Microsoft Concludes Defense At EU Antitrust Trial

As Microsoft's competitors continued their attack before European antitrust regulators in Brussels, Belgium, on Thursday, the software vendor held out the carrot of a settlement--the way it ended the U.S. government's antitrust action against it in 2001.

From the beginning of the 4-year-old case, both sides have routinely talked settlement, but the negotiations have become more intense with the passage of time. For Microsoft, the advantage would be to resolve the negative publicity and the nagging distraction. For the European Commission, a settlement would have the advantage of avoiding lengthy appeals in European Courts, where the commission has been embarrassed in recent months by reversals in other cases.

"We've come to Brussels not only to discuss the issues but to work things out," Brad Smith, Microsoft's senior VP for law and corporate affairs, told reporters after a day and a half of closed-door testimony before EU regulators.

For a settlement, however, Microsoft would have to give up something substantial. The Commission could fine the software company up to $3.2 billion--a lot of money, though it would hardly dent Microsoft's cash hoard of more then $50 billion. The company would have to modify its software behavior, too.

The burning issues are being debated in the three-day hearing in Brussels. Since the media are banned from the proceedings, the debates are being reported piecemeal by participants and attendees.

A key point in charges against Microsoft on the subject of server software is market share, specifically size of market. Microsoft looks out and sees a broad market encompassing big and small servers in which it holds barely a 25% share. But in servers costing $25,000 and less, Microsoft commands a share of more than 50%, according to surveys of the field by market-research firms. Microsoft is arguing for acceptance of the wider market definition.

"During our time today," Microsoft said in a statement describing its presentation to the regulators, "Microsoft's technical and economic experts presented information on server operating systems and multimedia-playback technologies."

Multimedia-playback technology--specifically Microsoft's Media Player--is another major point of debate. Microsoft's critics argue that the bundling of Media Player in Windows represents unfair competition to playback technologies from RealNetworks and Apple. RealNetworks is testifying against Microsoft at the hearings.

Microsoft wants to defend its core strategy of keeping Windows on top by building in new features, as it did with Internet Explorer and Media Player. It's already planning an Internet search engine in the next version of Windows. Microsoft also has a long-term strategy to keep PCs being marginalized at home by turning them into an entertainment hub--and making its Windows Media the industry standard for all digital media.

"Microsoft believes that if everybody's got the Windows Media Player on Windows anyway, that will make people favor that format," Matt Rosoff, an analyst with Directions on Microsoft, an independent research firm, told The Associated Press. "Without that, the Windows Media format doesn't have any market advantage."

Microsoft maintains that an order to rip Media Player out of Windows just for European markets would be costly, impractical, and would hurt European consumers most.

Taking the stand Friday against Microsoft is its longtime business rival, Sun Microsystems, which filed the original antitrust suit against Microsoft in Brussels.

Another issue that was added after the case was filed centers on Windows XP, which some of Microsoft's competitors maintain is an abusive violation of antitrust law. Since the XP issue was added well after the case was originally filed, it's not clear exactly where it fits into the European antitrust scheme of things: it could be included in the current case or be addressed in separate proceedings.

The fact that the U.S. Justice Department sent observers to attend the hearing has prompted some questions concerning which side the department is on. Although the Justice Department initially brought the U.S. case against Microsoft, after that case was settled, it has sided with Microsoft in subsequent antitrust cases brought by individual states.

Microsoft continues to hold that door open for the possibility of a settlement. The company has said: "Microsoft remains committed to finding a constructive resolution to the case that addresses any concerns of the Commission while preserving the company's ability to innovate and to improve its products to meet consumer needs."