Category Archives: Microsoft vs. EC

Microsoft and Antitrust: Retro-Regulators Threaten Tech Future

At a time when most people agree that Google or Apple have replaced Microsoft as the tech industry’s top player, government regulators on two continents are going retro, pushing old antitrust arguments. This backward-looking thinking threatens innovation for all companies and needs to stop now.

While the technology community has moved from obsessing over operating systems to focusing on Internet search and digital media government regulators are stuck in the past, wasting taxpayer time and money. A case in point is a group of states, led by California’s Attorney General and former governor Jerry Brown. This week, they told a federal judge that Microsoft’s “market power remains undiminished,” a statement that must make the execs at Google and Apple giggle with glee. For those who see the transition to Web-based services taking off, it’s a total joke.

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Sept 17th may be the day CFI rules on Microsoft EU anti-trust appeal

From Cnet:

The European Union’s second highest court is expected to rule on September 17 whether the European Commission was right in 2004 to find that Microsoft violated antitrust laws, sources familiar with the matter said.

September 17 is the final working day before the retirement of Court of First Instance President Bo Vesterdorf, who is presiding over the landmark case.

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Microsoft’s New Security Problem: McAfee

For years, Microsoft has come under heavy fire for not making its systems secure enough. Now, with the upcoming release of its new operating system (OS), Windows Vista, the company is being unfairly attacked by self-interested competitors for adding more security to protect consumers.

Back in 2002, when Microsoft co-founder Bill Gates announced that the company would be making security a priority, the computing industry responded with a collective, “Finally.” Thomas Greene, writing for the Register, reported at the time that “Bill finally admits that the company has wrongly emphasized whistles and bells over security, and decrees that this shall change.” He went on to say, “Hallelujah. He’s finally arrived on the same page as the rest of the computing world.”

Greene’s analysis would have been more accurate if he had written, “the rest of the computing world except for those who will lose business when consumers’ computing lives become more secure.” But Greene wrote long before McAfee decided to place a full-page advertisement in the Financial Times predicting doom and gloom if Microsoft is allowed to make its own product more secure.

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Will Google Learn Government 101?

A decade ago, Microsoft thought it could ignore bureaucratic rumblings with little or no fallout. That attitude led to the historic Microsoft antitrust trial and the realization that bureaucrats can indeed wield bigtime impact. Google is now learning a similar lesson, albeit in a different way.

In the race to provide WiFi access to Internet users, one strategy that looked like a shortcut was to partner with government bodies that seemed inclined to offer a near monopoly to companies who agreed to provide citywide wireless Internet service for “free.” In April of 2006, Google was awarded permission to build such a network in conjunction with Earthlink.

Local governments control the so-called “rights of way” for companies to set up their broadband wireless equipment throughout a city. When a company is awarded the main rights-of-way permissions, one might think that future service provision would be in the bag. In a world where everyone followed the Google motto, “don’t be evil,” that would be the case, but in San Francisco, reality has set in for the search giant.

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Europe’s Technology Problem: The EC

European Competition Commissioner Neelie Kroes is touring the United States this week. Her visit comes during a nasty spat between the commission and Microsoft that could seriously hurt technology businesses and consumers.

Microsoft is planning to launch its new operating system, Windows Vista, in November for corporate clients and in January for consumers. Before launching in Europe, it hopes the EC will explain if there is anything in its software to which the commission seriously objects. Normally, a corporation shouldn’t have to get permission from a government body in order to launch a product, but in this case, Microsoft and the EC have a history that changes the norm.

In March 2004, the EC ruled that in addition to paying a record fine of 497 million euros (US$632 million), Microsoft had to sell a copy of Windows without Media Player software and hand over the specifics of its Windows server technology to rivals. Both these mandates were meant to correct Microsoft’s allegedly harmful market power.

The company appealed the decision, and in July, the commission slapped Microsoft with an additional fine of 280.5 million euros ($356.9 million) for supposedly not complying with its orders. Given this history, it isn’t hard to see why Microsoft would want to know in advance of its next product if the commission has problems with it. Unfortunately for everyone except EC bureaucrats, an answer will not arrive in the near future.

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Kangaroo Court in Brussels

This week, European Commission (EC) regulators fined Microsoft 280.5 million euros (US$356 million), adding to the 497 million euros ($630.7 million) the company has already been forced to pay.

Noncompliance with a mandate to disclose technology documents is the official reason for the fine, yet the deadline for such compliance has not yet passed. This bizarre situation should serve as a warning to anyone thinking of doing business in Europe, and it should make the Europeans seriously question the legitimacy of their so-called “competition” policy.

In March 2004, the EC ruled that in addition to paying the record 497 million euro fine, Microsoft had to sell a copy of Windows without Media Player software and hand over the specifics of its Windows server technology to rivals. Both these mandates were meant to correct Microsoft’s supposedly harmful market power.

