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EU and U.S. Diverge on Antitrust Law

Global companies may have to apply local rules to their business practices in light of European court ruling that upheld antitrust penalties against Microsoft , attorneys said.

By forcing Microsoft to play by European rules and comply with court orders, such as the ruling that forces Microsoft to strip Media Player from Windows in Europe, the European Commission may hope to set a precedent for controlling corporations with a firm hand.

Microsoft General Counsel Brad Smith played down the significance of today's ruling.

"The truth is we're all going to have to wait until the merits of the case are decided before there is any judicial precedent in Europe."

Robert Badal, a partner in the Los Angeles office of Heller Ehrman White & McAuliffe, and who specializes in intellectual property law, believes the ruling illustrates a growing gap between the approaches of the EU and the U.S. to intellectual property. He also said he thinks the ruling will stifle innovation.

Judge Bo Vesterdorf's decision not to grant Microsoft a stay from the penalties while it appeals the European Commission's antitrust penalties, he said, illustrates that the EU is quick to conclude that a company should be compelled to share its intellectual property with competitors. Heller Ehrman has represented Microsoft, but not in this matter.

"This will have a chilling effect on innovators," he said, adding that there is a direct correlation between the amount of innovation a company produces and the risk of being forced to share those innovations with competitors.

Directions on Microsoft analyst Matt Rosoff said, "What Microsoft doesn't want is a legal precedent under which a government agency can tell Microsoft what it can and can't put into Windows. And I think what the EC is trying to do is create that legal precedent."

The European Court of First Instance refused to relieve Microsoft from complying with the judgment levied by antitrust regulators, thereby enforcing penalties that go much further than what the U.S. Department of Justice imposed in an antitrust settlement.

Microsoft asked the EU high court to suspend the judgment levied by the European Commission in March.

Badal said suspending the penalty would have been the proper thing for the court to do.

"A suspension would [have been] in order, because if the penalties go in effect, you've gutted the appeal," Badal said. If Microsoft were forced to share its intellectual property, and then prevailed in the appeal, the harm would be done, Badal said.

On the other hand, if the penalties had been suspended, by the time the appeal process ended, the EU's order to sever the media player from the operating system might have been moot. Microsoft plans to release Longhorn, its next-generation OS, in 2006. Since Longhorn is being built from the ground up, Microsoft could argue that the 2004 ruling does not cover it -- if the operating system even contains something called Windows Media Player.

"Microsoft was asking the court to take a huge leap of faith pending outcome of final decision," said Andre Bywater, an attorney in the Brussels office of Eversheds, LLP. He said that in domestic cases in both the UK and France, it's extremely difficult to persuade courts to suspend judgments.

In fact, in a press conference, Smith noted that the ECJ grants interim relief from the judgment only 17 percent of the time.

CompTIA, a computer industry trade association of which Microsoft is a member, said the ruling would have negative consequences for the IT industry and consumers.

CompTIA general counsel Lars Liebeler pointed out that the issue of Microsoft's bundling the media player with the operating system had been intensely litigated in the U.S. "How do you resolve two giant jurisdictions coming up with different rules of law?" he asked. "That puts a pretty heavy burden on industry.

Taking into account the EU's approach to intellectual property, Badal said, is "clearly a cost of doing business globally." But he doesn't believe that any products developed using the server protocols Microsoft was forced to license will limit the damage. "The products will certainly slip out into other markets," he said.

Bywater said that the European Commission has been criticized in the EU for its concentration of judicial power. "The Commission is jury and judge and hangman, and you can't go to appeal and get a judgment in a couple of months," he said.

"For the Commission's decision, Microsoft will have had a hearing behind closed doors where you just have the Commissioner sitting at the end of a big table nodding sagely. I'm sure Microsoft would have found that frustrating," he said. The actual appeal of the ruling, which will take place before a panel of five judges in the Court of First Instance, will be more like the U.S. Supreme Court operates, Bywater said.

"EU court procedure is very much a written procedure," Bywater added. One judge, acting as rapporteur, will prepare an internal report and recommendations for the ruling. Vesterdorf will have to defend or support his ruling, as the judges argue together. Oral arguments before the court will be limited. However, the judges must reach consensus.

Bywater said that Vesterdorf's ruling can be viewed as a snapshot of the court's thinking on the case. But in another three years, after having reviewed all the documents and had a full hearing, Bywater said, "He might come to a different decision."

Erin Joyce contributed to this story.