What is it all about?

In 1998, Sun Microsystems lodged a formal complaint with the European Commission, the European Union's competition regulator, alleging that Microsoft was using the near monopoly of its Windows operating system on the desktop-PC market to crowd out competitors in the workgroup-server software market. The Commission examined the evidence and launched a formal investigation in 2000. On its own initiative (that is, without a complaint from rivals) it also extended the investigation to cover the effects of the bundling of WMP (Windows Media Player) with Windows.

Why is it a dispute?

In its March 2004 decision, the European Commission found that Microsoft was abusing the near monopoly of Windows to shut out other competitors in the workgroup server software sector. It also ruled that the bundling of WMP with Windows meant that OEMs (original equipment manufacturers) were facing restrictions on which media players they could offer pre-installed on their machines.

Microsoft argues that OEMs do have a choice over which media players they install and that, in any case, users are free to remove WMP and install a media player of their choice. In any event, the company has agreed to offer a version of Windows without WMP called XP N. But OEMs are reluctant to ship PCs with this version, arguing that buyers want full functionality from the moment they switch the machines on.

The bigger issue for Microsoft is over interoperability. The Commission has ordered the company to provide adequate documentation so that rivals can develop products which can interoperate with Microsoft's server software. The company has provided over 40,000 pages of documentation and even offered to grant access to the source code for the communications protocols for the relevant software. But the Commission has rejected the offer of the source code as irrelevant and useless to programmers. Microsoft's rivals (including IBM, Sun and open-source software developers such as the Samba Team) argue that the documentation is useless because they couldn't accept the terms of the licences Microsoft is proposing in order to have access to the necessary information for interoperability. Samba Team argues that the terms clash with the GPL (General Public License) because Microsoft wants to limit the number of users who might end up using products developed using Microsoft's information. Companies like IBM and Sun argue that they are not convinced that the licensing terms would give them sufficient guarantees that they would be protected from litigation from Microsoft if they developed products using Microsoft's intellectual property.

The Commission argues that Microsoft should offer access to the parts of the relevant communication protocols which are non-innovative on terms which are compatible with open-source software developers' working practices.

What are the consequences for Microsoft?

Microsoft argues that if the decision is upheld, it will have dire consequences not just for Microsoft but for all companies which have built their business models on intellectual property, because they argue that the Commission is requiring them to give up business secrets. On a commercial level, the fine is peanuts to Microsoft, and the lack of enthusiasm for a version of Windows without WMP among OEMs suggests that the Commission's order on removing the media player will have little effect. The major issue, if the Commission's March 2004 decision is upheld, is whether the principles of the case will be extended to other new products being developed and soon to be shipped. For example, there have already been complaints to the Commission about the new version of Windows Vista which will be shipped later this year. Although it's not clear which functionalities are the subject of the complaint, it is believed it could be targeting the bundling of antivirus and spyware software in the new system. Preventing Microsoft bundling its new products with functionalities which users increasingly rely on could threaten its business model significantly.

Does including more functions in Windows mean that the customer becomes more locked to Microsoft's technology?

Not entirely. The widespread use of Windows Media Player and Internet Explorer has not stopped the development and popularity of other media players such as RealPlayer or QuickTime, or of other browsers such as Firefox. Users will always turn to good products provided they do not encounter problems using them because of interoperability issues.

Isn't it good to have a lot of small and useful software within Windows?

Yes, in principle. But the question at the heart of the Commission's antitrust case is whether, through the dominance of Windows, Microsoft can shut other competitors out of the market and stifle development once it has done so. The company's critics argue that this is what happened with the Netscape Navigator browser, which could not compete against Internet Explorer. They say the whole sector suffered as there was no incentive to invest to develop new features or improve existing ones.

Are there any openings for open source if the European Union wins the dispute?

If the Commission's decision is upheld, it will strengthen the position of open-source developers because of the better deal on licensing terms. However, open-source campaigners such as the Free Software Foundation argue that the Commission should have gone further in its ruling, so the benefits of a victory for the Commission's case may be limited.

Does Microsoft have to change its systems outside the EU if the company loses the dispute?

No, the ruling only affects Microsoft's activities in the EU and the European Economic Area countries (Iceland, Norway and Liechtenstein).