Microsoft Pressures EU Court on Price

A European judge must sort through competing ideas on the balance between
intellectual property and fairness to decide whether antitrust penalties against Microsoft should be suspended.

But Microsoft warned the court that if the penalties stand during what could be a lengthy appeal, Europeans will bear the brunt, having to pay more for a modified Windows operating system.

On Friday, the European Court of First Instance (CFI) concluded hearings
on whether it should let Microsoft off from the judgment imposed by the
European Commission in March: a $613 million fine, production of a version
of the desktop operating system that does not include Windows Media Player
and the opening its server APIs to rivals. Microsoft already paid the fine,
but is asking for the money back.

In the second day of hearings, Microsoft attorneys evidently threatened
to raise the price of a playerless version of Windows produced for the EU.
In remarks to reporters after the hearing, Microsoft General Counsel Brad
Smith said, “I thought it was certainly noteworthy that it was so clear that
the remedy imposed by the Commission will impose literally billions of euros
of cost upon European consumers and European software developers, and the
European Commission didn’t seem to contest that fact. It simply thought that
that cost was an appropriate price to impose as part of this remedy.”

Microsoft officials were unavailable for comment to confirm that the
company would to charge extra for an EU-centric version of Windows that
doesn’t include the media player. A spokesperson did not know how much
Microsoft planned to charge.

Judge Bo Versterdorf of the CFI has the sole authority to stay the
judgment while Microsoft’s appeal plays out before a three-judge panel of
the CFI, a process expected to take as long as five years. Vesterdorf is
expected to rule in two or three months.

In the two-day hearing on the suspension of penalties, Microsoft argued
that licensing the server APIs to competing server software vendors would
irrevocably damage its intellectual property. The company also maintains
that the media player is an integral part of the operating system; and
therefore it should not be required to remove it.

Redmond executives have confirmed, however, that they are prepared to
comply with all aspects of the judgment. If the penalties aren’t suspended,
Microsoft would have to produce a player-less Windows.

Regarding the Commission’s demand that Microsoft license its intellectual
property in the form of its server APIs, Microsoft continued to claim that
such a ruling would stifle innovation.

Microsoft General Counsel Brad Smith told reporters at a news
conference, “Compulsory licensing is appropriate only when taking IP rights
from a primary market and licensing into a secondary market. That’s not what
this case is about. And compulsory licensing is appropriate only when
intellectual property rights are indispensable for companies to enter a
marketplace. Clearly, that’s not what this case is about, either.”

Smith referenced the European Court of Justice’s (ECJ) April upholding of
a demand by the European Commission that IMS, a
provider of market research to the pharmaceuticals industry, license its
data format to rival NDCHealth. While the ECJ ruled to enforce the penalty
in that case, it at the same time narrowed the circumstances in which
compulsory licensing is warranted.

Real Networks appeared at the hearing to ask the CFI
to deny Microsoft’s request for a stay on the requirement to produce a
version of Windows with Media Player stripped out. Dave Stewart,
RealNetworks deputy general counsel, testified during the hearing that
Microsoft’s practice of bundling Windows Media Player with Windows
effectively locked it out of the market.

“There are two differing perspectives before the Court,” Stewart said in
a written statement. “Real is about innovation and competition, and
Microsoft is about extending its Windows monopoly.”

Stewart pointed out that, despite what it characterized as Microsofts
predatory behavior, RealNetworks has successfully diversified its business
to include the Helix player for mobile devices. “We continue to compete and
grow our business
in exciting new directions, from music to games to mobile services,” he
said. He said that RealNetworks’ deals with mobile phone manufacturers and
Linux OS providers showed the effects of open competition.

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