EU vs. MS: Same as it Ever Was?

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You've got to admire the European Commission for its tenacity:

The European Commission can confirm that it has sent a Statement of Objections (SO) to Microsoft on 15th January 2009. The SO outlines the Commission’s preliminary view that Microsoft’s tying of its web browser Internet Explorer to its dominant client PC operating system Windows infringes the EC Treaty rules on abuse of a dominant position (Article 82).

In the SO, the Commission sets out evidence and outlines its preliminary conclusion that Microsoft’s tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice.

The SO is based on the legal and economic principles established in the judgment of the Court of First Instance of 17 September 2007 (case T-201/04), in which the Court of First Instance upheld the Commission's decision of March 2004 (see IP/04/382), finding that Microsoft had abused its dominant position in the PC operating system market by tying Windows Media Player to its Windows PC operating system (see MEMO/07/359).

There have been plenty of the usual howls of indignation that a European political body should dare to try to crimp the style of a dynamic US company like Microsoft – conveniently overlooking the fact that Europe suffers all the downsides of Microsoft's desktop monopoly, while deriving very little benefit from it because the anomalous tax status of the Ireland-based subsidiary that sells to Europe.

Commentators have also objected – with rather more justice – that technological developments tend to make judicial attempts to right earlier wrongs moot, so it is not worth bothering. But I think that many people have overlooked an interesting aspect of the current action.

For, contrary to appearances, this not a new assault on Microsoft, but a continuation of the old one. As the press release put it: “The SO is based on the legal and economic principles established in the judgment of the Court of First Instance of 17 September 2007 (case T-201/04)”. That seems pretty significant to me, because it means that the latter was not simply a one-off rap on the corporate knuckles for Microsoft – and a pretty expensive one at that – but a real laying down of European law going forward. In particular, it established the general position that tying new software features to Windows harms competition.

That principle is now being applied to the browser, certainly one the most important add-on features, and one worth trying to separate from Windows. But what is really interesting is that having elevated the earlier judgment to this more general principle, it could be applied to pretty much *any* extra to the Windows operating system. Since Microsoft has long boasted of Windows' superior integration compared to rival solutions (not least open source ones), the EU move strikes therefore at the heart of Microsoft's long-standing – and highly-successful - bundling strategy.

As a result, it also serves notice to Microsoft that it needs to change the way it packages its software in the future. Whenever Microsoft adds some cool new extra to Windows, it must now reckon with the possibility that the EU will be sending yet more Statement of Objections. Thus the Court of First Instance's judgment has become a kind of legal sword of Damocles hanging over Microsoft's plans.

Of course, that's precisely what upsets so many commentators (especially the ones on the other side of the pond), because it asserts the European Commission's continuing power and right to make life awkward for Microsoft. It means that Microsoft must now think of the broader implications of its actions when it launches software, and not just its bottom line; it must consider it what ways it can use its desktop monopoly fairly in support of new products; and it must be far more amenable to the idea of a level playing field, where every company can compete fairly. Since none of these is happening currently, it's clear that the European Commission's move was not only appropriate but sorely needed.