Of course, that supposition is highly suspicious, and the directives are currently under appeal at the European Court of First Instance. Take, for example, the idea of offering consumers a product with less functionality.

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EU to Microsoft: hand over $357 million USD

EU regulators today fined Microsoft 280.5 million Euros ($357 million USD) for supposedly not complying with their demands. Of course, the regulator’s demands are currently in the appeals process and the Commission dragged their heels in making their demands clear, but still, they argue that it’s Microsoft’s fault. That seems pretty unfair, and prompted MS’s General Counsel to say, rather diplomatically (imagine if Steve Jobs were in this position!), that “the real issue here is not about compliance, it’s about clarity.” Apparently, Microsoft has over 300 employees working around the clock to satisfy the EU bureaucrats who seem to know little about the tech industry (see my pervious posts on this, especially those about the product the Eurocrats designed that no one wanted to buy). What a mess.

European Competition Commission out of Control

News reports are saying that EU antitrust authorities plan to recommend that Microsoft pay as much as $2.5 million (USD) in penalties for every day it finds the company failed to disclose information on Windows to competitors. The penalty would be backdated to Dec. 15. That’s a huge amount of money and is total overkill given that Microsoft is working to comply and the issue is still being decided by an appeals court. I’d hate to do business in the EU if this is one of the risks.

Raining on Adobe’s PDF Party

In an unfortunate turn of events, Adobe has threatened an antitrust lawsuit against Microsoft in Europe. That two American companies may have their fate decided by European bureaucrats is bad enough, but the underlying assumptions make it even worse.The dispute centers on two issues. First, Microsoft announced that it was adding a “save as PDF” option to its Office 2007 offering, but Adobe doesn’t want that to happen. If Microsoft does offer the functionality, Adobe has demanded that it be a separate download for which Microsoft charges its customers.

Adobe’s insistence that Microsoft inconvenience and gouge its customers is odd given that PDF is billed as an “open standard” and, according to Adobe’s own Web site, 1,800 vendors including Apple and Sun Microsystems offer the PDF functionality at no cost. One could view Adobe’s actions in this case as a plan to force Microsoft into acting like a monopolist that is unresponsive and expensive. That’s a sticky position for Adobe if it plans to argue that Microsoft is a monopoly.

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Adobe Vs. Microsoft

Today, the WSJ reported that Adobe is threatening an antitrust lawsuit against Microsoft in Europe because Adobe doesn’t want Microsoft to use PDF in MS Office. So why is Adobe going to Europe?

They are both American companies, so it might seem pretty strange. That is, until you realize that the Europeans are much more sympathetic to such claims and seem to love to sick it to Microsoft and the Americans who run it. If Adobe really does complain in Europe, that will be a VERY obvious case of forum shopping. This is an unfortunate development for consumers and technology entrepreneurs.

Specifically, Adobe asked Microsoft to remove new PDF functions from Microsoft Office and to charge users for the service if it can be downloaded. Adobe gives the software away for free, and Apple and Open Office along with about 1800 companies, have already implemented the specs. So why can’t Microsoft do it? The argument that their bigness requires different rules just doesn’t hold. Microsoft is NOT a monopoly and is facing huge threats on a number of fronts such as from Google and Yahoo. Anyone who doesn’t realize that needs to wake up and smell the coffee.

Remember the last time MS faced antitrust charges here in the US? Charges of predatory pricing and tying were used and predictions that Internet Explorer (IE) would dominate forever abounded. Only a few short years later, IE has lost ground, being replaced by browsers like Mozilla, Safari, and Opera, and a bunch of others.

Government should not pick winners and losers in the marketplace and Adobe, who once welcomed Microsoft’s entry into the PDF space, would be better off spending its time innovating rather than litigating.

Microsoft’s European Hearing and America’s Future

Below is my summary of last week’s Microsoft hearing at the CFI in Luxembourg. You can read the entire column here

The European Court of First Instance (CFI) buzzed with energy this week as Microsoft and the European Commission squared off over a damaging 2004 ruling that, along with a fine of 497 million euros (US$613 million), creates a new Microsoft product and exposes the company’s valuable intellectual property. The circus-like hearing holds wide-ranging implications for American businesses.

On the first day, news crews and a gaggle of reporters showed up to watch the attorneys, some in horsehair wigs, discuss whether or not Microsoft abused its market power in the media-player market. Although Microsoft demonstrated that other media players exist and many consumers are using them, the EC continued to insist that Microsoft needed to be reined in.

