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European Commission Expands Microsoft Antitrust Probe

As Microsoft Corp. prepares to once again face off with the U.S. Department of Justice in circuit court, the European Commission Thursday stepped up its own proceedings against the Redmond, Wash.-based software giant.

In a Statement of Objections released in Brussels Thursday, the European Union's competition watchdog said it has "informed Microsoft Corp. that it believes that the U.S. software company may have violated European antitrust rules by using illegal practices to extend its dominant position in the market for personal computer operating systems into the market for low-end server operating systems." The commission also alleged that Microsoft has illegally tied its Windows Media Player to its Windows operating system in a similar fashion to the way it tied its Internet Explorer browser to the operating system -- a strategy that caused the commission to launch a probe into the company's practices in the late 1990s.

The Statement of Objections -- a formal step in European antitrust proceedings -- concerns Microsoft's Windows 2000 operating system, not the company's forthcoming Windows XP OS, expected Oct. 25. The commission said its decision to file the statement followed an "extensive investigation into Microsoft's Windows 2000 operating system which was launched in February 2000."

But while the commission has no plans to seek to block the launch of Windows XP or any other Microsoft product in Europe, as confirmed by Microsoft Thursday morning in discussion with EC staff, a decision that goes against the company could spell trouble for that operating system. Windows Media Player is bundled with XP just as it is with Windows 2000, and Microsoft appears to have even bigger plans for it. The company is quietly hatching plans to build a streaming media ad network, based the newest version of the Windows Media Player software, which will ship with XP.

Meanwhile, Microsoft said it is currently reviewing the commission's new allegations and believes the new issues are "discrete and limited in scope."

"We are confident that once it has completed its investigation, the European Commission will be assured that we run our business in full compliance with EU law," said Jean Phillippe Courtois, president of Microsoft EMEA. "We take our responsibilities in Europe very seriously, working hard to ensure that Windows works well with products from other companies. This is a key requirement from our customers, and it is only by responding to their needs that we can remain competitive."

But the European Commission maintains that Microsoft is in fact using its dominant position in the industry to block competition.

"The commission believes that Microsoft may have withheld from vendors of alternative server software key interoperability information that they need to enable their products to 'talk' with Microsoft's dominant PC and server software products," the commission said in its statement. "Microsoft may have done this through a combination of refusing to reveal the relevant technical information, and by engaging in a policy of discriminatory and selective disclosure on the basis of a "friend-enemy" scheme.

"Furthermore, the commission believes that Microsoft may have reinforced this strategy of extending its dominance from the PC to the server through the operation of an abusive licensing policy for Windows 2000. Under the Microsoft scheme, if customers choose not to use an all-inclusive Microsoft scenario for PCs and servers, but decide to use competing server products, they are forced to bear a double cost. The effect of this policy may be to artificially drive customers towards Microsoft server products, reducing choice to the detriment of the final customer."

Mario Monti, competition commissioner, added, "Server networks lie at the heart of the future of the Web and every effort must be made to prevent their monopolization through illegal practices. The commission also wants to see undistorted competition in the market for media players. These products will not only revolutionize the way people listen to music or watch videos, but will also play an important role with a view to making Internet content and electronic commerce more attractive. The commission is determined to ensure that the Internet remains a competitive marketplace to the benefit of innovation and consumers alike."

The commission's decision to send the Statement of Objections was hailed by the Computer & Communications Industry Association (CCIA), an official intervener in the commission's investigation of the company.

"It is not surprising that the commission has found that Microsoft's continuing anticompetitive behavior has harmed consumers and stifled innovation," said CCIA President and Chief Executive Officer Ed Black. "Microsoft's conduct is so pervasive and persistent, that it is understandable that yet another antitrust authority has concluded there is cause for concern. Microsoft's fundamental strategy is to leverage their Windows monopoly into market after market. This strategy serves to both protect and extend the Windows monopoly. The commission's investigation focuses on the workgroup server market comprised of less powerful and less expensive servers that are typically used to enable groups of people to share files, send e-mails, share a printer or connect to the Internet. Unfortunately, while this case has been pending, the competitiveness of the server market has seriously deteriorated as a result of the practices by Microsoft now characterized by the commission as anticompetitive. Microsoft's share of this market is now approaching 60 percent worldwide."

The commission noted that a statement of objections does not prejudge the final outcome of any antitrust proceedings. Microsoft now has two months to formulate a written response to the statement. The company also has the right to access the file compiled by the commission and request an oral hearing to present its case.