Microsoft's Big European Defeat: What Now?

While open-source advocates applaud the court ruling, the tech sector worries about its potential effects on innovation—and other companies

by Jennifer L. Schenker

The Sept. 17 ruling by Europe's second-highest court affirming a landmark 2004 antitrust order against Microsoft (MSFT) is no mere bump in the road for the software giant. None other than Brad Smith, Microsoft's chief counsel, put the decision into the sweeping context it merits. The case, he said, will have an "extraordinary impact" that will occupy "the thoughts and discussions of many people, not just in the weeks ahead, but in the months and years to follow." The company hasn't yet decided whether to appeal (BusinessWeek, 9/17/07).

In a strongly worded, 244-page decision, the Luxembourg-based European Court of First Instance ordered Microsoft to obey a March, 2004 order by the European Commission to share confidential networking protocols with rivals and to offer a version of Windows without a built-in copy of the audio and video Media Player. The court also upheld the record $613 million fine levied against Microsoft. The verdict was read by the court's chief judge, Bo Vesterdorf, who, as expected, also announced his retirement the same day, ending his career with a flourish.

Network protocols, media players—it all seems a bit esoteric. But the impact of the ruling is enormous because it ushers in a stark new era for Microsoft. The European Commission now has the tools in its legal arsenal to continue pressing for modifications in the company's behavior, whether in product design or how Microsoft deals with competitors. That could limit the firm's ability to add features to Windows or force it to disclose once-secret technologies. "Microsoft's behavior will have to change, which means the market will change," says Alain Georges, an antitrust lawyer at Latham & Watkins in Brussels who was not involved in the case.

Fresh Vistas of Oversight?

The decision also boosts the likelihood that the commission will act on a separate complaint brought by a group of Microsoft competitors alleging that features added to the new Vista version of Windows will harm their businesses and limit consumer choice. "This landmark judgment sets a clear standard for Microsoft's future conduct and empowers the European Commission to impose it in the European market when necessary," said Thomas Vinje, a partner at the law firm Clifford Chance in Brussels, which is representing a coalition of tech companies behind the latest complaint, including IBM (IBM), Oracle (ORCL), and Nokia (NOK).

Equally important, Europe's victory against Microsoft could embolden regulators in other parts of the world to step up oversight of the company. South Korea's supreme court, for instance, is expected to rule Oct. 17 in an antitrust case brought by that country's fair trade commission alleging that Microsoft competed unfairly by weaving media-playing and instant-messaging capabilities into Windows.

Even the U.S., which prosecuted Microsoft during the Clinton Administration but has eased up on antitrust cases under President George W. Bush, could become more activist after next year's election. European Competition Commissioner Neelie Kroes says she plans to meet with her U.S. antitrust counterparts in Washington next week. Though it's a routine visit, the European court decision will undoubtedly be on the agenda.