RealTime IT News

EU-Microsoft Antitrust Talks Collapse

Discussions aimed at reaching an antitrust settlement between Microsoft and the European Commission have fallen apart, which means the world's largest software company is facing penalties and fines in the landmark antitrust case.

"I would just like to inform you that a settlement on the Microsoft case has not been possible," Competition Commissioner Mario Monti said in a statement from Brussels. "I therefore intend to propose to my colleagues in the Commission next Wednesday to adopt a decision, which has already received the unanimous backing of Member States."

The decision is widely believed to include a fine as well as an order that the company open up its Windows operating system so that other companies' server software can interoperate with it.

At issue are two questions: Did Microsoft limit the ability of other companies to create software that interoperates with its Windows operating system? And, did the company freeze out RealNetworks' RealPlayer by tying its own Windows Media Player into the operating system?

The penalties that Microsoft is facing could include a fine of up to 10 percent of its annual revenue. The EU could also require Microsoft to create a version of the Windows OS that doesn't include Media Player, and to include competitive players with the standard Windows package; and make its APIs more accessible to third-party software developers.

The breakdown of negotiations follows news that representatives of 15 European Commission member governments reached unanimous agreement on a draft decision that supports antitrust penalties against Microsoft.

EU spokeswoman Amelia Torres said the final decision, and the extent of the penalties the EU is proposing, will be released Wednesday, March 24.

In a statement, Microsoft's Chief Executive Steve Ballmer stayed positive. "I believe we reached agreement on the issues of the case. But we were unable to agree on principles for new issues that could arise in the future."

The statement also sought to emphasize the lengths the company has gone in the settlement talks. Microsoft said its officials had negotiated "virtually nonstop for the past several months with Commission officials, offering a number of proposals aimed at addressing the Commission's concerns about interoperability and media player technology."

One of Microsoft's proposals was to distribute competitors' software on a CD-ROM. However, that was believed to have been rejected because the EU saw it as an ineffective remedy.

"We worked very hard to try to resolve these issues without litigation," Ballmer said in the statement. "Because of the tremendous value we attach to our relations with governments all across Europe, we made every possible effort to settle the case, and I hope that perhaps we can still settle the case at a later stage."

Commissioner Monti confirmed that the talks had been extensive. "We made substantial progress towards resolving the problems which have arisen in the past but we were unable to agree on commitments for future conduct," he said. "In the end, I had do decide what was best for competition and consumers in Europe. I believe they will be better served with a decision that creates a strong precedent."

Herbert Hovenkamp, a professor of law at the University of Iowa and the author of numerous books on antitrust law, told internetnews.com that requiring an EU-specific version of Windows could hurt not only Microsoft but computer makers.

"Traditionally, OEMs have been reluctant to support two or more competing versions of the same software," he said. "They have the expense and headache of supporting two applications instead of one."

A potential unbundling order could also break new ground in antitrust [cases against Microsoft], Directions on Microsoft analyst Rob Helm said.

Microsoft's statement sought to defend its business practices. "We have to ensure that the law is not just about competitors' complaints about the impact of new features," said Brad Smith, the company's senior vice president and general counsel. "There needs to be consideration of the needs of consumers for new innovations. Consumers must be part of the equation. Perhaps the courts will provide the clarity that is necessary to resolve these issues. Today is just another step in what could be a long process."

Microsoft is expected to appeal the ruling after it is released on March 24th.