DealLawyers.com Blog

On December 22, 2004, the President of the Court of First Instance denied Microsoft’s request to delay the implementation of the European Commission’s order that (1) Microsoft offer a version of Windows without Windows Media Player, and (2) Microsoft make availability its interoperability interfaces to server work group competitors, so that they could better compete with Microsoft in the market. According to the Court, Microsoft has not shown that it might suffer serious and irreparable damage as a result of implementation of the contested decision.

In late June 2004, Microsoft asked the Court of First Instance for interim relief from the order of the Commission–in other words, Microsoft asked that the penalties set forth in the Commission’s order be suspended pending final resolution of the Commission’s complaint. Hearings on Microsoft’s request for relief from the Commission decision took place in early October. Yesterday’s decision only concerns that interim relief order.

The Court’s decision, on both the requirement that Microsoft disclose interoperability interfaces to competitors in the work group server market, and offer a version of Windows without its media player tied to it, found that the Commission set forth a “prima facie case” that Microsoft violated EC competition laws. Because the Commission set forth its prima facie case, it was entitled to proceed with its case through final judgment. Because Microsoft could not demonstrate “irreparable” damage by being required to disclose interoperability information to work group server competitors, and could not demonstrate irreparable harm by being required to unbundle Windows from Media Player, the Court concluded that Microsoft MUST IMMEDIATELY comply with the terms of the order.

In other words, the order requires Microsoft to make available the interoperability information to its work group server competitors, and offer a version of Windows without Media Player bundled in with the OS.

Practical Consequences of the Order:

(1) Microsoft still has the right to be heard on both of these issues in Europe through a full hearing on the merits. This is not a final decision from the Court of First Instance that the Commission was right in its conclusions that Microsoft violated the EC’s competition laws. Instead, one could view this just as a procedural loss for Microsoft. Microsoft also has the right to appeal to the Court of Justice (both this approval of the interim order, as well as any final judgment of the Court of First Instance)

However, the loss is significant. Microsoft is going to have to offer an unbundled version of Windows that does not contain its Media Player, and offer the work group server interoperability information to competitors immediately. The work group server information disclosure is likely less serious, as Microsoft already resolved this dispute with Sun, as part of a global settlement with the company last summer. However, the Media Player decision is troubling for Microsoft. Even though the order is confined to the EU, it remains to be seen how and whether Microsoft can offer an unbundled Windows in Europe and not do the same thing in the U.S.

(2) The Court’s language is fairly harsh toward Microsoft and generous to the Commission. Even though this decision is really light on the facts, and a more complete analysis is necessary, I think that this is a very bad sign for Microsoft going forward. I would think that Microsoft must believe that if and when there is a complete ruling from the Court, that it will lose, and may try to mitigate its losses by settling with companies like Real. The barebones analysis provided by the Court seems very favorable toward the Commission.

As a side note, Microsoft issued a press release saying (1) that it intends to immediately comply with the terms of the Commission, and (2) will try to settle this dispute, once and for all, BUT, will continue with its appeal.

I think that Microsoft must see the writing on the wall.