Microsoft Unlikely to Settle in Europe

BRUSSELS -- Hopes of a last-minute settlement of Microsoft's antitrust case in Europe have dimmed, after a Wednesday meeting between Competition Commissioner Mario Monti and Microsoft CEO Steve Ballmer broke up early without any apparent meeting of minds, say people close to the talks.

Monti is demanding even tougher remedies from Microsoft in return for a settlement that averts a precedent-setting negative ruling in a week, the sources say.

Proposed Ruling

Monti's meeting with Ballmer was brief, one source says. It followed a four-hour meeting with Microsoft's chief lawyer Brad Smith on Tuesday afternoon. The source adds that another face-to-face meeting between Monti and Ballmer is "unlikely."

If no settlement is reached between now and next Wednesday, the European Commission is scheduled to adopt a negative ruling that forces Microsoft to offer two versions of its Windows operating system in Europe. One would have Microsoft's music and video software, Media Player, stripped out of the operating system and sold separately.

The ruling will also order Microsoft to license more Windows code to enable rivals to build software that works as smoothly with Windows as do Microsoft's own applications. It will also fine Microsoft between $122.6 million to $1 billion for having broken the European Union's antitrust laws.

To waive the ruling, Monti wants Microsoft to agree not to distort competition by bundling peripheral software programs with Windows in the future.

"Such a legal undertaking could simulate the effect of a precedent-setting legal ruling," says one person. After making such a commitment in writing, Microsoft could be challenged on its motives for bundling other software into Windows, the source notes.

Besides Media Player, Microsoft bundles its Instant Messenger Service and Outlook e-mail programs into Windows. The company plans to add a search engine to compete with Google.

Microsoft declines to comment on Monti's terms for a settlement. Efforts to reach a settlement are ongoing, says Tom Brookes, a Microsoft spokesperson.

The European Commission declines to comment on what Monti seeks in a settlement.

"We are on track to make an announcement next week," says Amelia Torres, Commission spokesperson. She notes that negotiations with Microsoft continue.

Familiar Arguments

Monti met with his team of antitrust officials on Wednesday afternoon, informing them of the tough stance he is adopting with Microsoft ahead of next Wednesday's ruling.

One person present says the commissioner seems confident.

"The support from the advisory committee meeting on Monday meant a lot to him," the person says. Some of the national regulators attending the meeting urged Monti not to duck from setting a legal precedent, the person says. "Some of them said the ruling could be tougher. It looks like that's what Monti thinks too."

The bundling question is a major sticking point for the settlement talks. Microsoft argues that adding functions like Media Player to Windows is what computer users want and that it has based much of its business model around developing Windows in this way. The company also argues that removing Media Player would harm Windows.

The Commission, as well as rival software makers and lawyers, say bundling programs like Media Player into Windows is anticompetitive because it puts rival music and video players such as Real's RealOne Player and Apple's Quicktime at a disadvantage.

"Developers of music and video content will increasingly tailor their material only for Media Player if it remains bundled into Windows, because they can be sure that over 95 percent of computer users will have the program on their machine," says Thomas Vinje, a competition lawyer at Clifford Chance who represents some of Microsoft's adversaries, including the Computer and Communications Industry Association.

The second strand of the Commission's case concerning interoperability is expected to be easier to remedy, but people close to the talks said on Wednesday that this issue also remains unresolved.

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