Inside the EU Court's Ruling: Microsoft's Abuse of Dominance

By Scott M. Fulton, III, BetaNews

September 17, 2007, 2:05 PM

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Point 2: Interoperability is a Standard

In its defense, Microsoft argued that it may not be up to the Commission to determine what "interoperability" should be, since the market changes so rapidly. But it may not have done itself much good by using language cited by the Court, including that "interoperability occurs along a continuum" and "it is not an absolute standard."

Also as part of its defense, Microsoft supplied a document by two computing experts who advocated a very fuzzy interpretation of interoperability as a two-tier concept, involving what they called "loose coupling" and "tight coupling," and arguing why sometimes the former was better.

The Court would have none of that. "Those efforts have failed for both technical and business reasons," was all the Court had to say.

Later, Microsoft argued that no company needed to know everything about how it implements network domains - what were once called "Windows 2000 domains," but which we now call Active Directory - in order to be fully interoperable. If it gave that information away, Microsoft argued, Sun and others could essentially make their own directory systems using Microsoft's blueprint.

Nonsense, ruled the Court: "[Microsoft] contends, in substance, that the Commission's position effectively requires that its competitors' work group server operating systems be able to communicate with Windows client PC and server operating systems in exactly the same way as Windows server operating systems do. The applicant [Microsoft] reiterates that that degree of interoperability implies virtual identity between its systems and its competitors' systems. Those assertions must be rejected."

At one point, the Court reasoned along with the Commission that, logically, there's no other way to truly be interoperable. "The proper functioning of the Windows work group networks relies both on client/server communication protocols - which, by their nature, are implemented both in Windows client PC operating systems and in Windows work group server operating systems - and on server/server communication protocols," the Court wrote.

A server/server protocol would be Active Directory, which Windows Server operating systems use to maintain Windows domains. Citing the EC, the Court added, "The Court therefore finds that the Commission is quite correct to conclude that 'the common ability to be part of [the Windows domain architecture] is a feature of compatibility between Windows client PCs and Windows work group servers."' So server/server protocols count, and thus, Microsoft must share those as well.

Point 3: Tying a product compels customers to use it

Up to now, Microsoft has used the term "bundling" to describe packaging decisions such as supplying a Web browser along with its operating system, and supplying Media Player along with Windows. There's no law against bundling, Microsoft has maintained, in every country where the topic has come up.

But there's a different concept in Europe where laws do apply, and it's called "tying." Whereas with a bundle you just sell two or more items together, with tying, a license applies that stipulates that users who install one essentially install the other(s). Microsoft argued that when the Commission ruled it was tying Windows Media Player with Windows in such a way that it foreclosed users from making an alternative choice, essentially the EC didn't really know what it was talking about. Did it really mean "bundling?" And is there really that much precedent in EU law regulating "tying?"

The Court saw this as a classic Microsoft tactic of making the argument about what you call things. "The Court finds that Microsoft's arguments are purely semantic and cannot be accepted," it wrote.

Microsoft tried to argue that customers who want a modern operating system also want a modern media player. Since both components address the same customer and are made by the same company, they should be interpretable as one and the same product...for bundling purposes.

But the Court upheld the part of the EC's ruling that concluded that since there are obviously other manufacturers of media players (the example here being RealNetworks) who do not also manufacture operating systems, there must exist two separate markets with separate customer demands.

"Particular importance should be attached to the role of OEMs," the Court wrote, "which, in their relationships with software vendors, act as intermediaries on behalf of end users and provide them with an 'out-of-the-box' product, by combining hardware, client PC operating system and applications for which there is demand...The great majority (75%) of Microsoft's sales of client PC operating systems are made through OEMs and the fact that consumers want to find a media player pre-installed on their computers is no reason for Microsoft to tie its own media player with its PC operating system. OEMs could meet such consumer demand by adding a media player to the client PCs which they sell, just as they offer the possibility of other software applications being included. Microsoft's argument that there is no demand for a Windows operating system without a media player ignores the role thus played by OEMs."

Ignoring OEMs was a problem with the US Microsoft antitrust trial as well, you might recall.

If Microsoft had a chance - an argument which might have actually turned a few heads at the Court before it was rejected - it was with the idea that the evolution of technology mandates that some functionality be blended with the operating system. Both the OS and media players are evolving, Microsoft contended, so why shouldn't it be the company's business to evolve those components together?

The court actually conceded that IT technology as a whole can be seen as evolutionary along a unified track, and that from an economic standpoint, that technology as a whole can be perceived as a unified product, for some purposes of academic argument. Microsoft might have even won this argument...if it didn't produce Windows Embedded. You see, that version of the operating system also evolves, though it doesn't have Media Player in it. Instead, there's something else which helps the embedded OS work with the video component of ATM machines. If a version of Windows can exist without a media player...it doesn't require a media player for its identity.

Point 4: Microsoft can't monitor itself

There are 1,373 points-of-fact paragraphs in the Court's final decision, and we've only covered just a few highlights here. Based on what we've excerpted, you might think Microsoft walked away from this appeal with nothing. In fact, it did win one argument - one which does have implications for the case going forward:

The 2004 EC ruling stated Microsoft must set up an independent trustee to monitor its conduct and compliance with EC rulings - and handle the bill for that trustee from its own pocket. But the Court found the Commission was not given the right under EU law to delegate its own authority for investigating Microsoft's conduct, to a third party. The EC must set up such a trustee, if one is to be set up at all, and the EC must accept the expense.

"Microsoft makes clear that it has no objection to an independent monitoring trustee advising the Commission on technical questions," the Court wrote. "However, the Commission ought to have appointed its own expert for that purpose."

In fact, the EC did hire an independent monitor to handle Microsoft's compliance with its 2005 Statement of Objections, so appointing one for the long-term should not have been out of the question. But perhaps more importantly, in light of EC commissioners' statements prior to the ruling implying that, with victory in hand, it might seek to order a breakup of the company, this slap on the wrist from the Court could serve as an indication that Microsoft isn't the only party whose conduct is being monitored here.

The Court ruled: "The Commission has no authority...to compel Microsoft to grant to an independent monitoring trustee powers which the Commission is not itself authorised to confer on a third party." It warned that if the EC is to appoint such a trustee, that it must be an independent one and not someone carrying out the authority of the EC. Further, the trustee must limit himself to technical issues and limited points of conduct. This may have the effect of limiting the EC's ability to penalize Microsoft beyond the ability to impose fines and mandate conduct remedies, as well as revoke its licenses to do business in member states.

But it is a loss nonetheless, which Microsoft will now have to find some way to live with. Technology evolves, most certainly. But so does the law. From now on, Microsoft will have to learn how to treat the law like a customer: with respect, dignity, and with regard for the fact that, in the end, it's always right.