TCS Daily

The Really Important Battle on the Horizon

By Craig Winneker - February 18, 2005 12:00 AM

TCS Europe Editor Craig Winneker talks to Jonathan Zuck, President of the Association for Competitive Technology, about the fallout from the EU Court of First Instance's decision to uphold a record fine against Microsoft and also about the European Parliament's recent attack on software patents.

Craig Winneker: I want to talk to you about what is being portrayed -- in Europe anyway -- as a victory for the EU and for the European Commission in the Microsoft case. And I'm just wondering whether that is a fair perception -- is Microsoft throwing in the towel or is this just a preliminary round. How do you see it?

Jonathan Zuck: I think it makes sense for Microsoft to refocus their efforts on the appeal on the merits. Part of the problem with this initial proceeding is that the criteria that need to be used for whether or not there's irreparable harm are such that it's a very difficult burden of proof. I mean, almost no one has ever managed to get a stay of remedies from the Court of First Instance. At the same time, there was a lot in the judgment that suggests that Microsoft had very good chances on the appeal on the merits of the case to have the case itself thrown out.

CW: So it's kind of like reading between the lines really in the decision?

JZ: Well, to some extent, it's reading between, but another extent it's really not. A part of Microsoft's burden in the context of a stay of remedies was establishing a prima facie case. In other words, they had to demonstrate that they had a good case on appeal in order to justify putting off the remedies, if that makes sense. And so the fact that they were able to establish a prima facie case just even overtly suggests that they have a good basis for appeal in the mind of the judge.

But beyond that, there were specific issues in which the judge thought that the remedies were either overreaching or, in the case of the media player remedy, not likely to be effective, and so, therefore, also, likely to be overturned. And one of the ironies of this particular proceeding is that the judge ultimately ruled that the removal of Media Player from a version of Windows wouldn't harm Microsoft, largely because he didn't think anyone would use it. So that meant they couldn't get the stay of the remedy, but that same kind of reasoning would argue that that remedy was unnecessary and ineffective and likely to be withdrawn down the road. So that's just kind of the irony of the proceedings is that the same argument that led Microsoft to lose in this proceeding will lead them to win in the next one.

CW: Right. Now there seems like there are a lot of these absurdities. One is the concept of a negotiation between the EU and Microsoft over how to name the new kind of Windows, you know, "Reduced Media" or "Media-free Windows", but also with the server software, a similar kind of ruling in the CFI, Court of First Instance, that would seem to kind of turn the argument on its head and look good for Microsoft in the appeal?

JZ: Well, sure. I mean, there's a number of different kinds of arguments in the context of the protection of their intellectual property, for example. The Court of First Instance ruled that Microsoft is able protect its brand identity, and that's the issue of the naming of the new product. In other words, the fact that they're now putting out a kind of handicapped version of their product shouldn't undermine their credibility in the marketplace, which is why that version is called Reduced Media, because it's not got as much media capability as the other version.

And secondly, in the context of intellectual property, the court has ruled that Microsoft has a right to license the IP in such a way that they maintain some control over their IP. And that has the open sourcers up in arms, but at the same time, Microsoft has the right to protect its intellectual property.

CW: What are the next steps from here, in terms of using these kinds of various issues within that decision to build an effective appeal? How can it do that?

JZ: Well, to be honest, what I hope is the next phase here is a settlement agreement. I mean, part of the problem with judicial rulings is that they are almost by definition as narrow as they can be. And what really both the European Commission and Microsoft need as an outcome to this whole laborious process is some kind of rules for the road so that we don't find ourselves back here two years from now when Microsoft adds voice recognition technology to the operating system; right?

CW: Right.

JZ: It can't be a precedent that says anytime you add new functionality, we're going to drag you into court here. I mean, that's just not an outcome Microsoft can live with. But if a real settlement can be reached in which there's an actual understanding of principles, then that could be a true resolution that doesn't bring them back to the Commission, you know, two years from now.

CW: But you don't think that argument you've just made is a good basis for an appeal, I mean, a decision to overturn. I mean, why not go all the way?

JZ: Well, it's unrelated. There are reasons to overturn it, and so you hope that those reasons that it can be overturned will help to bring the Commission to the negotiating table. I mean, obviously Microsoft has a lot at stake and a lot of interest in the future, so they're motivated to go to the negotiating table. So, between those two things what you hope is they end up at the negotiating table, and those things are sort of separate, if you will, from the actual basis for overturning the case on appeal. I think that Microsoft has a really strong case on appeal, but what--as opposed to having to actually argue that case, I'm hoping that that will just bring the Commission to the table so that this can be resolved in a more principled and long-term fashion.

CW: And they actually came close to doing it the previous time.

JZ: That's exactly right. I mean one of the ironies is that the remedies with respect to licensing of the server protocols, in the remedy discussions, in the settlement discussions, Microsoft had actually agreed to make those protocols available worldwide. But they couldn't live with the Media Player remedy because they need the ability to add new features to their programs. And the European Commission wouldn't bite, and so now the only jurisdiction they have is Europe and so now they have this ridiculous remedy where this technology is licensed, but only to European companies, and only for sale in Europe. So it's a pretty limited value the remedy that's actually been imposed; and whereas, the one that was suggested during the settlement discussions would have been global in scope and potentially of some value to Microsoft's competitors.

CW: Do you think there's any value in this kind of charm offensive -- I guess is one way of putting it -- Bill Gates coming here almost with hat in hand really to the EU. I mean, he didn't meet with competition people, but he was meeting with MEPs and with other officials. And, I don't know if it's trying to help the outlook or the profile of Microsoft here. You know, the last time he came to Brussels, someone threw a pie in his face.

JZ: That's right.

CW: And this time, it was kind of figurative pie in the face because as soon as he left, the European Parliament starts shooting down software patents. I mean, is there any point to this or...

JZ: Well, software patents is the really important battle that we've got on the horizon. And I think that Microsoft is right to continue to use all means of negotiation and just presence in these debates. You know, I don't think any one of them is going to be the magic bullet or the ultimate blunder. I think that it's an ongoing and continuous discussion that needs to happen with European governments and I think they're looking to starting to do. So I think that's the right strategy. I just don't think anything is going to happen over night.

CW: No. They haven't yet found this silver bullet argument, whether it's, as you've said, setting a bad precedent or an absurd precedent or killing innovation or even harming the economy at a time when Europe is talking about trying to revive its economy. So I guess they need to look for that?

JZ: They do and they don't. I think part of the process for Microsoft is just going to be continue to be engaged. You know, and continuing to grow the European operation and, as they become more and more of multinational, European governments will have to deal with them as a European company as opposed to an American one. I mean, that's another transition that's beginning to take place; is that Microsoft is really becoming a true multinational corporation, as opposed to a really big American corporation with a lot of exports. I think that that transition is one that will put them in good stead not only in Europe, but around the world. So that process of continuing to be engaged, I think is critical to making sure that the relationships are cooperative and civil. It doesn't mean Microsoft will always get their way, but there won't be this kind of arbitrariness that I think we've seen to date where Microsoft comes to symbolize the United States; and, therefore, we can do anything we want to them. I think as it becomes a more global corporation, then there's more of an understanding that what's good for Microsoft is good for Europe.


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