September 21, 2006 10:04 am

Vista: the gathering storm

Relations between Microsoft and the European Commission are a bit like the weather in Brussels: sometimes better, sometimes worse, but on the whole and viewed over the year, pretty appalling.

Right now, the two sides are going through an especially dark and turbulent phase. Over the past week or so there have been public accusations, charges of foul-play, denials and other hostile activity, culminating with a harshly-worded letter by Neelie Kroes that was published in the Financial Times on Tuesday.

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The trouble has all to do with Vista, Microsoft’s new personal computer operating system that is set to replace Windows at the end of this year. The Commission has voiced deep concerns, warning Microsoft repeatedly that the new system may fall foul of European competition rules.

The company is understandably keen to resolve any difficulties before the launch. The Commission is - equally understandably - unable to provide Microsoft with a carte blanche before it has sifted through all the complaints by rivals, and the complex technical and legal issues thrown up by the system. Besides, Brussels argues, it is not the Commission’s job to help Microsoft design a product that complies with EU law.

What has angered Ms Kroes is that Microsoft has cranked up the PR machine, proclaiming through a variety of sources that the Commission’s actions will harm European retailers, businesses and the economy as a whole. Last week, it even made a brave attempt to link Vista’s launch with employment growth in the EU.

Judging by Ms Kroes’ letter - in which she denounced the recent “co-ordinated campaign” - those efforts have rather backfired. Officials say the commissioner has been personally annoyed by what she sees as a clumsy attempt to pressurise Brussels.

Given that the Commission has already fined Microsoft some €780m over the past two years for violating competition rules, further acrimony is not what Microsoft needs. The worry must indeed be that the recent flare-up over Vista will spill over into the group’s other battle with the Commission over Microsoft’s compliance with an earlier Brussels ruling.

The Commission will shortly decide whether Microsoft has at last complied with a landmark 2004 antitrust ruling (in July it ruled that it hadn’t). If Brussels finds that Microsoft has still not implemented the orders contained in that decision, the group is certain to face fresh punishment worth hundreds of millions of euros.

Increasingly, it seems that there is only one hope for Microsoft to end its regulatory nightmare in Europe. That hope resides in Luxembourg, where the European Court of First Instance is examining Microsoft’s appeal against the March 2004 decision, which forms the basis both for the compliance battle but also for any new fight over Vista.

If the judges overturn the Commission ruling, all the regulator’s past and present efforts are likely to crumble to dust. If not, Microsoft may rue the day it angered the woman at the helm of the Brussels competition watchdog.

Tobias Buck

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