Microsoft braced for courtroom climax

If a week is a long time in politics, nine years is an eternity for the software industry. That is the time it will have taken for the European Commission’s antitrust battle with Microsoft to reach some form of closure next Monday.

What began as a routine inquiry in late 1998 spiralled into a furious confrontation that drew in not only the US software giant itself, but an ever-growing cast of rivals, supporters, politicians, economists and legal experts.

The probe culminated in March 2004, when the Commission found that Microsoft had abused its dominant market position, forced the group to change its business practices and imposed a record €497m ($690m) fine.

More than three years after that finding – on Monday morning at about 9.30 – Microsoft will finally learn whether its legal challenge against the controversial 2004 decision has succeeded.

The judgment will be delivered in the measured tones of the European Court of First Instance – the Luxembourg-based court that reviews commission rulings against businesses.

Yet to the software industry, antitrust watchdogs and legal experts around the world, the nuances of Monday’s court ruling are almost certain to be explosive.

At stake are some of the most fundamental questions facing companies and regulators today: how should groups that enjoy a quasi-monopoly in their market behave towards their rivals? Is there a duty for groups such as Microsoft to ensure that its products are inter-operable with competing products?

Should they be left free to bundle new products and applications into their flagship software or do such tactics kill competition in adjacent markets? And where do you draw the line between a company’s right to protect its competitive advantage and a regulator’s determination to ensure free competition?

The Commission found that Microsoft had abused its dominant position in two ways. First, it had illegally bundled Windows Media Player into its ubiquitous Windows operating system, so rival media players like the one developed by RealNetworks were gradually forced out of the market.

Second, the Commission punished Microsoft for refusing to supply crucial technical information about Windows to rival companies. According to the Brussels antitrust officials, that information was essential for manufacturers such as Sun Microsystems, who needed to make their server operating systems run smoothly with Windows-driven computers and servers.

For the two markets reviewed by the Commission, the ruling almost certainly was too little too late. Microsoft’s market share in both has risen rapidly, while competitors such as RealNetworks have fallen by the wayside.

As a precedent, however, the Commission’s ruling remains hugely important. Inter-operability remains a big issue not just for Microsoft and its two most important revenue-earners – PC operating systems and office applications – but also for groups such as Apple, whose iTunes music website famously only works with Apple’s own iPod.

Meanwhile, Microsoft’s ability to package more and more new programs – from handwriting-recognition software to security applications – into its operating system continues to be of crucial importance.

According to the group’s rivals, the very announcement that Microsoft will add new functionalities and programs to Windows is having a chilling effect on competition and investment in adjacent markets.

For Neelie Kroes, the European Union’s competition commissioner, and her department, Monday’s ruling is crucial.

The regulator has staked its reputation as the world’s toughest antitrust watchdog on the Microsoft case. It invested huge resources in the investigation, and took every conceivable measure to make its ruling water-tight. Should it be overturned – or should the court find that Brussels erred gravely on a point of fact or law – the Commission’s ability to pursue new cases against Microsoft and other dominant groups may be severely curtailed. Yet others argue it is Microsoft that needs a decisive win if it is to prevent the Commission from launching new probes, for example into its latest operating system, Vista.

The one point on which both the Commission and Microsoft agree is that the real significance of Monday’s ruling may well be found not so much in the headline decision but in the fine legal argument.

With the judgment expected to run to several hundred pages, the true winners and losers may only emerge days or even weeks after the software world’s seminal day in court.