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Will Microsoft Wriggle Free Again?


It will be the tech Sector's most closely watched court ruling since U.S. Federal Judge Thomas Penfield Jackson ordered the breakup of Microsoft Corp. (MSFT) in June, 2000. On or before Dec. 20, Judge Bo Vesterdorf, president of the European Union's second-highest court, is expected to issue a decision in the long-running legal battle between Microsoft and the European Commission. The Danish jurist must decide whether the remedies ordered by the EC in its landmark Mar. 24 antitrust decision against the U.S. software giant should go into effect immediately or be postponed, potentially for years, pending Microsoft's appeal of the case.

At first glance this might seem like a mere turn of the screw in a protracted legal process. But Vesterdorf's ruling will be the first time in the six-year history of Microsoft's European antitrust misadventure that anybody outside the commission itself has passed judgment on the merits of the case. Under the stern guidance of then-competition czar Mario Monti, the commission ordered Microsoft to pay a $611 million fine, offer a version of Windows with its Media Player application stripped out, and disclose secret protocols used for communication among Windows servers and PCs. If some or all of these demands are put on hold by Vesterdorf, the commission's position could be badly weakened. "It would be crazy for them to go full steam ahead," says Lars H. Liebeler, a partner at Washington-based law firm Thaler Liebeler and antitrust counsel to CompTIA, a pro-Microsoft industry group. If the commission backs off as a result, Microsoft could once again wriggle free of a seemingly damning legal setback -- just as it did after Judge Jackson's U.S. ruling was overturned, and Microsoft settled with the Justice Dept.

To be sure, the software maker faces high hurdles to win a stay. Microsoft must demonstrate either that the commission's ruling is likely to be overturned by appeals courts on the merits or that implementing the remedies will cause irreparable harm to the company. That's no easy feat. Vesterdorf's European Court of First Instance has granted stays in only 17% of the cases brought before it. "There's a great deal of deference given to the commission by the court," says a source close to Microsoft. Vesterdorf gave no indication of his leanings during two days of hearings this fall. But in 2001 he granted a stay in another case that involved mandatory disclosure of intellectual property, so legal experts think he may be skeptical of the commission's demands that Microsoft reveal some of its software protocols.

Indeed, despite the odds against a stay, the betting in the Brussels legal community is that Microsoft could win partial or complete relief. Vesterdorf can use different criteria to evaluate each proposed remedy. He might, for instance, hold off on unbundling Windows Media Player because he thinks the commission's legal case is weak. In the Oct. 1 hearing the judge seemed doubtful of the market benefit from stripping out the software. Or he could suspend the order to disclose server software protocols on the basis of irreparable harm, reasoning that Microsoft would have no way to reverse course if it eventually won an appeal. No matter which way Vesterdorf rules, either Microsoft or the commission can appeal the decision to the Continent's highest body, the European Court of Justice.

READY TO POUNCE

Almost as important as the decision is how Vesterdorf frames his arguments. If his ruling casts doubt on the commission's case, Microsoft will seize on it as an opportunity to go back to the bargaining table to craft a settlement. Chances of striking such a deal could be better now than during the tense days last March when Monti and Microsoft CEO Steven A. Ballmer tried to hammer out a compromise before the commission issued its decision. Since then Microsoft has negotiated private settlements with four of the major rivals who supported the European case: AOL Time Warner (TWX), Sun Microsystems, Novell, and the Computer & Communications Industry Assn. That leaves RealNetworks ((RNWK) as Europe's only major backer from the IT industry.

There's another twist in this complicated tale. A new Competition Commissioner, Dutch businesswoman Neelie Kroes, was installed last month. The change in leadership may not affect the case because the commission has a long tradition of sticking to its guns through changes in administration. Kroes also could be reluctant to cut a deal with Microsoft because her brief tenure has been marked by controversy over her extensive corporate ties. To assuage critics, Kroes suggested in a recent speech that she will be no "pussycat" in pursuing tough cases. But she's clearly less invested in the Microsoft matter than Monti was, and might want to clear the decks to focus on newer cases. The commission spokesman wouldn't comment on the Microsoft case.

Microsoft, naturally, hopes Vesterdorf's ruling will give Kroes a reason to reconsider. It won't give ground on key legal principles that it says the commission trampled on its 300-page March decision. The company refuses to accept mandatory disclosure of intellectual property or restrictions on its ability to freely add features to Windows. Short of that, it's willing to deal. Any indication from Vesterdorf of problems with the case could also help Microsoft in its formal appeal, launched last June, which is separately wending its way through the Court of First Instance.

If all else fails, Microsoft has time on its side. "Every day that passes makes it harder for the market to benefit from the commission's decision," says Carlo Piana, a partner at Milan law firm Tamos Piana & Partners, who represents one Microsoft adversary, the Free Software Foundation Europe, an industry group that champions open-source software. Windows Media Player is already used by a majority of Europeans, while alternatives such as RealPlayer and QuickTime are in decline, according to figures from market tracker Nielsen//NetRatings. Microsoft's server software, built into Windows, has knocked Novell's alternative out of the ring. If Microsoft gets some or all of the commission's remedies stayed, its European antitrust travails could draw to a rapid close. And even if they don't, the fast-moving tech sector could render the whole issue moot by the time the wheels of European justice have run their course.

By Andy Reinhardt in Paris


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