Microsoft Says EU Overreached in Antitrust Case

Continuing its epic battle against the European Union’s antitrust arm,Microsoft plans to argue in court that regulators overstepped their boundaries and violated international law. They did so, the U.S.-based company charges, by imposing sanctions that require it to share its technology with rivals.

Microsoft also contends that its ability to innovate — and that of other technology companies — is at stake in the case, which already has dragged on for three years.

What is expected to be a five-day trial in the European Court of First Instance is now scheduled to start on April 24, with Microsoft attempting to overturn the 2004 decree that found it in violation of antitrust laws. The order required it to pay the largest fine in EU history — nearly US$600 million — to begin shipping a version of Windows without the Windows Media Player and to share its Windows source code with rival server software makers.

Microsoft plans to argue that the network protocols it has been ordered to share are “valuable trade secrets,” according to court documents. The European Commission, meanwhile, plans to argue that its ruling and penalties were necessary in order to counter Microsoft’s market abuses.

The hearing will be overseen by Bo Vesterdorf, the president of the Court of First Instance, who in December of 2004 cleared the way for penalties to be levied against Microsoft when he rejected the company’s request to suspend the ruling.

The court showdown is seen as having far-reaching implications in the technology industry, with protections for intellectual property — and incentives for innovation — clashing with regulators’ desires to protect consumers and competitors of market-dominant firms.

Ready to Rumble

In court documents, Microsoft said its argument “relies on the fact that its communication protocols are technologically innovative and are covered by intellectual property rights.” It also will argue that third parties have always been able to make products that work with windows. “Microsoft had designed its Windows server operating systems from the outset to interoperate with non-Microsoft server operating systems.”

The European Commission will counter that argument by suggesting that not all of the protocols in question are truly innovative. Further, it will contend that companies that dominate markets in the way Microsoft does the operating system space are required by law to change their behavior to ensure fairness.

“Microsoft has failed to demonstrate that the protocols for which it must disclose specifications embody hitherto secret and intrinsically valuable inventions,” the commission said in its court filing, which includes more than 100 pages of argument summaries from the two sides and nearly 50 pages of submittals from third parties.

Those lined up with Microsoft include Pace Micro Technology, a UK-based maker of set-top boxes, and the Association for Competitive Technology, a Washington, D.C., lobbying group with some 3,000 members involved directly in software development. Those siding with the Commission include the European Committee for Interoperability Systems, which counts IBM and Oracle among its members, and theFree Software Foundation Europe, a Linux and open source group.

On the Sidelines

The list of those involved in the case is notable for those that have disappeared since it began in the late 1990s. Since then, Microsoft has reached private settlements with RealNetworks, Sun Microsystems and others, in deals that have cost the software giant hundreds of millions of dollars but have also helped reduce the number of companies lobbying the European Union for relief.

The case is still months, if not years, from conclusion. A ruling based on this month’s hearing may take until 2007, and that decision can be appealed by either side to the European Court of Justice, the highest court in the European Union.

At various times, it has appeared that the case was close to being settled, with Microsoft moving to comply with the sanctions. Reaching agreement on the protocol disclosure has proven difficult, however, with an independent monitor saying last year that Microsoft had made it difficult and expensive for third parties to license the protocols.

“Microsoft doesn’t want to be seen giving in to regulators on matters of what it considers intellectual property and its innovations,” Yankee Group analyst Laura DiDio told the E-Commerce Times. Even though it’s settled most of the private antitrust suits against it, capitulation on the protocols may encourage more actions to come. “Microsoft has dipped into its cash reserves to settle those suits because it was able to do so on its own terms to some extent,” DiDio noted.

The EU has threatened to issue daily fines against the software maker if it does not move faster to comply with the protocol-sharing requirements. Regulators have also warned Microsoft that their concerns extend to the upcoming Windows Vista release, which will include additional bundling, including built-in search tools as well as antivirus software and other security measures.