EC makes Microsoft climb down

Europeans championing anti-trust cases

WHO wants to share confidential information that would enable competitors to compete better? Almost no one, and certainly not Microsoft, which has been resisting attempts by the European Union and earlier by US regulators, to make it part with technical information which other software makers need to make their software work with Microsoft products.

The biggest software company in the world has a history of vigorously opposing all such attempts, but it has climbed down before the European Commission’s demands for Microsoft to provide its competitors better information that allows them to make products that will run well with the Microsoft operating systems or MS Windows.

This move against a perceived monopolistic attitude of this multinational company is seen by some as downgrading of intellectual property rights (IPRs) as seen against the rights of the consumer. However, it has also been widely welcomed and it will, in the long run, affect every consumer since it will make software markets more competitive, which often translates into better products at cheaper rates.
The nine-year battle started in December 1998 when Sun Microsystems, an American software company, complained to the European Commission (EC) that Microsoft was not giving it the inter-operability information which was necessary for its server software to inter-operate with servers that run Microsoft’s operating system (OS) or Windows. An estimated 70 per cent of the servers used worldwide run on Microsoft OS. Incidentally, more than 90 per cent of PCs run on Windows.
The complaint triggered the anti-trust investigation against Microsoft and on March 24, 2004 the EC ruled that by not giving competitors in the server OS market the information that would enable their products to work with Windows, Microsoft had abused its dominant position in the PC OS market. It also ruled that by bundling or tying Windows Media Player with the Windows OS, Microsoft has thwarted competitive products. The company was fined 497 million euros and it was ordered to improve its behaviour.
Microsoft challenged the ruling, calling it “fundamentally flawed in fact and reasoning.” Later, it brought out a version of Windows without the Media Player, but did not do much to tackle the issue of sharing information with its rivals. The Windows without the Media Player did not sell well at all. The case continued till on April 2006 when the European Court of First Instance heard Microsoft’s challenge, and reaffirmed the original decision.
It later imposed on Microsoft a new fine of 280.5 million euros for non-compliance with its obligations. Later, on March 1, 2007 Microsoft was told by the commission that it would face more penalties – up to three million euros per day because of its unreasonable pricing of the inter-operability information.
Following negotiations between Ms Neelie Kroes, European commissioner for competition policy and Steve Ballmer, chief executive of Microsoft, the pricing has become remarkably reasonable, as even Microsoft’s critics will acknowledge. The company has dropped its demand for a royalty of 2.98 per cent of the money made from software developed using Microsoft protocols. It will now accept a one-time fee of 10,000 euros. It has also slashed the original demand of 5.95 per cent of product revenues for a worldwide patented licence to just 0.4 per cent.
Microsoft has been accused at various points of time in many countries of exploiting its monopolistic position and violating anti-trust laws. That its rivals, American companies like IBM, Red Hat and Sun have approached the European Union to bring up their anti-trust charges shows how geographical location of multinational companies has ceased to matter as they compete for global consumers.
Even in the US, Microsoft has faced anti-trust charges. In 1994 Microsoft agreed to the U.S. Justice Department’ s demand to cease making computer-makers pay a fee for every PC sold, whether or not it contained Microsoft software. In 1998, Microsoft was sued by U.S. Justice Department and 20 states which charged it with stifling competition to extend its monopoly. Later the same year, the Justice Department alleged that Microsoft had violated the 1994 agreement by making computer makers bundle Internet Explorer along with Windows. It had settled the cases in 2002 and signed a “consent decree” with the Bush administration.
The US Justice Department maintains that the consent decree has served its purpose, and Microsoft has worked hard to implement the decree’s requirements and has changed its business practices as a result. However, some US state governments have said they will seek to extend the requirements of the decree till 2012. Microsoft will certainly be battling on various legal fronts, as will other MNCs.
American companies that complained against Microsoft to the EC did so because they hoped for a more favourable response from the commission than they had got within their own county. Right now, the EC is seen as the most aggressive anti-trust body and as such it is attracting more and more cases.
Even as the US Justice Department recently announced that it would not be investigating complaints against Intel’s business practices, EC regulators are looking into whether Intel urged Media Markt, the largest consumer electronics retailer in Europe, to exclude computers that used chips made by AMD, its rival. Google too has recently addressed EC concerns over its plans to buy the online advertising company, DoubleClick Inc.
Clearly, the EU has filled into a vacuum that existed in regulating large multinational companies, and for many American corporations, this is not quite the way they expected globalisation to go.

This article was published in The Tribune on Monday, October 25, 2007

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