EU Gives Microsoft ‘F’ for Antitrust Effort

Microsoft continues to abuse its market position to gain market share, particularly in the business server software space where earlier antitrust penalties were aimed at boosting competition, the European Union’s top regulator told the European Parliament Thursday.

The market situation is “not acceptable” some three years after the European Commission found Microsoft had violated antitrust regulations and issued record fines and other penalties meant to correct the condition, stated Neelie Kroes, the antitrust commissioner for the EU.

“Microsoft is constantly gaining market share and that is what is worrying me in the work group server operating market,” she said.

Growing Market Share

Data shows that Microsoft’s share of the server market continues to grow, Kroes noted. While the company’s share of the market was between 35 percent and 40 percent when the investigation began, it had grown to 60 percent by the time of its 2004 ruling against Microsoft and now may be as high as 75 percent.

Microsoft did not immediately respond to a request for comment on Kroes’ remarks.

The server market was one of the main focuses of the earlier antitrust inquiries and penalties from the European Commission. Hoping to boost the ability of Europe-based firms to compete in the server software space, the commission ordered Microsoft to share its source code for business versions of Windows to enable third parties to produce products that worked with the dominant operating system.

Tough Nut to Crack

That requirement has also proved the most controversial, with several passes at compliance by Microsoft being met with a thumbs-down from regulators who said Microsoft had made it took expensive or too complicated for rivals to join the code-sharing program.

Microsoft has said it has spent millions of dollars and invested thousands of worker hours into compiling and documenting the code to get it ready for sharing and has argued that its licensing terms were reasonable.

Still, the EC has levied follow-up fines against Microsoft, saying it has not done enough to meet the requirement. Earlier this month, the commission boosted the daily fines Microsoft faces not failing to bring its documentation program in line with expectations to US$4 million per day. Those new fines could go into effect next month.

Making Concessions

Microsoft recently announced it had signed up its first licensing customer under the deal, inking a pact to share its communications protocols with Quest Software. Microsoft said the deal calls for it to receive a 5.25 percent commission on future sales of Quest products — which help businesses manage disparate IT systems — that use the Windows information.

The EU has not commented directly on whether that deal indicates a change in how competitors view the Microsoft program.

The companies pressuring the EC to require more from Microsoft are larger rivals such as Sun Microsystems and IBM, which may be more interested in forcing Microsoft to make more concessions than in actually obtaining interoperability, Enderle Group analyst Rob Enderle told the E-Commerce Times.

“There’s a growing sense that Microsoft won’t be able to make the regulators happy regardless of what they do,” he commented. “The company is in a very difficult position.”

Waiting Game

Key rulings from Europe’s Court of First Instance could come by the end of the year, the EU’s Kroes stated. Microsoft has appealed the EC’s original finding that it abused its market power and acted illegally to squelch competition even though it has complied with most of the penalties, paying a record $650 million fine and releasing a version of Windows that does not have the Windows Media Player bundled with it.

The courts may offer the best hope for relief for Microsoft, Enderle said. In addition to the ruling expected later this year, Microsoft may avail itself of the right to appeal any decision to a higher court. While such a move could add years and millions of dollars of costs to the battle, Microsoft may determine it’s the best option it has.

“Microsoft has settled dozens of suits because it wants to focus on the competitive challenges at hand,” he added. The fact that it can’t achieve the same result in Europe on terms that it finds reasonable must be a source of frustration, Enderle concluded.