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EU Takes up Windows Media Integration

The European Commission opens hearings today over whether Microsoft's integration of its media player and server software with the Windows operating system is stifling competition there.

The case could revive and even extend antitrust litigation beyond charges Microsoft has settled in the U.S.

The hearing, which Microsoft requested, is seen as reviving long-running arguments over the company's business practices that resulted in antitrust charges and settlements in the U.S. over the software giant's practice of bundling its Internet Explorer browser with its Windows operating system. But it also comes with a heightened possibility of major fines by the EU over issues that reportedly extend beyond U.S. antitrust charges that have largely been settled.

The three-day hearings, expected to be closed to the public, are partly the result of complaints that were lodged to the EU in 1998 by Sun Microsystems that alleged Microsoft abused its market dominance with its operating system in order to engage in anti-competitive behavior with technology rivals.

The EU later officially brought charges that Microsoft used bundling tactics with Windows to dominate the market for server software. In the upcoming hearings, EU regulators are expected to focus on two main issues. One is regarding the interoperability of different server software into the Windows operating system, and the other involves the integration of its media player into Windows. Published reports in the Financial Times and Associated Press Wednesday also said EU officials were looking for more information regarding new charges from rivals that contend Microsoft is using Windows XP to bundle other services for mobile phones or even instant messaging.

Brad Smith, general counsel of Microsoft, told shareholders at the company's annual meeting Tuesday that it "welcomes the opportunity to provide our point of view on these issues and we are also very committed in continuing these discussions with the European Commission."

The hearings come at a time of growing tensions between the U.S. and European regulators on trade and foreign policy issues, not least of which include a rejection by the World Trade Organization of steel tariffs imposed by the U.S., and many European countries' objection to the U.S.-led war in Iraq.

The Wall Street Journal reported Wednesday that if Microsoft is not able to persuade EU trade officials to drop the case, the company could face a fine of as much as $3.2 billion, about 10 percent of the company's global revenue, and be forced to make major changes in its worldwide business practices, "although the commission has never imposed a fine that large."

According to a confidential statement by the European Commission that the Journal said it was able to review, the EU charges over Microsoft's alleged antitrust violations continued after the U.S. settlement, which the commission said didn't address the types of anti-competitive conduct found in the EU's investigation.

In August, the report continued, the EU's executive arm said that Microsoft may have violated EU law in the emerging markets for music and video software.

Smith said Tuesday that Microsoft has been able to work out anti-competitive charges with the U.S. Department of Justice, "and with 19 of 20 states that brought litigation here in the U.S. We're hopeful that in coming weeks and months we'll similarly be able to work things out with the EU."

As internetnews.com has previously reported, the U.S. settlement of the landmark case against Microsoft, which was reached in 2001, does not prevent Microsoft from tying software such as its Web browser, e-mail client and media player with its operating system, which initially had been a cornerstone of the government's case.

However, the settlement broadly defines middleware, including browsers, e-mail clients, media players, instant messaging software and future middleware developments. It goes on to require the company to provide software developers with the APIs used by Microsoft's middleware to interoperate with its operating systems, allowing developers to create competing products that can utilize the integrated functions Microsoft includes in its own middleware.

It also gives computer manufacturers and consumers the freedom to substitute competing middleware software on Microsoft's operating systems.

The U.S. antitrust settlement also prohibits Microsoft from retaliating against any PC manufacturers or software makers for supporting or developing competing software. Additionally, it requires the company to license its operating systems to PC manufacturers on uniform terms for five years. It also bans Microsoft from entering into exclusive agreements.

Microsoft also agreed to ensure that non-Microsoft server software can interoperate with Windows on a PC the same way that Microsoft servers do. The settlement also includes a provision for a panel of three independent monitors to have full access to the company's books, records, systems (including source code), and personnel for five years.

U.S. courts would have the option to extend that period for another two years if it was found that Microsoft violated the settlement.

Microsoft was recently warned by the DOJ that its "Shop for Music Online" feature that automatically loads the Internet Explorer browser on XP systems could amount to a violation of the agreement.

According to federal documents in the case, the Justice Department and more than a dozen state attorneys general are concerned that the "Shop for Music Online" default link in Windows XP invokes Microsoft's market-leading Internet Explorer browser even if it is not the default browser on a user's system.

The DOJ argued that the feature "may be inconsistent" with the Windows antitrust settlement. Microsoft has denied the design of the feature was in violation of the antitrust agreement. "The use of Internet Explorer by the 'Shop for Music Online' link is consistent with design rules established [in the consent agreement]. We will continue to work with the government to address any concerns," a Microsoft spokesperson said at the time.

Reporting from Ryan Naraine and Thor Olavsrud contributed to this story