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More troubles await Microsoft in Europe

The company's legal problems in Europe are far from over and appear to be accelerating, antitrust lawyers and officials said.

BRUSSELS--While the European Commission this week goes through the final steps to conclude its five-year case against Microsoft, the company's legal problems in Europe are far from over and appear to be accelerating, antitrust lawyers and officials said.

Attention will now focus on two other antitrust issues involving the company. One involves a wide-ranging complaint about the dominance of Windows, Microsoft's operating system. Separately, the commission is conducting an investigation into certain clauses in the company's licensing contracts with computer makers.

The full precedent-setting value of the commission's landmark antitrust ruling, expected Wednesday, will not be felt for up to five years, the time it could take to conclude an appeal in the European Court of First Instance in Luxembourg. But far from deterring the commission from addressing the new investigations in advance of an appeal, antitrust lawyers in Brussels said over the weekend, the ruling will actually speed up the other more recent cases.

"The new cases will be handled much faster because the basic principles are being set by this week's case," said Thomas Vinje, a competition lawyer with the law firm Clifford Chance. His firm represents Microsoft's adversary on both sides of the Atlantic, the Computer and Communications Industry Association.

The association filed a complaint about the latest version of Windows, called XP, to the European Commission in February last year. It asserted that XP allowed Microsoft to preserve an existing monopoly and that it allowed the company to leverage its dominance into new markets.

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"Microsoft is using well-honed practices to achieve its end, and it is using them with XP more than ever before," Vinje said.

The complaint accused Microsoft of bundling its Outlook Express e-mail software, Movie Maker video editing software, Instant Messenger and Media Player software into Windows XP.

It asserted that Microsoft leveraged its strength in operating systems into Internet-related markets, and most importantly, into markets for mobile phone operating systems. Also, the association contended, by providing seamless interoperability between a mobile device running Microsoft software and a PC running Windows, Microsoft abused Windows' dominant position.

The commission's investigation into Microsoft's contracts with PC makers began last fall. The commission wants to determine if some clauses that Microsoft insists on including are anticompetitive.

Tom Brookes, a spokesman for Microsoft in Brussels, said Sunday that the company would look at the issues raised in the most recent complaints and address them if and when it became necessary.

One problem the commission is examining may already be solved. There is a "nonassert clause" in the contract that forbids PC makers from protecting any patent they may hold for software-related inventions. Under pressure from Japanese and European competition regulators, Microsoft earlier this year announced that it would drop the clause from all contract renewals from this summer.

There may be other contract clauses under examination by the commission, but the regulator declined to disclose them.

Mark Ostrau, co-chairman of the antitrust group with the technology law firm Fenwick & West, said speed was crucial in addressing antitrust abuse in such a fast-moving industry. Delays in the case in the United States meant that by the time there was a ruling in 2001, he said, the damage had already been done: Netscape, the rival to Microsoft's Internet Explorer had already given up competing.

It is impossible to say whether the ruling in the five-year European case has come soon enough to benefit the competition to Microsoft's Media Player. The commission says RealNetworks and Apple Computer can still take advantage.

In its ruling, the commission is expected to order Microsoft to offer PC manufacturers in Europe two versions of its Windows operating system: one with Media Player bundled in as it is now, and another version without it. Microsoft will be expected to sell the unbundled version of Windows at a slight discount, perhaps around $5 to $10 less than the fully equipped version.

Even though this goes beyond the remedies imposed in the United States, some lawyers and computer experts doubt how effective the commission's two-operating-system solution will be.

"We proposed a simpler remedy: order Microsoft to unbundle Media Player, full stop," Vinje said, adding: "The two-operating-systems solution is softer. I hope it isn't too late to have any effect."

Looking ahead to the other cases "that are there and are on the horizon," as the competition commissioner, Mario Monti, put it last Thursday, Ostrau said, "Hopefully, the commission will be able to move more quickly in the future."

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