Is Microsoft Corp.'s string of legal triumphs about to end as the venue shifts to Europe?
The software giant emerged virtually unscathed in November from an eight-year battle with U.S. federal and state authorities over how its violations of antitrust laws should be rectified. But it may not fare as well in another major antitrust case, now entering its final phase at European Union headquarters in Brussels.
Much of the relevant law is tougher in Europe than in America. Also, the top European regulator, a silver-haired Italian economist named Mario Monti, is a formidable adversary whose past victims include General Electric Co.'s legendary former chairman Jack Welch.
An investigating team working for Monti, the competition commissioner for the European Commission, the EU's executive body, is putting the finishing touches on a formal recommendation in the case. It is widely expected to find Microsoft in breach of European antitrust laws and urge more stringent sanctions than those imposed in the United States, according to lawyers and other experts familiar with the proceedings.
"They have found a serious violation. They regard it as essential to remedy it effectively," said Thomas Vinje, a partner at Morrison & Foerster in Brussels. He represents the Computer & Communications Industry Association, which includes some of Microsoft's competitors, and has reviewed documents that he said point to the conclusion he described.
If Monti endorses such findings, Microsoft could be required to make a fundamental change in the way it sells its core operating software, Windows, in Europe. It may have to give its European customers a choice of buying Windows with or without Media Player, Microsoft's program for playing video and music on personal computers.
Such a ruling would set a precedent that would seriously threaten Microsoft's key business strategy of bundling popular software programs with Windows. Critics say that strategy lets Microsoft exploit Windows' dominance to gain a stranglehold over markets for other types of programs. Bundling was also a major issue in the U.S. cases, but American authorities decided in the end to allow it with modest reservations.
"Bundling has been the most strategic advantage that Microsoft has had in the market for the last five years," said a London-based technology industry analyst. "If Europeans say, 'In Europe you are not allowed necessarily to do that,' it's going to have a significant effect on their ability to enter new markets and tackle the smaller software companies that are in a niche."
Although the bundling issue is attracting the most attention, the Europeans are also studying whether Microsoft must disclose more information to competitors so they can develop software that interacts with Microsoft's server software, the central brains of computer networks. Microsoft worries that competitors such as Sun Microsystems Inc. would use that information to clone its servers.
It's too early to predict a legal defeat for Microsoft, which is universally described as hoping to resolve the case along the lines of the U.S. settlement. Monti still must hear from three advisory groups at the European Commission before he makes the decisive ruling. He has said he expects a conclusion by summer.
"Our analysis . . . of a very extensive file is very well advanced," Monti said late last month at an international economic conference in Davos, Switzerland.
Microsoft declined to issue any new public comment at such a sensitive moment. Horacio Gutierrez, its director of legal and corporate affairs in Europe, reaffirmed a previous statement that "we look forward to working with the commission to find a positive resolution of the case."
Microsoft does roughly a quarter of its business in Europe. In theory, the EU could fine the company up to 10 percent of its global revenue, or $2.8 billion, if it finds the company has violated antitrust law. The EU has never imposed such a large fine, however.
The case's importance extends well beyond Microsoft. It will be an important signal of whether Europeans and Americans are making progress in efforts to align regulatory policies.
That issue came to a head in 2001, when Monti blocked GE from going through with a $43 billion merger with Honeywell International Inc. U.S. authorities had cleared the deal, and Monti's "no" spoiled what Welch had hoped would be a glorious finale to a distinguished career.
The transatlantic differences are "a significant challenge," said Charles Stark, partner at Wilmer Cutler & Pickering in Brussels, and a former chief of the Foreign Commerce Section of the U.S. Justice Department's Antitrust Division. While much progress has been achieved, he said, "to the extent that you can generalize, it's true that the EU is more restrictive on antitrust."
While the legal details are complex and subtle, an underlying difference is that the United States relies more on economic analysis to determine whether a company is excessively dominant in a marketplace. It looks especially at whether customers are penalized, such as by paying a higher price.
By contrast, while the Europeans say they also put the consumer first, they often take a more regulatory approach. They look more at whether a dominant company is properly treating other actors in the marketplace, including competitors and suppliers, as well as customers. Microsoft may be vulnerable to accusations that its bundling of Media Player with Windows was unfair to rival makers of media players.
Microsoft's position has been that unbundling Media Player would tear an irreparable hole in Windows and stifle future innovation. It has also said that Media Player's main rival, a product made by RealNetworks Inc., has more than three-quarters of the global market
Microsoft will have at least one more chance to press its case with Monti in hopes of reaching a settlement patterned on the U.S. one. But David Wood, a partner in the Brussels office of Howrey Simon, said there is a reasonable chance that the Europeans will go further. "The Microsoft case may . . . turn out to be one of those cases where quite small differences in philosophy end up having quite large differences in practice," he said.
The case comes to a climax at a critical time for Monti, who is on the defensive right now. Last year a European court overturned three decisions in which he had blocked mergers. It cited shortcomings in how his office analyzed the cases and treated defendants.
Monti, 59, a veteran regulator, is one of the most powerful men in Brussels. Some Monti-watchers think his recent setbacks, combined with political pressure to follow the U.S. example, will lead him to go easy on Microsoft. Others predict the opposite result, saying Monti and his team are aching to reestablish their authority.
Monti said in Davos that the commission will give "due consideration" to the U.S. case and that the outcome "should if necessary and possible be complementary to remedies that have been obtained in the United States." But he also noted that the European and U.S. cases differ in the law and the business products at issue.
Christopher Bright, an antitrust partner at Shearman & Sterling, based in London, expects Monti to be aggressive. The Microsoft case offers Monti "an opportunity to strike out in an area of clear difference with the U.S., and against a company which many have little sympathy for," Bright said. He added that Monti is "the hard man of Brussels, and he's not going to want to lose that reputation."