Microsoft Inquiry by EC Grows

WASHINGTON —  European antitrust officials slapped Microsoft Corp. with a new round of accusations Thursday, adding to the software company’s regulatory woes and increasing the likelihood that it will now face punishment on both sides of the Atlantic.

The European Commission, which has been investigating Microsoft since 1998, released a second “statement of objections” in which it accused the company of illegally tying its audio and video player to its Windows operating system.

The commission also said it has broadened an inquiry into Microsoft’s attempts to monopolize the market for server operating systems.

The new charges reflect the growing assertiveness of European antitrust regulators, led by European Competition Commissioner Mario Monti, who earlier this year rejected General Electric Co.’s proposed $42-billion purchase of Honeywell International Inc. even though U.S. officials gave the deal a green light.

“Antitrust enforcement in Europe has tightened up,” said Janusz Ordover, a New York University economics professor who lobbied the EC to reject the GE/Honeywell deal.

That’s bad news for Microsoft. The new charges against the company mark an expansion of the EC’s original accusation, which was formally announced in August 2000. The first statement of objections asserted that Microsoft breached European antitrust laws by engaging in discriminatory licensing agreements and refusing to share vital information about the Windows operating systems with competing server software developers.

“The commission is determined to ensure that the Internet remains a competitive marketplace to the benefit of innovation and consumers alike,” Monti said.

Under European rules, Microsoft has two months to respond to the new allegations, after which the company will make its case at an oral hearing in Brussels.

The Redmond, Wash.-based software giant seems to be taking a more conciliatory approach to the EC inquiry than it has in the U.S.

“Unlike the case in the U.S., there is not a disagreement over fundamental goals,” said Microsoft Deputy General Counsel Brad Smith. “As we present more information, I’m optimistic that we’ll make progress in persuading [Europeans] that this is not a concern they should have.”

Bundling of Media Player Criticized

Europeans said Thursday that the bundling of Microsoft’s Media Player with the Windows operating system puts rivals at an unfair disadvantage because Windows is the dominant PC operating system, installed on more than 90% of computers.

“Microsoft may thereby deprive PC manufacturers and final users of a free choice over which products they want to have on their PC,” the commission stated.

Microsoft officials stressed that the bundling of Media Player with the operating system is convenient for consumers.

Company officials also blasted their U.S. rivals, which they say have been behind the investigations in Europe and the U.S. The initial EC inquiry began after a complaint by Sun Microsystems Inc., which competes with Microsoft in the server market. AOL Time Warner Inc. also recently began lobbying Europeans. Computer & Communications Industry Assn., a trade group of Microsoft foes, has filed papers opposing the company’s practices.

Though the legal process is different, Microsoft is fighting a similar battle at home.

The company recently asked the U.S. Supreme Court to throw out a June 28 ruling that it broke U.S. antitrust laws by bullying computer makers, stifling innovation and undercutting rivals in an effort to retain its monopoly on personal computer operating systems.

Unless the Supreme Court intervenes, the U.S. lawsuit is expected to return to a federal courtroom Sept. 21 to begin the process of determining how Microsoft should be punished. A previous order to break up the software company was overturned by the federal appeals court.

Justice Department officials had no comment Thursday on the EC’s actions.

Iowa Atty. Gen. Tom Miller, spokesman for the 18 states that have joined the U.S. lawsuit, said he welcomed the move.

“The Europeans have the same overriding concern as we do: that Microsoft’s illegal conduct has thwarted innovation, hurt competition and harmed consumers,” Miller said. “This is a worldwide concern.”

U.S. prosecutors have not yet announced what sort of punishment they intend to seek. Potential remedies range from a revised breakup order to restraints on the company’s business practices.

Under European law, a breakup also is possible, though highly unlikely. Companies found guilty of antitrust violations also face fines of as much as 10% of their revenue.

Or Europeans might demand that Microsoft separate Windows Media Player--its audio and video player--from Windows, or allow PC makers to uninstall it and offer a rival product, such as RealPlayer or QuickTime. Microsoft’s current Windows licensing policy prohibits PC makers from removing Media Player, though consumers can uninstall it if they choose.

EC Probes Alleged Monopoly Attempts

Some Microsoft critics had hoped the EC would block Microsoft’s upcoming release of its new operating system, Windows XP, which will come bundled with Media Player. But EC officials said Thursday that they don’t plan to take any action until after Microsoft has the opportunity to respond.

U.S. antitrust officials also are concerned about Microsoft’s bundling of Media Player and other products, such as instant messaging, with Windows. The issue is expected to arise in the upcoming punishment phase of the trial.

Not wanting to duplicate the U.S. effort, European investigators focused much of their inquiry on Microsoft’s alleged attempts to monopolize the market for operating systems used by servers.

Servers are high-powered computers used by corporations and Internet service providers to store data, Web pages and software applications for use on a network of personal computers.

Sun Microsystems claimed that Microsoft was attempting to leverage its monopoly on PC operating systems to dominate the market for server operating systems. Sun claimed Microsoft withheld technological information about the Windows PC operating system so that e-mail, media players and Web browsers worked best when both the PC and server were using Windows, rather than a rival operating system.

The new statement of objections also accuses Microsoft of using illegal practices to extend its monopoly into the market for low-end server operating systems, which are used to enable companies and groups of people to share files, printers and e-mail.