Microsoft, EC ready for showdown

The one ally both Microsoft and the European Commission need most when they meet in a courtroom in Luxembourg this week is time.

More than two years have passed since Europe's top antitrust authority found Microsoft guilty of monopoly abuse, fined it €497 million ($614 million) and ordered it to change the way it sells software across the European Union.

Events in the technology industry during that time will feature prominently in Microsoft's appeal of the antitrust ruling of 2004. They will also be used by the Commission, Europe's top antitrust authority, to defend its decision.

The Court of First Instance, Europe's second highest court, has set aside the whole of this week to hear the appeal, devoting two whole days to the two separate sides of the case plus one day to debate Microsoft's request for a reduction in the fine.

It's a big deal for the court. General Electric and Honeywell's appeal of the Commission decision to block their merger in 2001 was the most recent high profile hearing and that was over in a day.

If time is on Microsoft's side and the company succeeds in persuading 61-year old Judge Bo Vesterdorf that its behavior hasn't harmed competition, then it will be able to continue the profitable strategy of bundling new software features into its ubiquitous Windows operating system.

"At issue is whether companies can improve their products by developing new features," Microsoft said in a statement. "There is healthy competition and interoperability in all the markets covered in this case and we will bring those facts to the court next week."

Two years ago the Commission ordered the company to launch a second version of Windows with no Media Player, the company's music and video playing program, attached.

Bundling Media Player into Windows put rival players, such as RealPlayer made by RealNetworks and QuickTime from Apple Computer, at a competitive disadvantage, the Commission concluded.

Next week Microsoft will cite Apple's success with its iPod portable music player and iTunes, its music portal on the Internet as proof that competition and innovation in this sector of the software market is buoyant.

"The Commission's theory was that the market would tip irreversibly in Microsoft's favor if Media Player remained integrated in the operating system, but there's no evidence of this happening," said Jonathan Zuck, president of the Association for Competitive Technology, a trade group supporting Microsoft in court next week.

"The market is thriving," he said. "Apple is doing very well and there's a new media player called Flash, owned by software maker Adobe, which has a bigger market share than both Microsoft's Media Player and QuickTime," he added.

The Commission was unavailable to comment but Thomas Vinje, a partner in the Brussels office of law firm Clifford Chance, who will be representing one of the Commission's key allies at next week's hearing, dismissed Microsoft's interpretation of the facts.

ITunes is not strictly speaking a media playing program, he said. "There is some overlap with media players, but the arrival of iTunes hasn't made any difference to the ability of media players such as RealPlayer to penetrate the market," Vinje said.