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MS hearing about IP and freedom to innovate

On the last day of the MS hearing at the European Court of First Instance, the topic du jour was the record fine the EC charged MS. Not surprisingly, MS wanted the fine dropped and the EC wanted to keep it in place. And while 497 million euros is a lot of dough, it’s really the intellectual property rights and software design freedom that matter. If Microsoft loses in its bid to reverse the EC’s penalties (removing media player from Windows and handing over key parts of its IP to rivals), it will be a dark day for the technology industry.Â

It’s all about the Blue Bubble

It’s day 4 of the Microsoft hearing and today the Judges asked some really great questions about interoperability. Judge Cooke, whose Irish accent comes and goes, really cut through the blather on both sides of the argument and got to the core of the issue. The basic issue is that in 2000, Microsoft figured out how to create a distributed computing cluster that would work really well with thousands of computers (in the Court proceedings everyone is calling this the “blue bubble” because it is a cluster of computers that can only talk with other computers using “identical logic” and Microsoft outlined it in a graph colored blue). This is in contrast to other vendors like Sun Microsystems that can only offer a solution using four computers and Novell that can only do it with 150. Microsoft’s competitors would really like to be able to see and copy Microsoft’s patented invention, as they have failed to find the secrets through reverse engineering. The European Commission in 2004 was convinced that servers made by companies such as Sun Microsystems and IBM have trouble “interoperating” with Microsoft servers because Microsoft is not sharing the essential language needed to talk between computers. This sounds like a convincing argument, but it’s not an accurate representation of the issue and completely ignores third-party products that already exist to facilitate server discussion. Indeed, as the Court heard, most of the complaining companies brag in marketing materials that their servers can interoperate with Microsoft.

So, what is really going on? As Microsoft’s attorneys and other American representatives told the Court, the intellectual property that Microsoft’s rivals are trying to get their hands on does not act like a language, but rather like DNA. That would give Microsoft’s rivals the ability, not to talk with them, but to clone them – a dangerous development that would be costly in terms of profits for Microsoft and for the future of any company that relies on intellectual property for its livelihood.

Intellectual property and hungry attorneys

Today was day 3 of the Microsoft hearing in Luxembourg and, as I noted in my last post, the focus switched to MS’s intellectual property and whether or not the company should be forced to share it with rivals. When most people are presented with the idea of government taking one company’s property and giving it to another, they are horrified. But today’s audience isn’t most people. Today’s crowd was journalists, interveners, and the two sides. As a result, everyone was focused on the details.

One thing that occurred to me was how property still matters even though it is digital and also how the digital nature of it changes some rules of the game. For instance, there was a time when one company could exclude another by putting its product in a physical spot like a store. If company A’s stuff was there, company B couldn’t use that space. Now, however, if Microsoft puts property like its media player on a computer, that doesn’t exclude other competitors. I can still download Real or QuickTime even if I am running Widows Media. That is a definite upside of the digital revolution.

A second note I wanted to make is more frivolous. At lunch today, a colleague of mine noticed that the lead EC attorney went to the cafeteria and piled a huge number of sandwiches on a tray and took them off to a meeting room. According to my friend, this is proof that the EC can’t even organize food for its lead people. Maybe. Maybe the guy is just a freak and fired his assistant. I don’t know. I do know, however, that the main lunch area is only open at lunchtime and the gift store, which sells Internet cards (the ONLY way to get on the Internet if you don’t have a Luxemburg sms phone), closes at 3pm even though court goes until 6pm. If that’s how European bureaucrats think consumers like things to work, I am very glad I am not a European consumer.

European court discussion moves from designing code to giving it away

Yesterday, the CFI wrapped up its examination of the EC’s order to force Microsoft to remove 200 files from Windows to create the wildly unpopular Windows XPN. Now that the Court is done looking at the EC’s attempt to design software code, today everyone is focused on the issue of Microsoft’s intellectual property. Regulators have accused Microsoft of failing to provide rivals with enough information to develop software that could run as smoothly as its own on the Windows operating system. Microsoft countered that claim this morning by showing examples of client-server and server-server interoperability. Given how the different systems can talk with one another using translation-like programs, it seems rather draconian for the EC to force MS to give away their IP to rivals. Apple computer must be watching this with great interest given that they are facing similar pressure with iTunes. This case is not just about Microsoft, but about what regulators can do to any software company when rivals complain.

EC hammered by judge’s questions this morning

Today, everyone at the Court of First Instance noticed something that I think is a really huge difference between this Microsoft hearing and the original trial that occurred in the US. That is, the judges today are VERY familiar with the technology involved in the dispute. Use of the Internet has grown significantly since the late 90s, making it difficult for either side to fool the judges. For instance, the lead attorney for the EC kept insisting that downloading is not cheap or easy and that it “is not a viable alternative to pre-installation.” The judges clearly didn’t buy this argument with one of them (President Bo Vesterdorf) outright saying “I manage from time to time to do it.” And of course, if one goes to downloads.com one will see that there’s a lot of demand for downloads and RealPlayer is the 4th most popular audio and video download with 183,598 downloaded in just the last week.

