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EU-Microsoft battle doesn't perturb U.S.

A European Union decision to force Microsoft to change its business practices is unlikely to threaten European-U.S. ties as some past decisions have done.

A European Union decision to force Microsoft to change its business practices on the continent may upset the software maker, but is unlikely to threaten European-U.S. ties as some past decisions have done.

This is in stark contrast to the sniping by U.S. officials three years ago when the EU rejected General Electric's proposed buy of aerospace firm Honeywell International, marking a low point in transatlantic antitrust cooperation.

A formal decision by European Competition Commissioner Mario Monti on Microsoft is set for Wednesday. He is expected to order the company to offer two versions of its Windows operating system: one with software for audio and video, and one without.

The proposed fine of hundreds of millions of euros will be discussed with an EU panel Monday and announced Wednesday.

The U.S. response so far to the EU's actions on Microsoft has been subdued. The Justice Department issued a statement last week, which avoided a head-on collision, but expressed a preference to handle matters itself after it negotiated a deal with Microsoft that is supposed to solve competitive problems.

The Justice Department gently prodded the EU last week, saying its enforcement in the Microsoft case "provides the appropriate framework for marketplace competition in this important sector,'' but also noted that the agencies have a strong working relationship.

On GE-Honeywell, President George Bush himself backed the deal as pro-competitive but Monti took a different view and rejected it. Then-Treasury Secretary Paul O'Neill denounced the decision as "off the wall'' and called Brussels "autocratic.''

The two jurisdictions had also clashed in 1997 over Boeing's plan to buy McDonnell-Douglas. Brussels almost killed that deal, but it was saved by last-minute talks.

The EU-U.S. relationship has also been volatile over the past two years due to differences over the Iraq war, the fall of the dollar, privacy protection and genetically modified food.

Today, the U.S. antitrust division is headed by R. Hewitt Pate. GE-Honeywell was history when he took over, and the controversial Microsoft remedies package was crafted by his predecessor. Pate, with his easy manner, has a good personal and professional relationship with Monti.

"There are few bright spots in the transatlantic relationship, and antitrust policy happens to be one,'' Monti said earlier this year. "Antitrust and competition policy is a success story of increasing transatlantic convergence.''

One reason Microsoft will not change the good relationship is that while the opinion of interested parties was unified in favor of the GE-Honeywell deal, it is split on Microsoft.

Political appointees from the Clinton administration would have made the same decision on GE-Honeywell as those from the Bush administration, experts say and interviews show.

But while political antitrust appointees of the Clinton administration favored the break-up of Microsoft, those in the Bush administration opposed it.

One reason for the divergence is that a number of U.S. companies stand to gain from tough decisions reining in Microsoft's business practices, judged illegal in the United States. One is RealNetworks, a rival maker of software.

"The bottom line is that this isn't the U.S. vs. Europe. This is Europe legitimately protecting European consumers. There is a lot of support in the U.S. for what the commission is doing, which is completely consistent with U.S. antitrust law,'' said Dave Stewart, deputy general counsel for RealNetworks.

And government entities in the United States are not unanimous about the approach taken by the Justice Department. The state of Massachusetts has been one of the strongest critics.

In a court filing, Massachusetts said it had received allegations that Microsoft was going to next turn its guns on Adobe Acrobat, used to read documents on the Web.

The state called that "a serious and troubling prospect'' but one that probably could not be stopped under the Justice Department deal with Microsoft.

Andrew Gavil, an antitrust law professor at Washington's Howard University, said the U.S. may fear a European solution might work better than the widely criticized U.S. settlement.

"If the European approach has much more obvious beneficial consequences," Gavil said, "some might argue that that further demonstrates the inadequacies of the federal settlement.''

Story Copyright  © 2004 Reuters Limited.  All rights reserved.