EU's Microsoft Decision Leans on Rivals' Evidence
April 22 (Bloomberg) -- The European Commission's antitrust ruling forcing Microsoft Corp. to strip its audio and video player from some versions of Windows relied exclusively on evidence from the company's competitors, according to the written decision.
The European Union's Brussels-based regulatory arm provides no evidence in the 301-page ruling obtained by Bloomberg News that consumers are harmed by Microsoft's bundling of its media player with Windows, which powers about 95 percent of personal computers. It relies instead on evidence from rivals such as RealNetworks Inc., equipment manufacturers and content providers.
``This ruling is like Lewis Carroll's `Alice in Wonderland','' said Michael Holland, who manages $500 million at New York-based Holland & Co. and owns shares of Microsoft. ``This has nothing to do with consumers, who are supposedly the ones the commission is designed to protect.''
Competition Commissioner Mario Monti last month levied a record 497 million-euro ($594 million) fine on Redmond, Washington-based Microsoft and ordered it to share secret programming data and offer a version of Windows without a music and video player. The EU said the software maker illegally used its operating system to quash competition from developers of rival media players. Microsoft said it will appeal.
Microsoft's ``market practices affect hundreds of millions of consumers and thousands of companies in the EU,'' Monti said at an antitrust conference in St. Gallen, Switzerland, last week.
Decision Makers
The ruling should have been based on evidence from a variety of computer companies, not just competitors, and consumers, Microsoft spokesman Jim Desler said.
``The commission's decision opens the door for even a single complaining competitor to thwart innovation if their market position is harmed,'' he said.
Several phone messages left with commission spokesman Anthony Gooch in Washington and spokeswoman Amelia Torres in Brussels weren't returned.
The commission was right to focus on competitors in the media market, rather than seek evidence directly from consumers, said Ed Black, president of the Computer and Communications Industry Association, a trade group representing Microsoft rivals.
``The important decisions in this market are made by original equipment manufacturers, content providers and software writers,'' Black said. ``They decide what the customer is getting.''
Expectations
As part of the same decision, the commission also ruled that Microsoft was using Windows to give it an illegal advantage in the market for software on servers, the larger computers that run corporate networks. As evidence, the regulator cites responses to questionnaires it sent to dozens of Microsoft's customers.
While rejecting Microsoft's claims that the media player is part of the operating system, the commission acknowledges that customers ``expect to the able to play media content on their computer.''
In paragraph 411, the commission says Microsoft's Windows Media Player is the only software of its kind on the market that provides all of the features of a music and video player for free. The ubiquity of the product encourages companies to develop software that assume its presence, the document says. Media and content providers will produce material suitable for Microsoft's media format because it can do so at the lowest cost.
No Consumer Evidence
The document doesn't provide evidence as to how the consumer has been harmed by either of these actions. The commission's decision does detail the difficulties new entrants face in entering the market and problems encountered by rival media player producers in getting access to consumer desktops. The commission also rejects Microsoft's arguments that the operating system and Windows Media Player represent a single distinct product.
``The fact that the market provides media players separately is evidence for separate consumer demand for media players,'' the document says. ``As long as consumers automatically obtain WMP -- even if for free -- alternative suppliers are at a competitive disadvantage.''
`Inconvenience'
The commission also faults the ``inconvenience'' to consumers of downloading media players through the slower dial-up Internet connections that are predominant in Europe.
In its conclusion, the commission said it ``does not purport to pass judgment as to the desirability of one unique media player or set of media technologies.'' It seeks to maintain competitive markets so that innovations succeed or fail on their own merits.
The commission says in paragraph 1025 that consumers will likely want to buy a ``bundle'' including an operating system and media player, the consumer will have the ability to choose which media player is included. It didn't provide any details on how it reached the assumption that customers, other than highly specialized users, would prefer such a choice.
Under EU rules, Microsoft has until early June to lodge an appeal with the Court of First Instance in Luxembourg. It will also ask the court to set aside the remedies imposed by the commission until its appeal is heard, arguing the company will be unable to undo the damage caused by the remedies should it win. The appeal process can last several years.
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