Regulators Gain Momentum In Long-Running EU-Microsoft Standoff

court ruling last week

The company reluctantly started dismantling the practice that has made it the dominant player in the global software market. It will soon sell a version of Windows without its popular music and video applications. That was required after an European Union court decided not to delay earlier sanctions.

Years of appeals probably lie ahead, but the U.S. software company's actions represent a triumph for the EU's executive Commission in its five-year quest to force Microsoft to open its Windows platform.

It also was a big win for an agency that had suffered a string of appellate losses in recent years in high-profile cases. EU courts reversed three big decisions blocking deals in 2002, including a beverage merger, a merger between two French electrical equipment makers and a merger of two British travel companies.

"It is always nice to win and when you win you are up," said EU competition law expert Vincent Brophy. But, he added, "Let's draw a breath here, because they actually haven't gotten victory yet."

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That's because the EU's Court of First Instance ruling, which forces Microsoft to disclose certain trade secrets and produce a version of Windows minus Media Player, is only an interim decision that could be overturned in a few years' time.

Still, Wednesday's ruling will bolster the EU's position in holding off any approach from Microsoft for more settlement talks, which could weaken the impact of the original March ruling. And it raises the possibility that EU regulators may be able to force Microsoft to scrap other features as well if competitors file complaints.

The momentary triumph was sweet for a Commission that often seemed out-lawyered by the software giant during the hearings. Yet the Commission stood its ground. Microsoft settled with several company rivals in the case, but talks with the Commission have gone nowhere.

The ruling from the Luxembourg-based Court of First Instance brought a smile to the face of ever-serious Mario Monti, the former EU competition commissioner. A Commission source said Monti was so happy to hear the news, he wished he was working for the Commission again.

Monti started the case against Microsoft and imposed a record $670 million fine and business restrictions in March before handing over the reins of the agency last month to Neelie Kroes.

The Dutch commissioner has said she wants to follow the tough line Monti set out, insisting she would not be "some kind of pussycat" for big business. In her first rulings, Kroes made plain her aversion to cartels and companies that would strangle competition, slapping big fines on a vitamin price-fixing cartel and barring a merger in the Portuguese energy sector.

But the interim ruling, however positive, might not be enough to improve her hand in dealing with future cases.

"One must remain aware of the limits of the interim ruling," which did not go beyond saying that Microsoft would not suffer serious, irreparable harm if forced to comply with the EU decision now, said veteran lawyer Jacques Bourgeois, who intervened for a company sympathetic to Microsoft during the hearings.

Once the appeal verdict is out and if it sides with the Commission, everything could change for Kroes, Bourgeois added.

"Then we can expect Mrs. Kroes to start taking on a certain number of other companies," Bourgeois said.

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