A bittersweet win over Microsoft

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THE verdicts of Europe's second-highest court in antitrust cases are not generally reckoned to make for gripping live television. But when the European Union (EU) lined up against Microsoft, the decision of 13 begowned judges of the Court of First Instance in Luxembourg was of interest. The judges' ruling on Monday September 17th, which amounted to a trouncing for the software giant, even provided some drama. Microsoft's appeal against an antitrust punishment imposed by the European Commission in 2004 was rejected almost entirely.

Neelie Kroes, the EU's competition commissioner, did not betray the delight of Europe's regulators. She called it a “bittersweet” victory and added that “Microsoft must now comply fully with its legal obligations”. Those obligations refer to demands made by the commission in 2004 after it decided against Microsoft in a case begun nine years ago. Then Sun Microsystems charged that Microsoft was refusing to share information that would allow “interoperability” between its servers and equipment produced by the software giant.

Along the way another complaint over “bundling” was added to Microsoft's charge sheet. As with a similar antitrust action brought in America, Microsoft was accused of abusing its market dominance, and thus damaging excluded rivals, by tying its own media software to its Windows operating system. An American judge ordered Microsoft to be broken up, a punishment overturned on appeal in 2001 when a toothless remedy was imposed instead. Microsoft's model of expanding into new markets by adding products to its dominant operating system endured.

In Europe Microsoft fought a hard legal battle while simultaneously mounting a charm offensive (a tricky proposition for Steve Ballmer, the firm's pugnacious boss). The firm hoped that the EU would also settle rather than pursue its decisions to force Microsoft to disclose or license its server protocols, supply Windows without a media player and impose a fine of €497m ($612m).

Although keen to reach a settlement, Microsoft also argued that it had done nothing wrong. It used Apple's iTunes software as an example of competition in the media-software market. Microsoft also argued that consumers were indifferent, noting that only a handful of copies of Windows had been sold without a media-player compared with millions including it. And the firm insisted that it should not be forced to give up server data which amounts to valuable intellectual property. The EU, for its part, was keen to pursue the legal case against Microsoft. Mario Monti, a previous competition commissioner, made it clear that he wanted a court to set a precedent and act as a caution to other tech firms in dominant positions.

At the weekend Microsoft gave warning to rivals which had lined up to support the European case that a newly emboldened Commission could have them in its sights too. The decision will certainly provide fresh impetus for outstanding cases against Intel, Rambus and others. And other big tech firms like Apple and Google may yet feel the Commission's breath on their necks. There could also be more action against Microsoft.

But Microsoft's greater concern may well be the advance of open-source software and open standards. Linux, an open-source operating system, is widely used in servers and among the technically minded but—for now—constitutes no threat to Windows. Firefox, an open-source browser, is used by at least one in ten instead of Microsoft's Internet Explorer. Windows and Office, the firm's word-processing and other applications, are the backbone of Microsoft. But increasingly the rise of online applications will lessen the importance of operating systems and may eventually chip away at Microsoft's dominance.

The Commission's tough line may at least offer some succour to Microsoft's rivals. But Ms Kroes's desire to see Microsoft suffer a “significant drop in [market] share” that Windows enjoys (95% of the world's one billion or so computers use the system) looks fanciful in the short term. Microsoft's pride may have been hurt by the court, but its dominance is hardly under immediate threat.