the ruling it had compiled after five years of investigating Microsoft. The commission is expected to officially release the ruling today.

The ruling should have been based on evidence from a variety of computer companies, not just competitors and consumers, Microsoft spokesman Jim Desler said. "The commission's decision opens the door for even a single complaining competitor to thwart innovation if their market position is harmed," he said.

Several phone messages left with commission spokesman Anthony Gooch in Washington and spokeswoman Amelia Torres in Brussels weren't returned.

The commission was right to focus on competitors in the media market, rather than seek evidence directly from consumers, said Ed Black, president of the Computer and Communications Industry Association, a trade group representing Microsoft rivals.

"The important decisions in this market are made by original equipment manufacturers, content providers and software writers," Black said. "They decide what the customer is getting."

As part of the same decision, the commission also ruled that Microsoft was using Windows to give it an illegal advantage in the market for software on servers, the larger computers that run corporate networks. As evidence, the regulator cites responses to questionnaires it sent to dozens of Microsoft's customers.
 
While rejecting Microsoft's claims that the media player is part of the operating system, the commission acknowledges that customers "expect to be able to play media content on their computer."

In paragraph 411, the commission says Microsoft's Windows Media Player is the only software of its kind on the market that provides all of the features of a music and video player for free. The ubiquity of the product encourages companies to develop software that assumes its presence, the document says. Media and content providers will produce material suitable for Microsoft's media format because it can do so at the lowest cost.

The document doesn't provide evidence as to how the consumer has been harmed by either of these actions. The commission's decision does detail the difficulties new entrants face in entering the market and problems encountered by rival media-player producers in getting access to consumer desktops.

The commission also rejects Microsoft's arguments that the operating system and Windows Media Player represent a single distinct product.

"The fact that the market provides media players separately is evidence for separate consumer demand for media players," the document says.

The commission also faults the "inconvenience" to consumers of downloading media players through the slower dial-up Internet connections that are predominant in Europe.

In its conclusion, the commission said it "does not purport to pass judgment as to the desirability of one unique media player or set of media technologies." It seeks to maintain competitive markets so that innovations succeed or fail on their own merits.

Information from Seattle Times technology reporter Kim Peterson is included in this report.

Microsoft plans to appeal EU's ruling, newspaper says

Microsoft will argue that the European Commission's antitrust ruling against the company contradicts legal precedent, the Financial Times said yesterday.

A memo circulated by Microsoft to its lawyers and economists and seen by the Financial Times describes arguments Microsoft plans to use in an appeal in June of the EU's ruling, the paper said on its Web site. Microsoft will accuse the commission of "seeking to make new law ... reducing incentives for research and development that are essential to global economic growth," the Financial Times reported.

Microsoft plans to ask in its appeal for a suspension of the commission's request that Microsoft give to competitors information about its programming code and that it sell a version of the Windows operating system without its Media Player software, the Financial Times said.

The EU decision also contradicts a U.S. settlement, the memo said. The requirement to unbundle Media Player from Windows "dismisses with a single comment the U.S. final judgment that regulates Microsoft conduct" on the matter, the paper said, quoting the memo.

Copyright © 2004 The Seattle Times Company