Neither Microsoft nor EU lands a ‘killer blow’

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Bo Vesterdorf, John Cooke and Josef Azizi are not household names in Palo Alto or Redmond. Yet the three judges and their 10 colleagues in the grand chamber of the European Court of First Instance may pose a bigger threat to the world’s largest software group than most of Microsoft’s rivals combined.

The court, based in Luxembourg, is responsible for hearing the group’s appeal against a landmark antitrust ruling issued by the European Commission more than two years ago. This week’s hearing before the panel of judges gave both sides a last chance to plead their case.

The stakes are high. If the Commission ruling is upheld, the court would cast doubt over Microsoft’s ability to bundle new software into desktop operating systems. It would also force the group to reveal to rivals substantial amounts of technical information about its flagship Windows program.

Taken together, these two key elements of the ruling that Microsoft was guilty of abusing its monopoly have the potential to affect drastically the group’s business model. Should they uphold the ruling, the Luxembourg judges would establish a precedent deeply troubling for the group.

It is impossible to predict how the court will rule when it publishes its verdict, probably next year. Both sides have so far expressed confidence about their prospects, but the exchanges inside the courtroom have exposed weaknesses in their arguments.

Microsoft, for example, clearly faces an uphill struggle to prove its Windows Media Player software is not a separate product but an integral part of the operating system. This is a key argument in lawyer Jean-Francois Bellis’s defence against Commission findings that Microsoft undermined competition in the market for media players by “tying” Media Player to Windows.

Under intense questioning from the court, the group on Tuesday admitted it would have been technically feasible to keep the two separate. In addition, the Commission argued Microsoft had sold Media Player as a stand-alone product before its integration into Windows and other groups sold media players separately.

The Commission, on the other hand, struggled to show how the tying of Media Player to Windows effectively stymied competition, since users are in a position to download rival media players from the internet.

The regulator also struggled to explain why it had not examined specifically the additional revenues that content providers may gain from supporting multiple media player formats.

The second part of the Commission ruling – finding Microsoft abused its mono-poly by refusing to disclose interoperability information to rival developers of server software – appeared equally finely balanced. One crucial question before the judges is whether the regulator’s ruling undermines the group’s intellectual property rights. If the answer is yes, the Commission faces a much stiffer test to establish a competition abuse.

A possible problem for Microsoft is that it was only able to point to concrete
patents in its defence very late in the Commission proceedings. Moreover, the bulk of patents it has cited in court this week are registered in the US and might not carry as much clout in an EU court.

The Commission’s legal team also insisted that all it was asking for was the disclosure of “non-innovative” information allowing other companies to develop interoperable products.

But Microsoft struck back, claiming that real interoperability between various servers could ultimately only be achieved by allowing rival developers to “clone” crucial technologies developed by the group.

This would mean forcing the group to hand over highly valuable technologies to its rivals – and hand them over indefinitely.

Though both sides displayed weaknesses, neither the Commission nor Microsoft seemed able to land a “killer blow” that would leave a glaring hole in their opponent’s argument. If that perception is correct, it would most likely spell more trouble for Microsoft than for the Commission, since the burden of proof rests largely with the software group.

In the present case, Microsoft might even face a sterner challenge than other appellants, simply because the political and legal consequences of overturning the Commission’s ruling would be immense.

The group will be hoping that the judges took on board its assurance that the consequences of upholding the ruling would be just as grave.

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