OSNews

In Europe, things look a bit more serious for Microsoft. The European Commission has decided that Microsoft's conduct has violated EU anti-trust law and that they should 1) change that conduct and 2) be punished for past transgressions. The three days of hearings this week concerned what changes and punishments would be appropriate. When the commission renders its final decision, Microsoft will almost certainly appeal. That will take some time. The Commission was slapped hard three times in court last year for the way it handled anti-trust cases. So the court is no slam dunk and MS would lose nothing by trying its luck. But, and its a big but, the Commission is said to have gone so slowly on this precisely because they wanted an airtight case before the courts. If they do have such a case, its very likely that any non-monetary remedies the Commission orders will be allowed to stand during the appeal. That's significant. If they are ordered to take Media Player out of Windows, then MS would face the choice of complying or not doing business in Europe. The slow appeals process would become their enemy rather than their ally.

Most commentators have focused on the fines the EU might impose (up to 10% of annual gross revenue). That's irrelevant. Ballmer would love to make this all go away for a measly 2 or 3 billion dollars. Much more serious would be a sweeping EU order to remove Media Player and/or open up sufficient APIs to create a level playing field in the server market. Especially if they couldn't get the order stayed during appeal. I don't know what MS would do. They would probably have to comply.

The server market is one where MS has big aspirations, but not a big market share. An order to open the APIs would be a setback, but not a decisive one. Its different with Media Player. That has taken on a much greater importance for MS in the three years since the EU started this case. Here's the problem. Microsoft has grown too big for the markets it dominates. Where's the growth in OS revenues going to come from in 5 years? They can't double their market share. Same goes for Office. MS needs new markets and needs them desperately. That's why they've thrown money at cable, phones, game consoles, and anything else they can think of. I don't think they have a grand and detailed plan for global domination. I think they know what way they want to go and they keep trying things. Then they reinforce success. When they launched Media Player, it wasn't that important in the grand scheme. But of all the non OS, non Office possibilities, NGSCB (Trusted Computing) looks like the best bet right now. By hooking up the player, DRM, MS file formats and a secure OS, Microsoft opens some vast new markets. Look at it this way, Apple may be the legal music download champ today. But if MS has anything to do with it, they will own that market in five years. And they need the player to do that. Each part of the puzzle is critical and reinforces the other parts. MS file formats and hardware Ids mean it would be hard to get around DRM. A secure OS tied to the hardware makes it hard to get around restrictive file formats. Strong DRM is what Hollywood wants to hear about. And the player wraps the whole thing up and puts it in the user's lap.

They can do all this without the player, but its a lot more difficult. Especially the Hollywood-DRM part. The studios have failed to get compulsory DRM tied to hardware through lawyers, lobbying or laws. But if MS can pull this off, they'll be able to give the studios exactly what they want. In substance if not in name. What would that be worth?

So there's a lot at stake here. Although MS is making nicey-nice noises, they apparently told the Commission that they have done nothing wrong, and shouldn't be punished at all. That the Commission's evidence is anecdotal, that MS won't countenance a crippled version of Windows for the European market, and that the US settlement is sufficient to address any problems.

If they really did say those things, they're toast. They may not realize that the more polite a bureaucrat becomes, the angrier they really are. An American company judged to have damaged European consumers and business through illegal tactics will not be treated nicely. Especially one that tells the EU to shut up and accept the Bush administration's wisdom on the matter. Also, Microsoft's trump argument "measure x will only help our competitors" carries zero weight in the EU. There are plenty of free-market conservatives there, but the idea that governmental intervention might skew the market is fine with them. They do it all the time. Look at Airbus. Having gone so far, the EU can't back off now, especially when they've said the transgressions are ongoing. All the political minefields are on the path to compromise. They lose nothing by being as tough as possible, they could lose a lot if they aren't seen as being tough enough.

And so the inexorable slow grind of justice continues. Probably, MS will win the US case. Probably, they will lose the EU case. To make it worse, the EU has started investigating them again in a separate matter. Make no mistake, the EU competition bureaucrats are just as craven as any others. But they have an institutional need to prevail this time. The three recent rebuffs in court hurt them a great deal. They need to re-establish some credibility. They need a win, and they've got MS pretty much sewn up. At this point, Mr. Ballmer should be thinking about what to do when that happens.

1. "Anti-Trust Action Aplenty, Page 1"
2. "Anti-Trust Action Aplenty, Page 2"