EC may force Microsoft to sell two Windows versions

BRUSSELS - European Commissioner for competition Mario Monti may demand that Microsoft Corp. sell two versions of its ubiquitous operating system, Windows, in Europe: one with Media Player inside as it does at present, and another with the music and video playing software stripped out and sold separately, people close to the case said on Tuesday.

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Monti may also demand that Microsoft itself should propose "within a few months of a ruling" what Windows computer code it should reveal in order to make the operating system fully interoperable with rival software makers' programs for servers, which drive networks of PCs, one of the people said.

These likely remedies will come attached to a negative ruling that brands Microsoft an abusive monopolist, unless a settlement is reached during the next month to six weeks. A negative ruling is expected to carry with it a fine of at least $100 million.

Neither the Commission nor Microsoft would comment on the remedies. A Microsoft spokesman said the company is still pursuing "an amicable settlement."

An internal consultation within the European Commission has finished, and the proposed negative ruling drafted by the competition department in January has emerged "almost untouched", the person who insisted on anonymity said.

Erkki Liikanen, the commissioner for the information society, urged Monti to be tougher on Microsoft over the Media Player issue, while Frits Bolkestein, the commissioner for the internal market, warned Monti not to infringe Microsoft's intellectual property in the part of the ruling that concerns interoperability, the person said.

Last August the Commission told Microsoft that its practice of bundling Media Player into Windows amounted to an abuse of the operating system's dominant position because it placed rival music and video players at a disadvantage.

The Commission agreed with Microsoft's rivals, which argue that firms offering content such as record companies and Hollywood studios, which can be played on media players, will increasingly tailor their products exclusively for Microsoft's Media Player, because it will be the only player they are sure that people will have on their PCs.

Microsoft has argued that unbundling Media Player from Windows would prevent the operating system from working properly. It also fears the precedent that would be set if it did agree to separate Media Player from Windows.

Future software products, such as an Internet search engine which Microsoft plans to launch to compete with the Google search engine, count on the bundling business model Microsoft has employed with all its most successful software products including Internet Explorer, Word and Outlook Express.

Another person close to the case said the two operating systems solution would ensure consumer choice, while allowing Microsoft to preserve its existing business model.

The separate issue concerning interoperability is seen as the easier of the two to solve, the second person said. Last August the Commission said that Windows for PCs runs better with Microsoft's own server software than it does with competing products from companies including Sun Microsystems Inc.

This advantage amounts to an abuse of Windows' dominance, and the Commission urged Microsoft to reveal enough of the secret code that runs Windows to competitors to allow them to make server software that can run as smoothly with Windows as Microsoft's own server software.

The draft decision may order Microsoft to decide what must be revealed about Windows in order to ensure interoperability. "If the company fails to comply with the order it would open itself up to legal action in any national court in the European Union," one person close to the talks said, adding: "A negative ruling would set a dangerous legal precedent for Microsoft."

Bolkestein warned that ordering Microsoft to reveal code, which is protected by copyright, and to a lesser extent by patents, could make the Commission vulnerable to a legal challenge by the company at the European Court of Justice in Luxembourg.

Bolkestein's responsibilities include drafting Union-wide intellectual property protection laws. His department and Monti's team of competition regulators have often fought over how far rights holders should be allowed to protect their inventions.

European case law appears equally divided. Two separate cases involving the largest collector of pharmaceutical sales and prescription data in the world, U.S.-based IMS Health, appear to contradict each other on the question on intellectual property rights.

The Court overturned a Commission decision from 2001 ordering the firm to license the way it organizes drug sales data from the German market, because it said such compulsory licensing amounted to an infringement of IMS's intellectual property rights.

However, last year in a separate case against IMS referred to Luxembourg by a German court, a judge said the company might be abusing its dominant position by refusing to license the way it structures its information about the German market. A final ruling in this second case is expected in the coming months.