Microsoft's settlement chances in Europe cloudy

Talk of a settlement in Microsoft Corp.'s long-running European antitrust case surfaced Thursday, but many opponents of the software giant remained unconvinced.

In a statement released shortly after he concluded an eight-hour-long presentation in a three-day hearing in Brussels, the software company's general counsel, Brad Smith, gave the strongest indication yet that he is seeking a settlement to avert a negative ruling in the long-running antitrust case, which the European Commission is coming close to concluding.

"We have come to Brussels not only to discuss the issues but to work things out," Smith said, adding: "We really do look forward, not just to the next day and a half, but to the weeks that follow, and we will bring to these weeks a great sense of energy and creativity to explore every possible way to come to solutions to the questions and concerns that people may have."

Microsoft has said for months that it is cooperating with the commission in the hope of settling the case, but there has been no evidence of a meeting of minds. In August, when the commission issued its third statement of objections, it accused the company of continuing to abuse the dominance of Windows, its operating system software.

In an unusual step, the commission's statement of objections outlined the remedies it would seek from Microsoft if the commission ruled against it. Either its Media Player, audio and video playing software would have to be unbundled from Windows and sold separately, or a rival such as RealNetworks Inc.'s RealOne Player or Apple Computer Inc.'s Quicktime would have to be bundled in with it.

In addition, the commission demanded that Microsoft reveal enough Windows computer code to allow rivals to make server software as compatible with the ubiquitous operating system as Microsoft's own server software. Servers are computers shared by many other computers over a network and are common in most modern offices.

"The commission is trying to make it as easy as possible for Microsoft to offer a solution," said a person close to the European Commission who asked not to be named.

The statement in August sent two clear messages to Microsoft, the person added. "First, that the commission wants to find an outcome that protects the interests of consumers, and second, that if it does come to a ruling, it will be negative for the firm and rock solid legally."

"Judging by today's remarks, it looks like Microsoft finally realizes that the commission is serious and that its case is strong," the person said.

Brussels-based lawyers have tried to imagine what Microsoft could offer that would address the commission's concerns while preserving the Microsoft business model, which relies heavily on bundling applications such as Media Player into Windows.

Making Windows more interoperable with other applications such as rivals' server software will be the easy part, they agreed. There is already a precedent for it. In 1984 IBM Corp. ended a four-year investigation by the European Commission by agreeing to license certain interface information to competitors in Europe. The information allowed IBM competitors to make products that were "interoperable" with IBM mainframes.

"The bundling issue is the more complicated one to resolve," said Jacques Bourgeois, a partner in the Brussels office of Akin Gump Strauss Hauer & Feld. If Microsoft offered to sell a stripped-down version of Windows without any additional applications such as Media Player, alongside a version with all the extras bundled in, "that would present a real challenge to the regulator," he added. Bourgeois wasn't attending the Microsoft hearing.

If people continued to buy the bundled version of Windows in preference to an a-la-carte package of applications compiled by computer vendors, this would imply that the commission was wrong to believe that Microsoft has been limiting consumer choice, Bourgeois said.

Microsoft wasn't available to comment, but its rivals said they don't expect the company to make such as offer. "Even if they did, I don't think it would meet the concerns of the commission," said Thomas Vinje, a partner in the Brussels office of Morrison & Foerster and one of the most vocal Microsoft opponents in the European antitrust case.

Computer hardware sellers would only take the bundled version and software developers would continue to design their products to work with Microsoft's applications, he said. "I still don't think they will reach a settlement," Vinje said.

Martin Reynolds, a vice president at research Gartner Inc., based in San Jose, California, said nothing short of forcing Microsoft to unbundle Media Player from Windows would address the core competition problem.

"If I were the European Commission I'd want to see Media Player sold separately as an add-on to Windows sold in a separate box. Anything short of that and you'd have the same problem," he said.

On Thursday, Vinje presented to the European competition regulators his arguments for why Microsoft should be forced to unbundle Windows. He sounded confident as he left the hearing. "It's been a great day," he said.

Novell Inc. and the Software and Information Industry Association trade group also argued the case against Microsoft during the hearing Thursday.

On Friday, Sun Microsystems Inc., the company that first drew the commission's attention to Microsoft's alleged monopoly abuse in 1998, takes the stand. So does RealNetworks. Microsoft will then end the hearing with a summary of its defense.

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