Microsoft says it isn't breaking EU laws

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Microsoft Corp. defended its business practices Wednesday during a three-day hearing in Brussels in front of European competition regulators, in a final attempt to persuade them that it isn't breaking the European Union's antitrust laws.

According to some of the rivals present in the closed-door session, the maker of the ubiquitous Windows operating system is fighting an uphill battle. The European Commission said in August it believes Microsoft continues to abuse the dominance of Windows, even after the company settled with regulators in a similar case last year in the U.S.

On his way in to the meeting this morning, Microsoft's top lawyer, Brad Smith, acknowledged the size of the challenge he faced. When asked by reporters how confident he was, he said: "Hope springs eternal."

The commission's case is built on two specific arguments. It believes that Microsoft is using Windows' near monopoly to muscle out competitors in the market for audio and video playing software and computer server software designed for small networks of PCs.

The Commission said in August that by bundling its Media Player into its Windows products, Microsoft had put rival audio/video players, such as RealNetworks Inc.'s Real One Player and Apple Computer Inc.'s QuickTime media players, at an unfair disadvantage.

By withholding crucial information about Windows code, the Commission said Microsoft has prevented rival makers' low-end server software from being able to interoperate with Windows.

Microsoft spent roughly an equal amount of time addressing the two specific accusations, according to Thomas Vinje, a lawyer with the firm Morrison & Foerster LLP, representing Microsoft's familiar foe, the Computer & Communications Industry Association (CCIA).

"(Microsoft) repeated the arguments they made in writing to the commission -- that Media Player is a natural part of the Windows operating system and that it achieves efficiencies by bundling it into Windows," Vinje said.

Microsoft tried to broaden the definition of the server software market to include all servers, not just the small server segment that it dominates, he added. If this argument holds up, it will be harder for the Commission to prove that Microsoft has expanded its dominance of PCs into the market for server software.

According to market research company IDC, Microsoft held a 55 percent market share of servers costing less than US$25,000 each in the second quarter of this year in the European Union. Its share of the whole server market in the same quarter stood at just 24 percent.

Microsoft wasn't immediately available to comment on its presentation, but according to Richard Doherty, an independent analyst with IT research firm, the Envisioneering Group (a division of Kyra Corp.), Microsoft's argument about the size of the server market is correct. "They are right to broaden the definition of the market beyond the low end servers, because all servers compete against each other," Doherty said.

Vinje said this argument is "fanciful."

The European Commission made a short presentation of its case at the hearing, but most of the time was devoted to Microsoft's defense.

Thursday afternoon, competitors including Real Networks and Sun Microsystems Inc., as well as the CCIA, will take the stand.

The atmosphere Wednesday was calm. "There were no theatrics, just a glitzy presentation by Microsoft including two video films," Vinje said, adding that Microsoft "obfuscated and tried to confuse the regulators by making the case look more complicated than it really is."

Also present at the hearing were representatives of national competition authorities from the 15 member states and the hearings officer, Karen Williams, a commission official with no connection to the case team involved in the Microsoft antitrust case. She must steer a neutral line and ensure Microsoft gets a fair hearing.

Meanwhile, sources close to the commission said Wednesday that the E.U. regulator has sent out letters requesting information about allegations that Microsoft is continuing to abuse its dominance with Windows XP, a version of the operating system that is not covered by the ongoing antitrust case.

Earlier this year, the CCIA filed a formal complaint to the commission that Microsoft is using XP to expand its dominance into other markets, including instant messaging and mobile devices such as mobile phones.

Spokeswoman Amelia Torres declined to comment on the letters. "If we did send out such letters, it would be a normal procedure," she said, adding that such a step would have nothing to do with the case being heard in Brussels this week.

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