[Ecommerce] New York Times: Microsoft appeal is high-stakes case for Europe court

[Thiru Balasubramaniam]

<SNIP>

"In the past, the court has said that compulsory licensing of a firm's
intellectual property can only be justified when the information
concerned is indispensable to the market," according to the source close
to Microsoft. "But the Linux operating system has grown over the past
two years.

"This is proof that the information the commission has ordered Microsoft
to reveal is not indispensable to the market."

Microsoft's opponents will argue that the information sharing is vital
in order to create a level playing field in the server software market,
and that the compulsory licensing order does not infringe any of
Microsoft's intellectual property rights.

"Microsoft only started mentioning intellectual property rights once it
was clear it would lose the case two years ago," Vinje said.

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Microsoft appeal is high-stakes case for Europe court
By Paul Meller The New York Times
THURSDAY, APRIL 20, 2006


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More than two years have passed since Europe's top antitrust authority
found Microsoft guilty of monopoly abuse, fined it =80497.2 million and
ordered it to change the way it sold software across Europe.

When Microsoft meets the European Commission in a courtroom in
Luxembourg next week, events in the technology industry during those two
years will feature prominently for both sides in the appeal of the 2004
antitrust ruling and fine, which was equal to $615 million.

A decision in the case is expected in the next 12 to 18 months.

The Court of First Instance, Europe's second highest court, has set
aside all of next week to hear the appeal, allocating two days to each
side plus one day for arguments on Microsoft's request for a reduction
in the fine. Dozens of lawyers representing the commission and Microsoft
are expected to argue before the court. The session will be open to the
public but it will not be Webcast or televised.

It is a big deal for the court. The most recent high-profile appeal that
it has heard was General Electric's opposition to the European
Commission's 2001 decision to block its merger with Honeywell, and that
hearing was over in a day.

It is also a big deal for Microsoft. If the company succeeds in
persuading Judge Bo Vesterdorf, a Dane who leads the court, that its
behavior has not harmed competition, then it will be able to continue
the profitable strategy of bundling new software features into its
ubiquitous Windows operating system.

"At issue is whether companies can improve their products by developing
new features," Microsoft said in a statement on Wednesday.

And it is a big deal for the commission, as the biggest ever challenge
to its antitrust authority.

In March 2004, the commission ordered Microsoft to make a version of
Windows without Media Player, the company's music- and video-playing
software, built in.

Bundling Media Player into Windows put rival media players, like Real
Player made by Real Networks and QuickTime from Apple Computer, at a
competitive disadvantage, the commission concluded.

Next week, Microsoft will cite Apple's success with its iPod portable
music player and iTunes, its music store on the Internet, as proof that
competition and innovation in this sector of the software market is buoyant=
.

"The commission's theory was that the market for music and video players
would tip irreversibly in Microsoft's favor if Media Player remained
integrated in the operating system," said a person close to the
company's legal team who did not want to be identified because of the
sensitivity of the case.

"Apple's formats have been very successful. The market evidence
disproves the foundation of the commission's theory. The market has not
tipped in Microsoft's favor: fact," the person said.

The commission was unavailable to comment.

Thomas Vinje, a partner in the Brussels office of law firm Clifford
Chance who will be representing one of the commission's key allies at
next week's hearing, dismissed Microsoft's interpretation of the facts.

ITunes is not strictly speaking a media-playing program, he said. "There
is some overlap with media players, but the arrival of iTunes hasn't
made any difference to the ability of media players such as Real Player
to penetrate the market," said Vinje, who represents a group that
includes Real Networks, Oracle and Sun Microsystems.

Vinje said the evolution of multimedia software since 2004 instead shows
that the market has already tipped in Microsoft's favor, in the same way
that the Internet browser market did when Microsoft's built Internet
Explorer into Windows and crushed Netscape, a rival browser.

"Market developments have validated the commission's concerns," Vinje
said, adding, "It is vital that the court confirms the Media Player
decision because it provides a legal precedent that could be used to
prevent Microsoft continuing its abusive bundling practices in future."

Microsoft plans to bundle several new features into its next generation
of Windows, dubbed Vista, which is due to be introduced at the beginning
of next year, making the need for such a precedent urgent, Vinje said.

Microsoft will argue that market developments since 2004 also undermine
the other part of the case, which concerns the ability of rival software
companies to make programs that work smoothly with Windows, which runs
more than 90 percent of the world's personal computers.

The commission ordered Microsoft to license out secret details about the
Windows computer code to rivals to allow them to make server software
that operates properly with Windows. It concluded that Microsoft was
giving an unfair advantage to its own server software, which does run
smoothly when connecting Windows-based PCs to a network.

"In the past, the court has said that compulsory licensing of a firm's
intellectual property can only be justified when the information
concerned is indispensable to the market," according to the source close
to Microsoft. "But the Linux operating system has grown over the past
two years.

"This is proof that the information the commission has ordered Microsoft
to reveal is not indispensable to the market."

Microsoft's opponents will argue that the information sharing is vital
in order to create a level playing field in the server software market,
and that the compulsory licensing order does not infringe any of
Microsoft's intellectual property rights.

"Microsoft only started mentioning intellectual property rights once it
was clear it would lose the case two years ago," Vinje said.