• PC World
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BRUSSELS, BELGIUM -- European Union Competition Commissioner Mario Monti may demand Microsoft market two versions of its ubiquitous operating system in Europe: the current version of Windows that bundles Media Player, and another with the music and video playing software stripped out and sold separately, people close to the case say.

Monti may also demand Microsoft itself propose "within a few months of a ruling" what Windows code it should reveal in order to make the operating system fully interoperable with rival software vendors' server programs, one of the sources says.

These likely remedies will come attached to a negative ruling that brands Microsoft an abusive monopolist, unless a settlement is reached during the next month to six weeks. A negative ruling is expected to carry with it a fine of at least $100 million.

Neither the Commission nor Microsoft will comment on the remedies. A Microsoft spokesperson says the company is still pursuing "an amicable settlement" to the ongoing antitrust investigation.

Investigation Status

An internal consultation within the European Commission has finished, and the proposed negative ruling drafted by the competition department in January has emerged "almost untouched," says one person who insisted on anonymity.

Erkki Liikanen, the commissioner for the information society, urged Monti to be tougher on Microsoft over the Media Player issue. Frits Bolkestein, the commissioner for the internal market, warned Monti not to infringe Microsoft's intellectual property in the part of the ruling that concerns interoperability, the person says.

Last August, the Commission told Microsoft its practice of bundling Media Player into Windows amounts to an abuse of the operating system's dominant position because it places rival music and video players at a disadvantage.

The Commission agreed with Microsoft's rivals, who argue that record companies, Hollywood studios, and other content providers will increasingly tailor their products exclusively for Microsoft's Media Player, because it will be the only player they are sure people will have on their PCs.

Microsoft argues that unbundling Media Player from Windows would prevent the OS from working properly. The company also fears the precedent if it did agree to separate Media Player from Windows.

Long-standing Strategy

Future software products, such as an Internet search engine that Microsoft plans to launch to compete with Google, count on the bundling business model Microsoft uses with its most successful software products, including Internet Explorer and Outlook Express. That is, the new applications are bundled with Windows, so they appear on every PC that runs the OS.

Another person close to the case says the dual operating system solution would ensure consumer choice while allowing Microsoft to preserve its existing business model.

The separate issue concerning interoperability is considered easier to solve, a second person says. Last year, the Commission declared that Windows for PCs runs better with Microsoft's own server software than it does with competing products from companies such as Sun Microsystems.

This advantage amounts to an abuse of Windows' dominance, and the Commission urged Microsoft to reveal enough Windows code to competitors to enable them to make server software that runs as smoothly with Windows as Microsoft's own server software.

The draft decision may order Microsoft to decide what must be revealed about Windows in order to ensure interoperability.

"If the company fails to comply with the order it would open itself up to legal action in any national court in the European Union," says one person close to the talks, adding: "A negative ruling would set a dangerous legal precedent for Microsoft."

Potential Challenges

Bolkestein warned that ordering Microsoft to reveal code, which is protected by copyright and to a lesser extent by patents, could make the Commission vulnerable to a legal challenge by the company at the European Court of Justice in Luxembourg.

Commissioner Bolkestein's responsibilities include drafting Union-wide intellectual property protection laws. His department and Monti's team of competition regulators have often fought over how far rights holders should be allowed to protect their inventions.

European case law appears equally divided. Two separate cases involving the largest collector of pharmaceutical sales and prescription data in the world, U.S.-based IMS Health, appear to contradict each other on the question of intellectual property rights.

The Court overturned a 2001 Commission decision ordering the firm to license the way it organizes drug sales data from the German market. The Court ruled such compulsory licensing amounted to an infringement of IMS's intellectual property rights.

However, last year in a separate case against IMS referred to Luxembourg by a German court, a judge said the company might be abusing its dominant position by refusing to license the way it structures its information about the German market. A final ruling in this second case is expected in the coming months.