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From The Times

September 18, 2007

Microsoft loses appeal against £342m EU fine over software sharing

David Charter, Europe Correspondent

Microsoft was left reeling yesterday after a bruising defeat at the hands of European judges who upheld a record fine on the software giant for abusing its dominant market position to crush competition.

In a landmark ruling by the European Court of First Instance, regulators won a comprehensive victory in a nine-year battle with the American company to force it to share its secret software codes and sell its products separately rather than in packages.

Microsoft executives said that they would comply with the European Commission’s demands to open up their products to greater competition, but vowed to study the 248-page judgment before deciding whether to appeal.

Anti-trust lawyers were divided last night over the wider implications but agreed Microsoft would have to make dramatic changes. Microsoft faces further complaints about the exclusivity of its Office and Outlook software, both of which it may now have to make much more open to competition.

The judges in Luxembourg supported a fine of €497 million (£345 million) and confirmed the Commision’s ruling that by bundling up Windows Media Player with its Windows operating system, Microsoft had damaged rival media players’ ability to compete. They also upheld an order by the Commission in 2004 that Microsoft supply technical information to other companies, such as Sun Microsystems, so that they can make their servers compatible with Windows-based software.

Microsoft had argued that owners of Windows-based PCs were not compelled to use its media player and that by sharing protocols, which were protected by patents, it was being forced to give away valuable intellectual property at little or no cost. “The court observes that it is beyond dispute that, in consequence of the tying, consumers are unable to acquire the Windows operating system without simultaneously acquiring Windows Media Player,” the judgment said. “In that regard, the court considers that neither the fact that Microsoft does not charge a separate price for Windows Media Player nor the fact that consumers are not obliged to use that media player is irrelevant.”

Neelie Kroes, the Competition Commissioner, said: “Microsoft cannot abuse its Windows monopoly to exclude competitors in other markets.” She said that the verdict should see Microsoft’s 95 per cent share of the PC software market reduce, but would not name a target figure.

Microsoft has argued that the ruling will stifle its creativity and that of other successful companies by forcing them to hand innovative secrets straight to rivals. Brad Smith, Microsoft’s general counsel, vowed to comply with the demands.

Microsoft lost on all major points, winning only a minor victory on the technical issue of the independent trustee appointed to oversee the company’s implementation of the ruling.

Christos Genakos, a research associate at the Centre for Economic Performance, said: “This ruling has reestablished the credibility of EU’s competition policy and proves decisively that there is scope for intervention even in fast-evolving industries.”

Maurits Dolmans, a lawyer with the City firm Clearly Gottlieb, said: “The Commission is not going to suddenly regulate everybody. Microsoft is really an exception, there is no other company in the world that has so many products out there for so many consumers – 90 per cent plus of the market, close to a billion PCs out there with Microsoft products.”

There have been many inovative companies that are no longer in existence because of Microsoft's effective monopoly, while bundling software initially appears to benefit the consumer the longer term result is less innovation. You need more than one company to really move forward. Would we have quad core processors now if it wasn't for AMD, would we have DR "Windows" had Microsoft not illegally made Windows incompatible with DR DOS?

Peter, Sydney,

Microsoft has continually plagerised almost all of its 'innovations' throughout its existence and has always come very close to the bottom of the class in both terms of quality of end product and value for money. Always half an operating system is released (service pack 1 & 2 problems anyone? Windows Millenium? Vista issues?) and hardly ever is anything actually useful innovated by Micro$oft. In my view the only reason that they have become a dominant force is the lack of knowledge of any alternative for end users and the bundling of software is the dominant factor in keeping an alternative product away from the minds of consumers; Openoffice, Mac OS, Linux, Safari, iTunes; not to mention the glut of other apps out there that are both free and do a better job. Surely this ruling is a step towards freedom of choice for the consumer and to a more informed decision of the technology that is integral to our way of living rather than the dictatorial consumerism of Microsoft type businesses

Steve, Devon, UK

In response to: "Don Quixot, Groningen, Netherlands" comments. Shut the Heck up!!!!. You would love to live in the USA we have more freedoms than anyone country that exists and have existed up to this point in history. Our government does not stifle of kill our citizens if they disagree and we do have a bunch of worthless organization here such as the ACLU, PETA, MoveOn.org, NAACP, etc.. Know as for MS or any company which makes a product I think it is completely wrong for any government to tell that company they must allow or give their ideas, secrets, patents, plans, etc.. to the competition or they have to allow someone elses product to work on their product or with their service(s). No one would want the government to come and tell them they must make the invention compatible for other companies to use.

Reformed1, Richmond,, USA, VA

To those who believe this to be such a wonderful idea am reminded that old adage ... be careful what you wish for!

jhpenner, Sambaqui , Brazil

The EU case is a nonsense. The economic and social philosophies which reign in the EU preclude the emergence of companies such as Microsoft whose products have proved their value throughout the world. The only beneficiaries from this verdict are the EU's coffers, not software end-users. The EU's economic decline will continue until it begins to understand and enter into the reality of global economics.

