RealTime IT News

Microsoft Begins Defense of Self Against EU

Microsoft began its bid to overturn a 2004 $613 million antitrust fine by saying the European Commission decision "must be annulled."

The software giant, by bundling its media player with Windows, will become the Internet's gatekeeper, according to opponents.

The 13-judge court, the second-highest European legal body, will listen to five days of testimony.

Microsoft lawyer Jean-Francois Bellis told the Court of First Instance that a 2004 EC has "failed to demonstrate that Microsoft has unlawfully tied two separate products, and, for this reason alone, its decision must be annulled."

European predictions that the software giant would swamp competitors wasn't realized, he said, and the regulators requiring Microsoft to develop a version of Windows XP without Windows Media Player has languished uninstalled.

To support its claim, Microsoft released figures indicating only 1,787 copies of Windows XP N were sold in Europe, compared to 35.5 million copies of a full version of Windows XP Europe.

No PC makers ordered or preinstalled Windows XP N. The numbers showed the EC demand "has been completely ineffective," according to Matt Rosoff, analyst with Directions on Microsoft.

While Microsoft knows of no consumers purchasing Windows XP N, Bellis said some people may have bought the stripped-down version as a souvenir.

"The failure to offer a product which nobody wants cannot be an abuse," testified Bellis.

Citing the lack of demand for a version of XP without a media player, the Microsoft lawyer said the European regulators have failed to show the company unlawfully tied two separate programs together.

Echoing the statement, a spokesperson for the Computer Technology Industry Association (CompTIA) said the EC demands have "all the hallmarks of regulator caprice, carefree whim and arbitrariness," according to a statement from Hugo Lueders, the group's EU Policy director.

Lueders, who testified before the court, said the order removing the media player "was based on the fallacy that consumers are 'forced' to use Windows Media Player when in fact consumers can and do use any media player they desire," according to Lueders' remarks.

Microsoft also said another EC requirement -- that the company license to rivals technical data enabling them to produce applications that work with Windows -- would hurt Redmond's ability to compete.

Microsoft asked whether companies should "relinquish their intellectual property rights so that competitors can copy the very same technology and include it in directly-competing products," according to a statement.

This "right to innovate" argument is key to Microsoft's reason for appealing the original ruling, according to Rosoff.

Led by IBM, Oracle, Sun and other rivals, the European Committee for Interoperable Systems (ECIS) testified in support of the EC's sanction.

The group called Microsoft's claims of little demand for the Windows XP N remedy "disingenuous." If Microsoft had not bundled Windows Media Player with its operating system, consumers would likely use competing applications. Instead, "competition was largely eliminated and consumer choice as well," according to a statement.

The ECIS pointed to internal Microsoft documents to allege the software goliath was guilty of dominating the European market. In one document, Bill Gates refers to media players as "a strategic area and we need to win it."

The group said this fundamentally and deeply distorted competition.

Although Microsoft points to Apple and Adobe successfully competing with Windows Media Player, ECIS said the example was comparing apples to oranges.

Microsoft says the number of media players pre-installed on each European computer has risen from 1.4 in 2004 to 3.2 in 2006.

The focus by the EC on the media player is "weak and contrived," Laura Didio, a Yankee Group analyst, told internetnews.com. Unlike the browser battle, where Microsoft crushed Netscape, media players can be downloaded in minutes, according to Didio.

The EC's decision to demand Microsoft produce and sell a separate version of Windows XP without the media player was spiteful, counterproductive and didn't serve consumers, according to the analyst.

"Microsoft was forced to pay tens of millions to produce a version of its OS that resellers refused to stock and sell," Didio said.

No minds were changed during the first day of testimony. "There were no surprises," said Didio. Rosoff agreed: "Most onlookers are pretty well set in their opinions of Microsoft."

"Microsoft and the EC came out swinging and then retired to their respective corners," said Didio.

"This will be a protracted, bloody battle. The stage is set for irresistible force to clash with immoveable object over the next 12 to 18 months," she added.

Next up: the EC replies and Microsoft addresses communications protocols and intellectual property.