EU-Microsoft II: The Rematch

This time, the stakes are higher. The European Commission's two new antitrust investigations challenge the software giant's core businesses

by Jennifer L. Schenker

European antitrust officials are once again probing possible anticompetitive behavior by Microsoft (MSFT). This time, the allegations concern Microsoft's core operations and, if they stick, could disrupt the company's Internet strategy and weaken its dominance of desktop software.

Four months after a landmark decision to uphold an earlier antitrust case (BusinessWeek.com, 9/17/07), the European Commission said Jan. 14 it will begin two new formal antitrust investigations against Microsoft. If Microsoft loses the latest round, the impact could be far more sweeping.

One of the new investigations will probe whether Microsoft, by refusing to disclose key information, is preventing competing products from interoperating with its own Office suite of business applications, the .Net programming language, and other products. The other challenges the legality of bundling Microsoft's Web browser, Internet Explorer, with its Windows operating system.

The old case ended up costing Microsoft billions of dollars and forced it to change some practices. But it centered on servers and media players, which are important but fringe businesses for the software giant. Not so with the more recent probes. "Microsoft should be concerned because this case addresses core aspects of its business model and the preservation of its core monopolies," says Thomas Vinje, a partner at law firm Clifford Chance in Brussels, Belgium, who represents a coalition of tech companies that filed one of the two new complaints. "The case has the potential to transform the software industry and give consumers a real choice in desktop operating systems and programs."

In a statement, Microsoft said it plans to cooperate with the European Commission's investigation and provide it with the information it requests. "We are committed to ensuring that Microsoft is in full compliance with European law," the company said.

Europe's Heavy Caseload

The initiation of proceedings signifies the EC will further investigate the case, though it does not mean European officials have proof of an infringement. It also reflects the commission's confidence in tackling other high-tech targets. Emboldened by the Sept. 17 decision, Europe is pursuing cases against Qualcomm (QCOM) and Rambus (RMBS), both involving intellectual-property licensing disputes, and an unrelated case against chipmaker Intel (INTC), which allegedly harmed rival Advanced Micro Devices (AMD) and impeded consumer choice through heavy-handed marketing tactics.

As with earlier cases, the complaints against Microsoft involve bundling and a lack of interoperability, practices the Sept. 17 ruling found to be illegal when practiced by a dominant company. As part of that decision, the EC was able to show that the free inclusion of Media Player in Windows, ostensibly a boon to consumers, harmed rivals such as RealNetworks (RNWK) and Apple (AAPL), and reduced competition in the media player market. A similar argument held that by limiting the information it gave out about Windows networking standards, Microsoft had stymied competition in desktop and server operating systems, to the detriment of consumer choice.