European Microsoft Decision...

Washington, DC - Today, the European Court of First Instance (CFI) in Luxembourg denied Microsoft a stay of the remedies imposed by the European Commission while the Commission’s decision is appealed on the merits. Microsoft is appealing a European Commission decision to impose a series of sanctions on the company based on alleged anti-competitive conduct relating to the markets for media player software and workgroup server software.

“Today’s decision will have dangerous repercussions for small software developers, consumers and the future of innovation. While intended to constrain Microsoft, the Commission’s sanctions will impose billions of dollars in new costs on small software developers and consumers, and threaten the future of innovation.” said Jonathan Zuck, president of the Association for Competitive Technology (ACT).

“Unfortunately, European law places almost all the emphasis on Microsoft's ability to show irreparable harm to itself in this stage of the case. If sufficient weight was given to the irreparable harm suffered by ISVs and consumers as a result of these sanctions, this decision would have turned out differently,” Zuck added.

ACT is an international trade group representing the interests of the information technology sector with more than 3000 members worldwide. ACT is an official intervener in this appeal and testified before the Court of First Instance in this case.

During the hearings regarding the stay, Microsoft effectively demonstrated the flaws in the European Commission’s case and the remedies it has imposed on the company. The Commission’s contorted market definitions and inaccurate market projections were both highlighted. Whether these points will eventually win over the judges in the decision on the merits has yet to be seen, but the hearings did show that Microsoft still has a significant chance of winning on appeal, suggesting that these sanctions may ultimately have to be removed.

More importantly, however, the hearings exposed the dangerous effects the Commission’s decision will have on consumers, small software developers and innovation.

The most pernicious of these remedies is the requirement that Microsoft create two versions of Windows, one with MediaPlayer functionality and one without. This sanction:

• Creates an Overbroad Precedent that Could Prevent the Addition of New Functionality to Any Successful Product, Regardless of the Industry. The American courts rejected this type of sanction because it could stymie innovation.

• Removing Windows Media Player (“WMP”) from Windows will require additional software development and testing by Independent Software Vendors that could cost European consumers up to 12 billion Euros (Based on estimates by Professor Stan Liebowitz by relying upon survey data from software developers, cost factors from KPMG, and worldwide market forecasts by IDC).

• While the costs to ISV’s and consumer are undeniable, the effectiveness of the sanctions is highly questionable. The Commission not only admitted that the sanctions would impose high costs to ISV’s and consumers, but also conceded they had no idea whether anyone would want the MediaPlayer-free version of Windows.

In addition, the forced disclosure of protocols used by Microsoft’s workgroup server software will have dangerous effects, including:

• The forced disclosure of internal communications code threatens the future stability and security of Windows. The publication of all communications protocols in their beta stage, as required by the Commission, would oblige software developers to continue to support those protocols. If those protocols or their misuse by software developers proves to create security or stability problems, it will be very difficult for Microsoft to change or discontinue them.

• The Commission’s decision undercuts intellectual property rules for ALL successful companies, and reduces incentives for research and innovation in the future. Technology companies spend billions in high-risk research and development of intellectual property, and this precedent will allow the Commission to force any company with a successful product to provide it under compulsory license in a manner that is inconsistent with both EC and international law.

ACT is a national education and advocacy group for the technology industry. Representing mostly small- and mid-sized companies, ACT is the industry's strongest voice when it comes to preserving competition and innovation in the high tech sector. ACT's members span the industry, including software developers, systems integrators, IT consulting and training firms, and e-businesses