Google, EU Push Windows to Add Rivals' Browsers

Thursday 19th, February, 2009

The European Commission (EC) is close to forcing Microsoft to bundle rivals' browsers with Windows, confirming that it plans to severely punish the company for what regulators say has been a decade's worth of illegal activity that unfairly hurt competitors, sources close to the case say.

At the same time, Google is joining other makers of competing Web browsers in calling the market "largely uncompetitive" due to Internet Explorer (IE)'s close ties to Windows.

The news marks the strongest signs yet that Microsoft (NASDAQ: MSFT)'s ability to bundle IE with Windows may soon become a thing of the past. The software giant itself suggested such a possibility last month.

Now, it's looking more like a certainty.

The EC -- the executive branch of the European Union (EU) -- is awaiting a Microsoft response and hearing request, and has yet to issue a final ruling on the matter. But Neelie Kroes, the EC's competition commissioner, will likely push for non-Microsoft browsers being included alongside IE in European versions of Windows.

That's according to comments made by Jonathan Todd, a spokesperson for Kroes. Todd was unavailable for comment, but another EC spokesperson confirmed statements to InternetNews.com that Todd had made to European news site EurActiv.

Todd told EurActiv that if the EC confirms that Microsoft since 1996 has illegally blocked rivals by tying IE to Windows, "the Commission would intend to impose remedies that enabled users and manufacturers to make an unbiased choice between Internet Explorer and competing third-party Web browsers."

EC spokespeople would not speculate further on the implications, however. "The Commission cannot at this stage of the procedure disclose more details about the envisaged remedy, should one be appropriate," a spokesperson said in an e-mail to InternetNews.com.

The showdown between Microsoft and the EC marks the latest in a years-long conflict with the EC on antitrust issues. It also comes at a time that the company is trying to shed as many legal distractions as possible in the run-up to the launch of Windows 7 this summer.

In a statement of objections delivered to Microsoft last month, the EC laid out an argument that claimed the "tying of Internet Explorer to the Windows operating system harms competition between Web browsers, undermines product innovation and ultimately reduces consumer choice," according to an EC statement at the time.

The argument is simple. Microsoft hasn't been found culpable of anything yet, although from the tone of Todd's statements, it sounds as if the EC is on its way toward drawing that conclusion.

Still, EU spokespeople said that the decision has yet to be finalized.

"The investigation is still ongoing, and sending a statement of objections does not prejudge the final outcome of the procedure," the spokesperson said.

For one thing, Microsoft still has about three to five weeks to respond in writing and to ask for a hearing. A Microsoft spokesperson declined to comment but pointed to a statement it released last month, indicating that the company would cooperate with the EC.

"We are committed to conducting our business in full compliance with European law," the statement said. "The statement of objections expresses the Commission's preliminary view."

Signs point to punishment

However, it's not as if no one saw such a penalty coming.

Microsoft warned stockholders in its latest 10-Q filing last month that it expected the EC's competition directorate to force it to bundle rivals' browsers into Windows.

Additionally, Microsoft is likely to be hit with perhaps the largest fine it has yet been charged in its dealings with European antitrust watchdogs. In 2004, EC regulators ordered it to pay nearly a billion dollars in fines. It lost its appeal in 2007, and is currently appealing a roughly $1.35 billion additional fine for being slow to settle aspects of that case.

Microsoft's 10-Q warns stockholders that the fine in the latest case could be "significant."

The likelihood that the EC will come down on the plaintiff's side in this latest case against Microsoft grew last spring when Kroes gave a speech to a European open source group in which she complained that antitrust sanctions had not been effective in remedying a certain, unnamed company's dominance. Other statements she made, at the time, however, made it very clear she was referring to Microsoft.

In its earlier case, the EC forced Microsoft to ship a version of Windows in Europe that lacked a media player -- a move that regulators believed would enable consumers to easily install one of their own choosing. Microsoft was also allowed to continue selling the original Windows version that included Windows Media Player.

Yet regulators' efforts to encourage consumers to consider rival media players hit a snag, according to one source close to the proceedings. The source said consumers saw no need to buy the edition that lacked Windows Media Player, since it cost the same as the other version.

Now, however, the EC is not planning on making the same mistake twice, the source told InternetNews.com.

Since it sees the approach it took with Windows Media Player as proven fairly ineffective, the EC could enforce a so-called "must carry" stipulation, forcing Microsoft to include competitors' browsers with Windows.

However, the EC would likely find it more palatable to require Microsoft to present consumers with a "ballot screen" when they first start up a new computer, the source said. That screen would let the user choose which browser should be the default.

Earlier statements from Todd, Kroes' spokesman, would seem to agree.

"Microsoft will be obliged to design Windows in a way that allows users to choose which competing Web browser(s) instead of, or in addition to, Internet Explorer, they want to install and which one they want to have as default," Todd told EurActiv.

Déjà vu all over again

This latest case began a little more than a year ago, when Norwegian browser vendor Opera complained to the EC about Microsoft's IE policies.

At that time, Microsoft was already smarting over the loss of its appeal in its earlier European antitrust case. An EU court had upheld findings that the company had illegally used its market dominance to keep competitors out of important European markets, including the media player segment.

Given the earlier loss, Microsoft is not likely to pursue appeals unless the penalties are extreme, the source told InternetNews.com.

"If the Commission decided on something really onerous, Microsoft might appeal," the source said. "But there's not much stomach for it."

Google joins in

The EC's not the only one gunning for the world's largest software company.

Search leader Google announced Tuesday that it has asked to join in the EC's case as an interested third party, just as Mozilla, prime mover behind the Firefox Web browser, did earlier in February.

"Google believes that the browser market is still largely uncompetitive, which holds back innovation for users. This is because Internet Explorer is tied to Microsoft's dominant computer operating system, giving it an unfair advantage over other browsers," Sundar Pichai, Google's vice president of product management, wrote in the blog post.

Google (NASDAQ: GOOG) also has a direct stake in the Web browser space, however.

In September, it launched Chrome, which still remains in heavy development.

Since its inception, Chrome has served as a test bed for new browser technologies, such as security models, Web standards support and transfer protocols that the company said it hadn't wanted to attempt in connection with other, established open source efforts, like Firefox.

Source: InternetNews.com