EU Decides Against Microsoft As Talks Fail

Microsoft's last-ditch attempt to settle its antitrust case with the European Union failed Thursday, as the EU's antitrust chief said he would adopt a decision against the software company next week.

An EU release indicated that the two sides had been close to settling issues regarding Microsoft's past actions, but were at loggerheads over Microsoft's future conduct.

"We made substantial progress towards resolving the problems which have arisen in the past, but we were unable to agree on commitments for future conduct," said EU Competition Commissioner Mario Monti in a statement. "In the end, I had to decide what was best for competition and consumers in Europe. I believe they will be better served with a decision that creates a strong precedent."

After receiving the endorsement of the EU's member states on Monday, Monti engaged in two days of face-to-face settlement talks with Microsoft's chief executive Steve Ballmer. Apparently, they hammered out agreements on past charges leveled against Microsoft, but couldn't agree on the future. Microsoft and EU teams had been conducting marathon settlement talks over the past few weeks before Ballmer arrived in Brussels.

"I would like to stress the constructive and co-operative spirit displayed by Microsoft in the past few weeks," Monti said. "I also want to acknowledge the high degree of professionalism of the members of the Microsoft team at all levels."Microsoft said it would release a statement on the EU events later Thursday.

A European Parliament committee is scheduled to meet next Monday to decide on the size of the fine to be leveled against Microsoft. The suggested numbers have been all over the landscape--from $100 million up to $1 billion.

The formal charges in the five-year-old case are expected to be issued next Wednesday, when Microsoft is expected to be formally charged with breaking EU antitrust law.

Although nearly all of the negotiations between Microsoft and the EU have been conducted behind closed doors, much from the Brussels talks have been leaked. There were widespread reports that the dispute over Microsoft's Media Player--its competitors here were led by RealPlayer--had centered on various schemes to permit competitors to offer their video and music programs to PC owners. Microsoft had balked initially, saying Media Player was an integral part of its operating systems.

The Financial Times reported that Microsoft had offered at the last minute to include rival programs on PCs sold worldwide, and not just in EU countries. Competitors' media player programs would have been included in PC software under this proposal.An ongoing problem for all parties is the difference in time it takes antitrust cases to move through court systems and the velocity of change in the computer industry. Begun some five years ago, the Microsoft EU case could go on for years if the company decides to appeal next week's ruling, as is likely. As an example, the EU thwarted a case involving GE's unsuccessful attempt to acquire Honeywell in 2001, and that case is still wending its way through a lengthy appeal process in EU courts.

The Microsoft case now appears certain to go beyond May 1, when the EU will adopt new, more onerous antitrust regulations. In addition, another group of seven countries will join the EU on that date, and they will have a say in antitrust issues. It's not clear whether the five-year-old Microsoft case will be open to scrutiny by new EU members, however. In addition, Monti, who has shepherded the case from the beginning, is scheduled to retire in the fall.

Other issues focused on Microsoft's software used in low-end servers. Its competitors complained that they needed more source code to make their machines perform better. Windows' source code, too, was an issue, and the EU had been examining XP.

In the end, it is Microsoft's future conduct that seems to have hung up the negotiations. While its past actions were thoroughly aired, exactly what the EU is looking for from the company in the future isn't clear, although much of it is likely to center on Microsoft's perennial problem of source code--how much of it should be released, and whether it ties programs together illegally.

Monti summed up the situation in a statement Thursday: "It is essential to have a precedent which will establish clear principles for the future conduct of a company with such a strong dominant position in the market."0