Judge John D. Cooke was probably the most critical in his questioning, noting that it is very difficult to predict what will happen in the marketplace. For instance, he noted that while everyone had thought that Internet Explorer had won the browser wars, now many people are using the increasingly popular Mozilla.

Highlights from Monday’s Microsoft hearing at the CFI

Today’s hearing at the European Court of First Instance (CFI) focused on the Windows Media Player. Below are some key ideas that came up during the arguments.

On RealPlayer:
Some groups like ECIS – the European Committee for Interoperable Systems – attempted to argue that RealPlayer is dead. Their press release said this:

“Just as [Microsoft’s] strategy eliminated the Netscape Browser and now Real Player, unless stopped it will do the same to other technologies whenever MSFT deems them to be strategic to their business interests.”

Last I looked, RealPlayer was alive and well (and fighting with Apple over its proprietary music technology). I personally stopped using RealPlayer a while ago because I was tired of the spyware-like pop ups that Real delivered to my computer.

On browsers:
The EC attorney said that Microsoft’s browser has become stagnant because “it has a monopoly.” That’s got to be the loopiest statement I’ve heard in a while. Apparently the EC attorney is not aware of Safari, Opera, Flock, or my personal favorite, Mozilla (born from the original Netscape).

On the popularity of Windows designed by Eurocrats:
As of today, no PC manufacturer has shipped a single computer installed with Windows XPN (the n means no Windows media player). Translation: no one wants bureaucrats to design software for them.

On multiple choices for media players:
The EC seems to be assuming that consumers will only ever want to use one media player and that content providers will only want to offer their products in one format. This doesn’t make sense, at least at this point in the market’s evolution. Each media player has its merits, which is why many of us use different ones at different times. And, thanks to a nice presentation by Jonathan Zuck of the Association for Competitive Technology, the Court and all its observers got to see how fast, easy, and cheap it is for a content provider to offer up their wares in multiple formats at once (i.e, when you go to a site and it asks you if you want to use RealPlayer, Quick Time, Windows Media, etc). There are affordable translation programs like “ProCoder” or the one built into Apple’s “Final Cut Pro.” Jonathan’s demonstration showed that it took 3 steps and about 10 minutes to do the translation – a no-brainer for any content company. “It’s as simple as 1-2-3,” he said. But when the EC issued its Microsoft decision in 2004, it didn’t consider the costs or the ease of translation. It just assumed that there would be costs (the translation), but ignored the benefits (greater choice for consumers and hence the ability for content providers to grow their market and revenues).

The upshot:
It was an interesting day with both sides presenting their cases. Tomorrow, the judges start to ask questions and I’m sure those British attorneys wearing the judicial wigs will get extra hot heads. I’d better get to the gift shop and buy my Internet access cards before they sell out and I’m forced to send smoke signals.

Also, if you’re interested in listening to Podcasts of the event, Americans for Technology Leadership’s (ATL) Jim Prendergast has posted a few on ATL’s site.

It can’t malfunction if it’s not used

This afternoon, the European Commission’s (EC) attorney made his case. One of the things he said was that Microsoft put its unbundled version of windows on the market and contrary to their claims, there is no evidence that it is malfunctioning. It’s true there’s no evidence of malfunction, but it’s also true that there’s no evidence that anyone’s using it. Since the EC’s order, Microsoft has sold 35 million units of regular windows, but only 1,787 copies of windows without media player (what the EC calls the “unbundled version”). And of those 1787 copies that were sent to retail shops, no one knows if any consumers have even purchased a copy.

Efficiency an abuse?

This morning, Microsoft’s attorney said that the company is under the gun for what he called an “efficiency offense.” That is, because MS kept improving their operating system to work well with media products for the consumer, somehow that is an abuse. He’s right that that’s what Microsoft is facing, and it’s also true that at the same time other operating systems from makers like Apple, IBM, and Sun were adding media functionalities to their systems as well.

And while we’re on the topic of efficiency, I have to complain a little about Internet access in Luxembourg. Here at the Court of First Instance, they have wifi hotspots that one can use, but you cannot pay for the use online. Instead, you have to walk down to the gift shop, pay in cash (no credit cards are taken), and then walk back to your computer in the designated area to type in the access code on the little piece of plastic you just bought. The same is true in my hotel. This is completely inefficient and a HUGE waste of time. How come European bureaucrats aren’t worried about that?

Déjà vu

The Court of First Instance (CFI) just finished its first morning session where the lordships (really – that’s what they call the judges) heard Microsoft attorneys and supporters discuss why the company shouldn’t be forced to remove code from its operating system. As someone who closely followed the US antitrust proceedings, I have to say that today’s first session gave me a strong feeling of déjà vu.  Just replace the words “media player” with “browser” and presto we’re back in 1998, folks. Yikes.