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Monday, April 24, 2006
Microsoft Seeks to Overturn EU Ruling

The European Commission forced the world's largest software maker to offer a product no one wanted and virtually no one bought, Microsoft told the EU's second highest court Monday

Microsoft lawyer Jean-Francois Bellis said in his opening statement that the Commission made "fundamental errors of fact and reasoning" in its decision two years ago that the company abused its dominant market position to muscle into media software.

The Commission's order that Microsoft offer customers a version of its Windows desktop operating system without the Media Player " intended to give people a free choice of media software " has been a spectacular failure, he said.

No computer maker has shipped a PC or laptop with the media player-free Windows XP N version, which is available only in Europe. "Not a single one," Bellis told the 13 judges. Some 90 percent of Windows sales come from being pre-installed on computers when they are sold.

XP N sales represent 0.005 percent of overall XP sales in Europe, Microsoft told the court, and many of the copies produced may remain unsold, it said.

French retailer FNAC, the single largest retailer to order XP N with 46 percent of the orders, has said that it sees no consumer demand for the product, Microsoft said.

But others argued that it is Microsoft's continued power over the market that is keeping people from embracing XP N, not a lack of consumer interest.

Thomas Vinje, a lawyer for the European Committee for Interoperable Systems, a group representing some of Microsoft's rivals that is backing the Commission, said the lack of sales was a clear sign that Microsoft had held the market in check.

"It's a missile that comes back squarely into the heart of Microsoft," he said, adding that in 1999 PC makers had a choice of bundling different media players but with Media Player tied to the Windows OS, it quickly became the first pick for new computers.

Commission lawyer Per Hellstrom said Microsoft's arguments were irrelevant because consumers did not have real freedom of choice over the media software they are offered.

"Microsoft's pleas must be ignored," he told the court. "This is the world according to Microsoft where it decides what is best for consumers."

He said the company effectively controls the market because seven out of 10 computers sold in Europe ship with Media Player. Developers see these figures and make content for the player, a situation that squeezes rivals even further, he said.

To counter earlier claims by Microsoft that Windows couldn't function properly without Media Player, Hellstrom showed a trailer for " Harry Potter and the Prisoner of Azkaban" on a laptop running XP N and playing with Apple's QuickTime player.

"Despite what you heard this morning, it seems to work like magic," he said, as the courtroom watched Harry, Hagrid and Hermione on monitors.

Bellis said the Commission was wrong to predict that Microsoft's media player would quash rival software. Economist David Evans told the court that the success of Apple Computer Inc.'s iTunes and Macromedia Inc.'s Flash player now owned by Adobe Systems Inc. did not bear out EU forecasts.

More than 87 percent of computer users now play media on non-Windows software, Evans said, and PC manufacturers have doubled the number of media players pre-installed on personal computers in Europe over the last two years.

"If the Commission was correct, we should see a steep downward trend," he said.

The ECIS said this was false reasoning, because iTunes and others are not fully functioning media software that compete directly with Media Player.

"When innovators create new markets, Microsoft should not be allowed to appropriate them," ECIS told the court. "Consumers, and not super-dominant firms, should be allowed to decide what solutions ultimately succeed."

The EU fined Redmond, Washington-based Microsoft a record 497 million euro ($613 million) in 2004 after deciding that the company had taken advantage of its position as the leading supplier of software for PC operating systems to elbow in on makers of rival server operating systems and media players.

In December 2005, the EU said that Microsoft had not done enough to help its rivals develop compatible software and threatened to impose daily fines of up to 2 million euros ($2.4 million), backdated to Dec. 15. It has yet to decide whether to levy the extra fines.

The hearing is expected to last through Friday, with a decision not expected for months. EU regulators will use evidence from RealNetworks Inc. on the media player issue and IBM Corp., Novell Inc., Oracle Corp. and Sun Microsystems Inc. on server systems compatibility.

None of those companies are currently involved in the legal battle, although they are members of two broad industry coalitions ? ECIS and the Software & Information Industry Association ? that back the Commission.

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