Three seconds that shook the world for Microsoft

By Ben Nimmo and Nicholas Rigillo Sep 17, 2007, 14:01 GMT

General Counsel of Microsoft, Brad Smith (L) looks on before the rendition of judgment at the Court of First Instance, the European Union\'s second-highest court in Luxembourg on, 17 September 2007. The European Union court dismissed Microsoft\'s appeal against an EU antitrust order that ordered it to share communications code with rivals and sell a copy of Windows without Media Player. EPA/CHRISTOPHE KARABA

Luxembourg - The European Court's key ruling on Microsoft's appeal Monday took barely three seconds to read, but its impact is likely to be felt for years to come.

'Ultimately, it could lead to a situation in which Microsoft loses its monopoly because it is finally open to free competition,' Thomas Vinje, president of the European Committee for Interoperable Systems (ECIS), told Deutsche Presse-Agentur dpa.

EU officials called the landmark decision a victory for consumers, paving the way for cheaper and more innovative computer products.

And the verdict, which handed the EU a clear victory over the world's most powerful company, enhances the Union's image as a global defender of competition law, they added.

In 2004, the EU ruled that Microsoft had abused its market dominance when it refused to publish so-called 'inter-operability' protocols which would have allowed servers made by rivals to work effectively with its Windows operating system, and again when it began selling that system with Microsoft's own media player.

An estimated 95 per cent of the world's personal computers use Windows, making Microsoft the most powerful player in the IT world.

On March 23, 2004, the European Commission (EC), the union's executive branch, fined the company 497 million euros (689 million dollars); ordered it to publish its inter-operability protocols and offer a version of Windows without the media player; and called for an independent trustee to oversee compliance.

Microsoft appealed the verdict in the EU's second-highest court, the Court of First Instance (CFI).

On Monday morning the court began its judgement by rejecting the EC's call for a trustee as having no basis in EU law.

Analysts had speculated that the rest of the verdict would be couched in such technical language, and balanced so evenly between the sides, that it would take days to interpret the details.

But presiding Judge Bo Vesterdorf simply read out, 'Two: (the CFI) dismisses the remainder of the application,' and sent shockwaves around the world.

Microsoft now faces what could be the stormiest autumn in its history. Last year the EC fined it an extra 280.5 million euro for failing to release its protocols as ordered, and that could well increase.

'Microsoft must now comply fully with its legal obligations to desist from engaging in anti-competitive conduct. The EC will do its utmost to ensure that Microsoft complies swiftly,' EU Competition Commissioner Neelie Kroes said in a statement.

But any further fine could well be the tip of the iceberg, because the EC now apparently sees Microsoft's massive market dominance itself as a threat to competition.

'The (market share) they have should diminish. And I am not thinking about a couple of percentage points, ' Kroes said on Monday.

Indeed, while the appeal was still being heard, Microsoft launched its Windows Vista operating system - and industry analysts say that poses exactly the same anti-trust questions as did the earlier case.

'We hope that the EC will pick up on this as well, because the precedent should apply,' said Georg Greve, president of the Free Software Foundation Europe, which backed the EC in the case.

If Microsoft does release its protocols, its allies have warned that this would kill innovation, because IT firms would assume that new inventions could no longer be treated as trade secrets.

But opponents say that publication would in fact stimulate competition - thereby putting still further pressure on the US firm.

For the EC, meanwhile, the ruling means that Brussels has avoided a massive blow to its prestige and credibility.

'This judgement confirms the objectivity and the credibility of the EC's competition policy,' EC President Jose Manuel Barroso said.

The timing is also crucial, as EU member France recently attacked the EC's view of competition as 'dogma' and called for the creation of state-backed 'national champions' to compete in the global market.

A negative ruling would 'play into the hands of those like France's President Nicolas Sarkozy who want to water down the EU's competition policy,' wrote economist Simon Tilford, of London-based think tank the Centre for Policy Reform, ahead of Monday's verdict.

Experts warn that the ruling's impact on overall EC competition policy should not be exaggerated, because no other company has a market position as dominant as Microsoft.

'I don't see this as having a significant impact on other (anti- trust) cases... the facts are so unique to Microsoft that they don't apply in any other context,' Vinje, a competition lawyer, said.

But whatever the final outcome, one thing remains clear: Vesterdorf's laconic pronouncement is set to go down in history as the three seconds that shook Microsoft's world.