Microsoft To Unbundle Media Player by January

UPDATED: Microsoft said it plans to offer a version of Windows in European markets with its media player stripped out by January, following a European court ruling that upheld antitrust penalties against the company.

The ruling Wednesday by the European Court of First Instance is a blow to Microsoft, which had asked the EU high court to suspend antitrust penalties levied by the European Commission while its larger appeal worked its way through European courts.

The decision not only impacts the playing field for European competitors of Microsoft, but is expected to hit companies whose products have been built to be compatible with Microsoft’s Windows Media Player within Windows.

Brad Smith, Microsoft’s senior vice president and general counsel, said it was too soon to say if the company would appeal this ruling, but stressed that Microsoft would immediately begin complying with the penalties.

“Even if we make an appeal, we have to move forward with compliance,” he said during a conference call Wednesday. “We’re committed to working with the commission’s staff.”

That means two things: offering a version of Windows in Europe without media player, and opening up more access to its Windows server technology to more competitors.

He said Microsoft would launch a Web site later Wednesday where competitors can start to collect information about licensing Microsoft’s server communications protocols.

“There will be particular steps the company will go through,” he said. Already, Microsoft offers server licensing protocols to over 20 companies as part of its earlier antitrust settlement with the U.S. government.

“To a fair degree, that experience will apply going forward in Europe,” he said. “And I would generally expect that competitors would be looking for protocols that are not already available.”

The Free Software Foundation Europe (FSFE), which had intervened in the European Commission’s antitrust case against Microsoft, called the ruling a win for European consumers and said it was happy to see competition reestablished in the server market.

“Microsoft now will have to explain how they have arbitrarily modified public standards they use in their servers and work hard to re-establish competition in the small server market,” said Carlo Piana, the attorney representing the foundation. “On the other end, we are sure that it is an opportunity for the market to compete on quality of code and services, respecting interoperability,” he said in a statement to internetnews.com.

“This is a great success of an international community that is really able to coordinate and obtain excellent results: technical, legal and political. We have always thought that Microsoft’s arguments were poor and we are glad we were able to
explain this to the judge so well,” said Stefano Maffulli, Italian Chancellor of the FSFE.

Redmond’s Cause for Optimism, see page 2.

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Redmond’s Cause For Optimism

Microsoft’s Smith said the court’s ruling also provides it with “substantial cause” for optimism that it could eventually overturn the penalties.

For one, he said, the court noted Microsoft’s argument that it does not currently market Media Player separately from Windows, which “is incompatible with a fundamental element” of its business policy.

“More particularly, Microsoft maintains that Article 6(a) of the Decision causes damage to the Windows operating system ‘basic design concept.’ In substance, Microsoft thus invokes an interference with its commercial freedom,” the ruling said.

“In this context, it should be emphasised that implementation of the Decision would require Microsoft to market an operating system without certain media functionalities which in its view form an integral part of that operating system. The decision therefore interferes with Microsoft’s commercial freedom.”

“Furthermore, certain applications designed to function on the whole package consisting of Windows and Windows Media Player might not function satisfactorily in the Article 6 version, at least if that version should remain without a media player.”

The ruling continued: “In the circumstances of the present case it must be accepted that the interference with Microsoft’s commercial freedom, when considered as such and independently of its actual effects on the market, cannot be regarded as irreparable.”

Moreover, the ruling does not preclude the possibility that Windows Media Player would be restored, and will also continue in practice always to be bought with Microsoft’s operating system. Plus, it noted that Microsoft seriously doubts that Windows without Media Player would sell in “significant quantities.”

In its March ruling, the European Commission fined Microsoft a record $613 million (497.2 million euro), after it found the company abused its “virtual monopoly” with its Windows operating system and broke European antitrust laws governing competition. It ordered Microsoft to strip its media player from the Windows operating system within 90 days, and to allow more access to its application programming interface (APIs) for software companies within 120 days. Microsoft has already paid the fine.

Robert Badal, a partner in the law firm of Heller Ehrman White & McAuliffe, said if the penalties had instead been suspended, by the time the appeal process ended, the EU’s order to sever the media player from the operating system might be moot.

The European Court of First Instance is the judicial body that considers appeals of rulings by EU Commissions and other entities. Today’s is the first of two related rulings. A panel of judges will hear arguments in Microsoft’s appeal of the actual antitrust judgment, a process expected to take up to five years.

The hearing on Microsoft’s request for a stay in the judgment was handled as a separate matter from the appeal.

In June, Microsoft appealed the commission ruling.

Since the EU launched its investigation into Microsoft’s competitive practices in the first place, Microsoft has been settling long-running litigation brought against it by technology rivals.

In April, it announced it would pay Sun Microsystems $1.95 billion to settle
a patent infringement suit brought by the network infrastructure and software
vendor and signed a ten-year technology-sharing agreement. Sun was one of
the companies that complained to the European Commission about
Microsoft’s practices in 2000, setting off the investigation that led to the ruling
and fine.

In November, it also settled litigation with Novell and the Computer & Communications Industry Association (CCIA) involving antitrust charges. In return for $536 million from Microsoft, Novell said it would withdraw its intervention role in the European Commission’s antitrust case with Microsoft.

In addition, Microsoft joined the CCIA, a trade group that helped spur the European Union Competition Commission’s investigation into Microsoft’s practices in the first place.

According to the agreement, the CCIA will drop its push to have the U.S. Supreme Court reverse the Department of Justice’s antitrust settlement with Microsoft. It also will no longer participate as an intervener on behalf of the European Commission in Microsoft’s appeal of the Commission’s ruling.

RealNetworks , however, is suing
Microsoft in the U.S., and using the EU’s charges of abusing monopoly
power as part of its argument.

Smith said the company would complete testing of an additional version of Windows without media player in January and expects European resellers to have a version available to ship by February.

Updates prior version to add more ruling quotes and clarify Smith’s comments.

Susan Kuchinskas contributed to this story

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