Microsoft began its appeal of the European Commission's 2004 antitrust ruling with a searing attack on the competition regulator's arguments against the bundling of Media Player in Windows.
In a packed Grand Chamber of the European Court in Luxembourg, Microsoft and the Commission, Europe's highest competition authority, both claimed to speak for innovation in the software industry. In carefully prepared presentations each side explained to the 13 judges present why their interpretation of events since 1998 are essential to the future shape of the software market.
Commission authority on trial
If the ruling is upheld by the court, the Commission will have a powerful legal weapon to challenge future bundling issues, such as those raised by Windows Vista. If the court overturns the Commission ruling, the precedent value will largely be lost and the Commission's authority to police competition among dominant companies could be curtailed.
The Commission argued in 2004 that by including Microsoft's own Media Player music and video streaming software in its ubiquitous operating system, the company would stifle competition. Websites would design content for Media Player only and rival players would be pushed aside as users turned to the most readily available player, the Commission said.
'We're not dominant
Microsoft's lead lawyer Jean-Francois Bellis from Belgian law firm Van Bael & Bellis said that evidence showed that the Commission's reasoning was flawed.
"PC makers already put more than one player on their PCs," he said. Real Player, which during the 1990s was one of the pioneers of streaming music and video content, "was widely distributed at the time of the Commission's decision," he added.
According to figures presented by Microsoft, the vast majority of web content providers design music and video content to work using at least two media players, and 85 per cent of end users used at least one non-Microsoft player.
"There is no evidence that the market was tipping. The Commission decision must be rejected as it is disproved by events in the market. The absence of evidence of tipping is a striking repudiation of the Commission's theory," Bellis said.
The Real Player war
The Commission refuted Bellis. Far from repudiating the Commission's position, events leading up to the 2004 ruling, as well as developments after it, have confirmed regulators' fears, said Per Hellstrom, the Commission's lawyer.
Before 1999, Real Player dominated the market for streaming media playing software. Microsoft had an inferior product called Netshow, but in 1999 when Microsoft relaunched Netshow as a streaming player similar to Real Player, branded it Media Player and bundled it into Windows the market was turned on its head, Hellstrom said.
Today Media Player has 85 per cent market share. It has already achieved dominance, Hellstrom said.
"In 1999 Microsoft's strategy was to reposition the battle from Netshow Versus Real to Windows versus Real," Hellstrom said.
email shows war came from the top
An internal Microsoft document dated June 5, 1997, appeared to support his argument. In an email from Jim Durkin, Microsoft's product unit manager for networked multimedia products, to colleagues, he said the push to win the battle in the market for streaming software came from Bill Gates.
"Bill's comment was 'this is a strategic area and we need to win it'," Durkin said in the email, which was also cited in the US Department of Justice antitrust case against the software company.
Referring to a similar battle between Microsoft and Netscape, the first mas- market internet browser, which has been dwarfed by Microsoft's Internet Explorer, Durkin said at that time that Real Player "is like Netscape the only difference is we have a chance to start this battle earlier in the game."
Two years later, Media Player launched and Real Networks has become a bit player in the market it helped create, argued the Commission and its allies the European Committee for Interoperable Systems (ECIS).
XP N - failure or proof?
As required by the European regulator, Microsoft has launched XP edition N, which has the media player stripped out and sells at the same price as the version of Windows XP with a media player.
To date, not one order for edition N has been placed by PC manufacturers, Bellis said, and only 1,787 have been ordered by computer stores across Europe in the nine months since it went on sale. This is equal to 0.005 per cent of all XP sales in Europe during the same time period, Bellis said.
This is proof that users don't want an unbundled version of Windows, he said.
Microsoft has 'foreclosed the market'
But the Commission and its allies argued that the failure of edition N validates their claim that the market has tipped in favor of Media Player. "No demand for edition N shows that Microsoft has succeeded in foreclosing the market," said Thomas Vinje, a lawyer in the Brussels office of Clifford Chance, who represents ECIS.
Microsoft also claimed that Media Player isn't a separate product, but an intrinsic part of the media functionality of Windows. "Features of Windows wouldn't work if this functionality is stripped out," said Microsoft's Bellis, referring to Media Player.
Hellstrom described this argument as "highly misleading," and pointed out that Microsoft made Media Player for Macs, as well as for PCs running on Windows.