Windows wide open

If you think you’ve had a bad Monday morning, spare a thought for Bill Gates. The Microsoft chairman is set to be €497m out of pocket after the European Union rejected his company’s appeal against a 2004 Competition Commission ruling this morning.

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Last Updated: 31 Aug 2010

And it’s not just the record-sized fine that will have given Gates a headache. The ruling by the EU’s Court of First Instance – which agreed that the US giant had abused its dominant market position to try and squeeze its rivals out of business – could mean Microsoft has to fundamentally change the way it operates.

The original ruling compelled Microsoft to disclose more information about the source code of Windows to its rivals, so they could better integrate their products with the system. It also forced them to release versions of Windows without the bundled media player, so competitors would have more incentive to develop rival versions.

In its appeal, Microsoft complained that it was being punished for its success – it shouldn’t be forced to share all its trade secrets with potential rivals who could then develop their own version of Windows, while blocking bundled software would give it no incentive to innovate, it argued.

Unfortunately for Microsoft (and its army of expensive anti-trust lawyers) the court disagreed on both counts. The only complaint rivals will have is that it took them several years to do so – in such a fast-moving industry, Microsoft has had an awfully long time to prepare itself for this outcome.

As Dr Christos Genakos at the Centre for Economic Performance puts it: ‘Perhaps the irony of today’s ruling is that, despite the heavy fine imposed, it’s probably too late to influence competition in any of these two markets. Microsoft has cemented its dominant position and has even settled some of the disputes with rivals.’

Microsoft’s virtual monopoly of the software market has put it in a singular position – with such a huge market share, its behaviour has inevitably been focused on defending what it’s already got, rather than chasing further expansion.

But today’s decision could still have far-reaching consequences. The Competition Commission would have looked like a lame duck if it had lost the case (having lost several others recently) – now it will be emboldened to go after other big beasts. The ruling establishes a definite precedent that dominant market players still have obligations to those below them in the food chain.

Microsoft has two months to appeal to the European Court of Justice, but the noises coming out of the company seem to suggest that they may decide to call it quits. Even if you’re the world’s richest man, there must come a point when you’ve had enough of paying lawyers…

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