Microsoft appeals

Microsoft's appeal last week against a European Commission ruling in March 2004 that it violated competition law set a record…

Microsoft's appeal last week against a European Commission ruling in March 2004 that it violated competition law set a record as the longest oral hearing in the history of the European Court of First Instance.

The five days of pleadings before a Grand Chamber of 13 judges will also be remembered for the scale of the legal effort deployed by both sides and an unusual level of acrimony between the two parties. Microsoft retained some of the world's top law firms for the case and outnumbered the commission's legal team by two-to-one. Both sides and their supporters also became involved in sharp exchanges.

The tens of millions of euro spent on legal fees reflect the importance of the case. It holds far-reaching consequences for the software sector and the EU regulator. A defeat for the commission would undermine its ability to pursue anti-trust investigations against Microsoft and possibly other dominant firms. A Microsoft defeat could spur Europe's competition watchdog to increase scrutiny of the firm's core business model of "bundling" software applications into Windows.

During the hearings both Microsoft and the commission rightly pinpointed the Windows operating system - the platform installed on 95 per cent of the world's PCs that offers people access to software - as key to the development of the industry. Microsoft is planning to launch a new version of Windows next year called Vista and is gearing up to "bundle" new innovative software such as security and search applications into it.

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The commission fears this could enable Microsoft to unfairly dominate rivals, as it did previously with Real Networks and Sun Microsystems - two of the firms whose complaints formed the basis for the commission's 2004 ruling.

The legal arguments in the case are complex involving trade secrets, copyright and competition law. The dispute has also raised transatlantic tensions, provoking the US embassy in Brussels to complain that Microsoft is being treated unfairly by Europe. This argument does not stack up. The commission based its investigation on complaints made by US firms, not European firms, and a US judge previously ordered that Microsoft be split in two for breaking antitrust laws - a decision reversed when the Bush administration assumed power.

Whether regulation can make an impact on the fast moving technology world is another matter? It is eight years since the first complaint was registered against Microsoft in Europe and the court's judgment in the current case is likely to be appealed to the European Court of Justice. So Microsoft versus the commission will be a battle that continues for years to come.