Microsoft has made a fierce attack on the European Commission's 2004 anti-trust ruling. The company started its appeal against the commission's ruling that Microsoft should unbundle its Media Player software from Windows. The company is facing a daily fine of $5m if it loses the appeal and fails to comply.
If its ruling is upheld, the Commission will have a powerful legal weapon to challenge the company on future attempts of bundling: the next battleground being the next generation of Windows, Vista, due for release early next year. If the court overturns the Commission ruling, the precedent value will largely be lost and the Commission's authority to police competition among dominant companies could be curtailed.
The Commission argued in 2004 that by including Microsoft's own Media Player music and video streaming software in its ubiquitous operating system, the company would stifle competition. Websites would design content for Media Player only and rival players would be pushed aside as users turned to the most readily available player, the Commission said.
But Jean-Francois Bellis from the Belgian law firm Van Bael & Bellis, and Microsoft's lead lawyer on the bundling side of the appeal, said that evidence from the market place showed that the Commission's reasoning was flawed.
"PC makers already put more than one player on their PCs," he said. Real Player, which during the 1990s was one of the pioneers of streaming music and video content, "was widely distributed at the time of the Commission's decision," he added.
According to figures presented by Microsoft, the vast majority of web content providers design music and video content to work using at least two media players, and 85 percent of end users used at least one non-Microsoft player.
"There is no evidence that the market was tipping. The Commission decision must be rejected as it is disproved by events in the market. The absence of evidence of tipping is a striking repudiation of the Commission's theory," Bellis said.
The Commission refuted Bellis. Far from repudiating the Commission's position, events leading up to the 2004 ruling, as well as developments after it, have confirmed regulators' fears, said Per Hellstrom, the Commission's lawyer.
Before 1999, Real Player dominated the market for streaming media playing software. Microsoft had an inferior product called Netshow, but in 1999 when Microsoft relaunched Netshow as a streaming player similar to Real Player, branded it Media Player and bundled it into Windows the market was turned on its head, Hellstrom said.
Today Media Player has 85 percent market share. It has already achieved dominance, Hellstrom said.
"In 1999 Microsoft's strategy was to reposition the battle from Netshow Versus Real to Windows versus Real," Hellstrom said.
An internal Microsoft document dated 5 June, 1997, appeared to support his argument. In an email from Jim Durkin, Microsoft's product unit manager for networked multimedia products, to colleagues, he said the push to win the battle in the market for streaming software came from Bill Gates.
"Bill's comment was 'this is a strategic area and we need to win it'," Durkin said in the mail, which was also cited in the US Department of Justice anti-trust case against the software company.
Two years later, Media Player launched and Real Networks has become a bit player in the market it helped create, argued the Commission and its allies the European Committee for Interoperable Systems (ECIS).
As required by the European regulator, Microsoft has launched XP edition N, which has the media player stripped out and sells at the same price as the version of Windows XP with a media player.
To date, not one order for edition N has been placed by PC manufacturers, Bellis said, and only 1,787 have been ordered by computer stores across Europe in the nine months since it went on sale. This is equal to 0.005 percent of all XP sales in Europe during the same time period, Bellis said.
This is proof that users don't want an unbundled version of Windows, he added.
But the Commission and its allies argued that the failure of edition N validates their claim that the market has tipped in favour of Media Player. "No demand for edition N shows that Microsoft has succeeded in foreclosing the market," said Thomas Vinje, a lawyer in the Brussels office of Clifford Chance, who represents ECIS.
Microsoft also claimed that Media Player isn't a separate product, but an intrinsic part of the media functionality of Windows. "Features of Windows wouldn't work if this functionality is stripped out," said Microsoft's Bellis, referring to Media Player.
But Hellstrom described this argument as "highly misleading," and pointed out that Microsoft makes Media Player for Apple Computer machines, as well as for PCs running on Windows.
The 13 judges hearing Microsoft's appeal will question the two sides today.