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MARCH 18, 2004
What's Microsoft Up Against in Europe? The EU's ruling against the software giant will have far-ranging implications. Here's a look at how it's likely to play out Months of negotiations crumbled on Mar. 18, when the European Union's top trustbuster, Mario Monti, and Microsoft CEO Steven A. Ballmer acknowledged that they couldn't resolve their five-year old antitrust dispute. Now, Monti will move forward with a ruling as early as next week that will find Microsoft (MSFT ) guilty of monopolistic behavior and require it to dramatically change its business practices in Europe. The ruling's implications could also reach well beyond the Continent and alter the way Microsoft designs its software and shares information about the Windows operating system with rivals. Here are some answers to key questions about the ruling: Why did the talks break down? Microsoft met with EU regulators for the last several months, trying to hammer out a deal. But Ballmer said in a Mar. 18 statement that it couldn't reach an agreement on all of the issues in the case. Details are scarce, but it seems likely that the Europeans were looking for a permanent framework limiting Microsoft's ability to use its Windows monopoly to gain advantages in new markets. The EU apparently wanted a way to resolve future complaints quickly. And the disagreement over that proved to be the settlement's undoing. What will the final EU decision be? Monti wants to restrict Microsoft's conduct in order to both remedy alleged past abuses and prevent future ones. Microsoft will be required to produce two versions of Windows for the European market, one that includes the Windows Media Player, used to watch videos and listen to music, and one without. The ruling will also require Microsoft to reveal information to competitors about how its Windows operating system interacts with Windows Media player and with Microsoft's server software. What's next? Monti will meet with competition regulators from the 15 EU member states on Mar. 22 to discuss how much in monetary penalties to levy against Microsoft. European law allows a fine of up to 10% of a company's revenue, which could amount to a $3.2 billion hit for Redmond (Wash.) software giant. More likely, though, the fine will be less, in the hundreds of millions of dollars. Then, on Mar. 24, the European Commission will likely approve Monti's landmark findings and recommended remedies. Can Microsoft appeal? It can, and almost certainly will. The first avenue of appeal is with a panel based in Luxembourg called the European Court of First Instance. Microsoft would likely ask for a stay of the EC remedies. Brussels legal experts are divided on how likely Microsoft is to get an injunction. It would have to demonstrate immediate and significant economic harm from the remedies, a high hurdle that few plaintiffs have historically cleared. But there's legal precedent for injunctions, so Microsoft might be able to have the EC's remedies put on hold pending appeal. It could ask the Court of First Instance for an expedited review of the EC's ruling -- a process that would take about a year -- but it might not be able to persuade the court to accelerate its schedule. A normal appeal could take two to three years. If the court then rules against Microsoft, it would have one more shot at appeal, with the European Court of Justice -- the EU's equivalent to the Supreme Court. Whatever decision it makes would be final. What are the ruling's short-term implications? That'll depend on whether the Court of First Instance stays the ruling, pending appeal. If it does, Microsoft is free to continue developing software as it has. If not, Microsoft will need to develop a version of Windows that doesn't include Windows Media Player and offer it to PC makers. They can then add digital media software from Microsoft's rivals, such as Apple (AAPL ) and RealNetworks (RNWK ), and sell those machines to consumers. It's unclear, though, if PC makers will want Windows-lite, since many consumers use multiple digital-media applications.
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