EU expands Microsoft investigation

The European Commission confirmed Thursday that it is merging its two antitrust investigations into Microsoft's operating systems, but that it will not seek to block the launch of the company's new operating system, Windows XP.

"This Statement of Objections supplements one sent to the company a year ago and adds a new dimension to the Commission's concerns that Microsoft's actions may harm innovation and restrict choice for consumers," the Commission said in a statement.

The European Commission, the executive body of the European Union, said Microsoft may have violated European antitrust rules by "using illegal practices to extend its dominant position in the market for personal computer operating systems into the market for low-end server operating systems."

Low-end server systems are cheaper servers usually used as file and print servers as well as Web servers, the Commission said.

Microsoft has about two months to reply in writing to the latest statement of objections "which is now merged with the existing procedure triggered by a Sun Microsystems complaint," the Commission said.

The software giant put on a brave face amid the intensifying antitrust pressure coming from the European Union. "Today's decision is a constructive step forward. By merging the two cases, the Commission is narrowing the range of issues involved," said John Frank, senior corporate attorney for Microsoft Europe.

"The first case was quite free-ranging about the topics they were asking about," he said. "Now they have added two issues and restated the Sun Microsystems complaint."

The first case was sparked by a complaint by Sun Microsystems Inc. in 1998, which alleged that Microsoft was using its Windows operating system software to muscle rivals out of the market for server software. It focused on Microsoft's alleged discriminatory licensing and refusal to supply software information to allow for the interoperability of rival server products with older versions of Microsoft's Windows operating systems.

In February 2000 the Commission launched a separate investigation on its own initiative to see if Microsoft was doing the same thing with the latest version of its OS software Windows 2000.

As with the first case the Commission believes that Microsoft may have withheld from vendors of alternative server software key interoperability information they need in order to allow their products to communicate with Microsoft's dominant PC and server software products.

Microsoft may have done this by refusing to reveal the relevant technical information, and by engaging in a policy of discriminatory and selective disclosure on the basis of a "friend-enemy" scheme, the Commission said.

"The commission is concerned about how we structure our client access licenses. They are effectively complaining about the terms of one of our business models," Frank said.

The similarity of the two cases led the Commission as far back as November 2000 to consider merging the two cases. But the Commission's findings announced Thursday go much further than common concerns about Windows 2000 and its previous versions. The main new element is the tying accusation concerning Microsoft's streaming software Media Player.

"Microsoft may deprive PC manufacturers and final users of a free choice over which (streaming software) products they want to have on their PCs, especially as there are no ready technical means to remove or uninstall the Media Player product," the Commission said.

"Competing products may therefore be at a disadvantage which is not related to their price or quality and the result is a weakening of effective competition in the market, a reduction of consumer choice, and less innovation," the Commission said.

Media Player functionality has been included in Windows since 1990, Microsoft pointed out in a statement, claiming that Microsoft's player and media formats are more open than those of its competitors due to its broad licensing of the formats.

"We had talks with the Commission regarding Media Player. We believe we will be able to put together a persuasive argument," Frank said.

Microsoft will request an oral hearing with the Commission, but scheduling the hearing is at the Commission's discretion.

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