EC vs. Microsoft: Much ado about nothing

Martha Bennett and Jost Hoppermann

It is probably fair to say that the European Commission (EC) is inclined to

take a tougher stance against Microsoft than we have seen in the United States.

Unfortunately, there is also now a chance that the Microsoft issue becomes a

bargaining chip in the wider US-EU trade dispute, which makes it doubly

inappropriate to try and second guess the potential outcome of the EU antitrust

investigation into Microsoft’s business practices.

It has been known for some time that the European Commission’s antitrust

investigation of Microsoft has not been influenced by the proposed settlement of

the case in the US, which is widely regarded as too lenient and not addressing

the core issues. Therefore, if its case against Microsoft is proven, the

European Commission is likely to take a tough line against the company. The

options include fining Microsoft up to 10 per cent of annual revenue, forcing it

to unbundle Media Player and other applications and open source code to

competitors, as well as combinations of the above. The potential consequences

for Microsoft and users of Microsoft products could of course be extensive and

serious.

Despite this, we do not recommend companies take action at this time, purely

based on speculative outcomes of this case. There are two main reasons for this:

Matters have been complicated further by the threat that the Microsoft case

becomes a pawn in the bigger game of the ongoing US/EU trade dispute. The first

move was made during the second week of May by Charles James, head of the US

Justice Department’s antitrust division, when he indicated in an interview

with the Financial Times that the US is unlikely to recognize the legal

principle ("monopoly leveraging") underlying the EU’s case. Not

surprisingly, this is not a line of argument that has impressed the European

side; in itself, the issue could, of course, be regarded as a matter of legal

hairsplitting. Unfortunately, though, this is not how politics works and the

matter has to be looked at in the wider context of steel tariffs and other

import/export taxes and subsidies, data protection legislation and so forth.

It is fair to say that, to date, nothing much has come of the European

Commission’s and individual EU countries’ attempts at imposing such

punishments. For instance, despite much posturing, nothing really happened in

Europe following the furor surrounding the inclusion of a disk optimizer in the

Windows operating system. Similarly, the loud barking about potential security

vulnerabilities in Microsoft operating systems was not followed by any

significant bite. But as the investment "health warning" goes, past

results are no indicator of future performance. This is not the first time that

Microsoft has been subjected to closer scrutiny in Europe, at the European Union

level as well as the individual country level. And many European governments

continue to voice concern about having software in use where the source code

cannot be inspected thoroughly for security reasons, and indeed we are already

seeing public organizations move to Linux in significant numbers.

We do not know at this point what the outcome will be of the EU’s antitrust

investigation of Microsoft. The Commission itself has remained tightlipped about

what action it may recommend and a decision could yet be months away. We may

well see wider political maneuverings intrude upon the case – all bets are

off.