Not so soft

September has seen some hard blows delivered to the software giant Microsoft, even as it has been kind to consumers. In the early part of the month, the Redmond-based software giant suffered a setback when it failed to get its Office Open XML (OOXML) ratified as an international standard by the International Organisation for Standardisation (ISO), since it could not garner enough votes. Governments everywhere, including in India, prefer standards that are ratified by bodies such as the International Standards Organisation (ISO). They are wary of holding digital data in proprietary formats, which could make them hostage to a software vendor. Many are therefore considering open source products, such as OpenOffice, which not only store files locally using the ISO-approved Open Document Format (ODF), but are also free. Microsoft has time till February 2008 to address the comments made by members. If the final verdict too goes against it, the company could lose substantial government business.

Microsoft had barely recovered from this blow when the European Union's Court of First Instance handed it another major defeat on Monday -- billed as one of the biggest EU court judgments so far. In a case that has dragged on since March 2004, the court upheld the European anti-trust commission's findings that Microsoft used its near-monopoly status in the market for PC operating systems (OS) to its advantage by not allowing competitors to fully inter-operate (seamlessly 'communicate' with) with Windows PCs and servers, and by tying the Windows Media Player with its dominant Windows PC OS which, in effect, hindered innovation in the market and worked against the interest of consumers.

Microsoft is now required to offer a version of its Windows OS without Windows Media Player. "...The Commission was correct to observe...that the abusive tying has a significant effect on the market for streaming media players." The court also agreed that the commission wanted Microsoft to share only the system protocols, and not its source code. It ruled that "... the absence of such inter-operability (since a server OS runs on a central network computer and allows workers the world over to share files and printers, besides sharing security and user-identity management software) has the effect of reinforcing Microsoft's competitive position on the market and creates a risk that competition will be eliminated."

Microsoft had faced similar proceedings in the United States for the tying of its Internet Explorer browser and its Windows client PC operating system. It had then reached a settlement with the US regulators. In Europe, however, the court has agreed with the commission's decision to impose a fine of 497 million Euros (around Rs 2,800 crore). This may not amount to much for a company as large and as profitable as Microsoft, and in any case it can appeal to the Court of Justice of the European Communities. Microsoft's general counsel, Brad Smith, has said "It's clearly very important to us as a company that we comply with our obligations under European law. We'll study this decision carefully, and if there are additional steps that we need to take in order to comply with it, we will take them."

The stakes are high. Microsoft publishes Windows in 41 European languages, has 13,000 employees there (not to mention the millions employed by its business partners), and claims to spend $3 million a year on research and development in Europe. The company has a little over two months to appeal against the verdict.