Faustino, Brisbane, Australia

Wrong decision, these Euro judges are playing with things beyond their scope.
Does anyone remember the time before Microsoft unified the PC market? When nothing was interchangable, different software for different makes of PC and data could not be exchanged?
These Euro judges are threatening crashing the world back to these dark ages pre Microsoft.
If I was Microsoft, I would stop supplying Europe with product until it comes to its senses

Terence Roels, codicote, herts

Bill Gates needs to put the EU out of Business now and refuse to sell his software to any of these ridiculous Eurocrats.
Well Bill, it seems that you are forcing people to use your software and stifiling competion - nonsense Microsoft just make the best software, cheaply. If you don't like it don't buy it , or don't even pirate it as most operating systems are pirated anyway and use Linux or some other crap
Office 2007 is the best office software I have ever used, don't be fooled into some anti-microsoft nonsense and buy any other software. Microsoft don't abuse their position, they are continually developing new software to improve the user experience.
I am not a microsoft employee, I just wish I was they are one of the best employers in the world too!!!

Tim, Dundee, Scotland

Just so I understand-- Microsoft cannot give away it's products without running afoul of EU regulators trying to guarantee that, what..? Stuff won't cost too much? If the Microsoft company had any guts (I'm sure events will prove that it doesn't) they should stop selling to socialist places like the EU. In other words, Galt 'em!

Scott, Burkburnett, TX

Ridiculous!
I use a third party Calculator Software over the MS one. Should Microsoft be sued for packaging a calculator, or backup facility or defragmentor?
Hell, I use VLC player and Winamp over media player.
It's not that hard to do, just download and install.

Phill Barlow, Wirral, England

Yea but the Key functionality of windows is ability to entertain that include internet, video, Gaming, and all other aspects I still think it is unfair to not have then be unistalled. but guess what you are using Windows explorer everytime you go to my documents. (to prove my point type open my documents then click on the address bar and type in a website). what most people dont want to realize is that its not the the way they do bussiness but the intellectual property laws. After all that is what allows them to keep the screts that they keep. this case will not change anything in the long term.

Tom, Artesia, CA

Pity the fine wasn't higher.

starling, Lancaster,

I honestly don't see this the same way the European courts do. What is wrong with streamlining components together? What is wrong with offering multiple services in one package? Windows Media Player is not mandatory to use at all and if you install another media player you can set it to be the default player in Windows. No mess, no fuss.

What are you going to do now? Sue Microsoft for including notepad in the operating system because including it hurts the word processor market?

Now other corporations are going to be afraid, if not already afraid, to bundle services for fear of being sued. Of course bundling services is cheaper, and more efficient for the consumer but don't try telling the EU that apparently. Thanks for potentially causing a fault in the market by trying to fix one. Good job EU.

Ryan, Norwich, Connecticut, USA

The Court is quite right. Microsoft has spent many years abusing its dominant market position.

This fight goes all the way back to 1998 and the launch of Windows 98, when Microsoft falsely claimed that it wasn't technically possible to separate Internet Explorer from Windows 98, in its unfair attempt to dominate the internet browser market.

Now it's making essentially the same claims to wrongfully dominate the media player market.

The fine, though, is too little. Only jail terms will deter a company of this size from abusing its position. Its only interest is in wiping out the competition. As a consumer, I say it needs to be stopped; because its interests are not our interests.

Ed, London, England

I doubt whether million pounds fine have any impact on their financial status!

Mohammad Salam, newcastle upon tyne, uk

Perhaps its time for Microsoft to reconsider it's position in Europe. Closure of it's research, and other centres, would hit the European economy more than the fine, in the longer term.

Barry Samways, London, UK

intellectual monopoly is not necessary for innovation and as a practical matter is damaging to growth, prosperity and liberty. More info you may find in:
Against Intellectual Monopoly by Michele Boldrin and David K. Levine. It's free to download from internet, just search for it. I cant leave a link here.

Robert Pastierovic, Bratislava,

Intellectual monopoly is really a bad thing. It should be vanished from legal systems as soon as possible for the benefit of growth, prosperity and liberty. Read this study for more info:

http://www.dklevine.com/general/intellectual/againstnew.htm
http://www.lib-books.com/author/boldrin_michele/boldrin_michele_against_intellectual_monopoly

Robert Pastierovic, Bratislava,

Sounds like a political judgement rather than anythng to do with law.
As to preventing others competing on a level playing field, surely that is the essence of the EU - imposing tariffs on imports, hitting poor nations, and of course internally giving some nations big subdies over others, France's agriculture cf Poland's - let alone ours.
Gross hypocrisy by a body itself deeply corrupt.

Blackstone, Witney, UK

Amazed at Bob Evans comments. What planet is he living on? On the other hand this is a rare moment where the European Commission actually got a relevant and increasingly topical issue right even if it did take them 9 years. Pity about all the other businesses that Microsoft has crushed / however the eggs are already broken on that score. This would never have happened in the US; perhaps there will be a backwash from this revitalising product development in an area that Microsoft thought it had completely sown up.

Terence Park, Burnley,

Finally somebody put a stop in their nasty way of doing business. Good going Microsoft.

Pacho, Miami, USA

I am very happy that it is not so easy to buy politicians and judges in Europe as in the US. I am proud of Europe, which does not have the governement of the rich for the rich by the rich as the US, or at least not so much.

The US is a giant Banana Republic, they go see Sicko and come out shocked. They should ask themselves and their government and media why it was almost a secret in the US that all industrial countries have a better social system.

It is thanks to the American definition of freedom, which means unlimited freedom for big money, and theoretical freedom for the rest. Only theoretical. Success is no carte blanche in the best social system mankind has known, the European Union.

Don Quixot, Groningen, Netherlands

Suddenly, in one fell swoop, the EU has caused me to make a 180-degree reversal in my opinion of Microsoft. Now, for the first time ever, I have sympathy for Microsoft!

Bob Evans, Anaheim, California

Microsoft doesn't innovate -- never has, never will.

Matt, Wuerzburg, Germany