European Ruling May Limit Microsoft's Bundling Options

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January 03, 2005 (IDG News Service) -- BRUSSELS -- A judge's ruling that Microsoft Corp. must comply with sanctions imposed by the European Commission while pursuing an appeal of them may affect the company's ability to bundle new technology into its operating system, according to analysts.
In a decision issued Dec. 22, Bo Vesterdorf, president of the European Union's Court of First Instance, rejected Microsoft's request that the antitrust sanctions be suspended until its appeal is considered -- a process that is expected to take as long as five years.
Vesterdorf, who presides over Europe's second-highest court, said Microsoft must offer a version of Windows without its Media Player software and publish application programming interfaces that should make it easier for rivals to integrate their products with Windows.
Rick Sherlund, a financial analyst at The Goldman Sachs Group Inc. in New York, wrote in a research note that he doesn't expect Vesterdorf's decision to be very harmful to Microsoft's business in and of itself. He noted that there likely will be little interest among users in buying a Windows version without Media Player.
But, he added, the court ruling could pave the way for regulators to argue that future additions to Windows, such as antivirus tools or search-engine software, should also be offered in an unbundled fashion. "It is the precedent which is really at issue in the [European] case," he wrote.
Creating Ambiguity
Philip Carnelley, a technology analyst at London-based Ovum Ltd., made similar comments in a report about Vesterdorf's ruling. The Media Player sanction is "a comparatively minor irritant for Microsoft," Carnelley wrote. But the unbundling requirement could "lead to ambiguity" about Microsoft's freedom to build more functionality into Windows, he added.
"Until this time, bundling was the clear winning strategy and ... played to CIOs' and consumers' desire for less complexity and management overhead in their computer systems," Carnelley wrote. "The EU has changed the ground rules, and it's not clear who the winners will ultimately be."
Brad Smith, Microsoft's general counsel, said during a teleconference that a version of Windows without Media Player will become available from PC makers in Europe this month. The company will also set up a Web site with information about how other server software vendors can license the communications protocols that Microsoft is being required to release, Smith said.
Although Vesterdorf ruled against Microsoft's request to suspend the sanctions, the company said it was encouraged by parts of the decision, such as a finding that the European Commission has yet to fully prove its claim that competitors need access to the communications protocols.
The court's recognition that arguments to the contrary by Microsoft may have merit gives company officials hope that a settlement could still be reached with the commission, according to Smith. "There's ample room for us to press forward with optimism," he said.
The European Commission didn't immediately comment on the decision. Unless Microsoft appeals, the case now goes to a five-judge panel that will begin assessing the company's appeal of the sanctions.
Taylor is a reporter for the IDG News Service. The news service's Scarlett Pruitt also contributed to this story.

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