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The EC appeal: Microsoft points to iTunes as proof competition exists

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The EC appeal: Microsoft points to iTunes as proof competition exists

Luxembourg – In his opening remarks to the European Union’s Court of First Instance – where appeals to decisions made by the European Commission are heard first – Jean-François Bellis, counsel for Microsoft, is quoted by news services as having strayed from what Microsoft’s press sources say was supposed to be his script. Apparently speaking a bit less gently than Microsoft suggests, Bellis accused the EC of “fundamental errors of fact and reasoning” in having decided in March 2004 that the company’s bundling of Windows Media Player with its operating system constituted an illegal attempt to leverage its monopoly power.

Microsoft continues to face a €497 million fine for that offense, as well as for what the EC found to be its failure to make Windows interoperable with competing systems. The European Commission is legislatively the counterpart to the US Senate, although its various departments are given what, in the US, would be interpreted as near-judicial authority to render decisions and impose judgments. The Court of First Instance, however, is a judicial body akin to the US Court of Appeals, which has the power to overturn EC decisions. The Court consists of a 13-judge panel, which for this appeal have agreed to convene in totum, in what is called the “Grand Chamber.”

In its defense, Bellis pointed to the existence of Apple’s iTunes, and its apparent monopoly or near-monopoly presence in the European and world digital music markets, as proof that Microsoft does not have – and quite possibly may never have – a dominating presence in that field. As part of the company’s opening statements, according to the Associated Press, David S. Evans, an economist with Cambridge-based National Economics Research Associates, was permitted to enter into evidence that over 87% of computer users now play multimedia files, including MP3s, using software other than Microsoft’s.

If Microsoft truly had such a dominating presence in multimedia, Bellis reportedly said, Apple could not possibly have achieved its monumental market share, nor could Macromedia have made as many inroads as it has in Web animation and other applications for scalable vector graphics, with its Flash format.

Among the other facts Microsoft admitted into evidence today was the astonishing figure that its assessment of the grand total of copies of Windows XP N sold to European retailers and distributors, for the life of the product to date, was exactly 1,787. Not a single European OEM or vendor requested XP N from Microsoft since the company started producing it, in response to an EC directive that it make versions of Windows available in Europe without Windows Media Player.

Counsel for the European Commission are expected to make their opening statements later today. In advance of its statements, Simon Awde, the chairman of the European Committee for Interoperable Systems, which represents IBM and Red Hat, among others, issued a press statement late yesterday which reads, “On the eve of this five-day hearing, it is important to go back to basics. This case involves a clear abuse of market power by a super-dominant company using its monopoly power in one market – PC client operating systems – to foreclose competition on the merits in two others – media streaming applications and work group servers – as well as to eliminate potential threats to its existing monopoly power in PC client operating systems.”

The ECIS is expected to demonstrate that, whatever success or failure Microsoft may have had, it did make the attempt – and an illegal one, under EU law – to leverage its undisputed monopoly in operating systems, to gain a lock on a new market in multimedia. Last Thursday, the ECIS was appointed as one of a handful of interveners – “friends of the court” on behalf of the government – who will make arguments and enter facts into evidence against Microsoft. The Court is expected to hear arguments from both sides all week, and may not immediately render a decision thereafter.