EU plays hardball with Microsoft

The European Union fined Microsoft Wednesday more than $600 million and ordered it to change the way it bundles its programs in an effort to break the company’s hold on key software markets.

The EU’s antitrust office said Microsoft is using its monopoly on Windows to dominate the market for media players and computers that run Web sites and PC-based networks. It ordered the world’s largest software maker to offer a version of Windows that doesn’t include Microsoft’s video and music player, and required Microsoft to release confidential information to competitors that would help them design their own server software to work better with Windows PCs.

Collectively, the measures were far harsher than any U.S. court has imposed on any company.

“That is highly unusual in this country,” said J. Robert Robertson, a partner at Kirkland &Ellis in Chicago. “It would be extraordinary.”

The fine is about 1 percent of Microsoft’s cash and short-term investments as of Dec. 31. Redmond-based Microsoft vowed to appeal. “Microsoft understands its special responsibility as a market leader, and conducts itself and makes business decisions and product decisions and development decisions with an understanding of our obligations under the law,” spokesman Jim Desler said.

Laura DiDio, senior analyst at Yankee Group, a technology research and consulting company in Boston, said: “Microsoft is going to fight this tooth and nail. From Microsoft’s standpoint, they want you to be all Microsoft all the time.”

Experts say Windows Media Player will thrive anyway. Many companies that offer audio and video online require Windows Media player because it has been integrated into the operating system for so long.

“If I’m deciding how to stream my content on the Internet, I’m going to make sure I stream it in Windows Media Player format,” said Colin Underwood, a partner specializing in antitrust at Proskauer Rose LLP in Manhattan.

Many companies who sell songs online, such as Napster, are also locked into Windows Media Player because they know it’s on every PC and controls the rights for the song copying and replaying even after the song is downloaded.

“Consumers are essentially going to vote with their browser by unknowingly downloading the Windows Media player with the first bit of licensed content they buy,” said Simon Yates, senior analyst at Forrester Research, a technology research company in Cambridge, Mass.

“If the EU had made this decision two years ago, it could have had an impact,” Yates said. “But now it’s too late, because everyone on the content side is locked on the Microsoft path.”

If the decision is upheld, it could affect Microsoft’s next version, code-named Longhorn, which integrates even more media into operating system, experts said.

“If this ruling holds, then it could have a very serious impact – significant impact – on what Longhorn looks like,” DiDio said.

The ruling also raises issues of law in other countries affecting U.S. companies.

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