European Regulators Said To Limit Microsoft Order To Europe

Sources says the European Union considered ordering global changes to Windows but backed down to avoid complications
BRUSSELS, Belgium (AP) -- European regulators considered forcing Microsoft Corp. to change the way it sells its Windows software around the world but decided to limit the draft order to Europe to avoid charges of overreaching, according to sources familiar with the case.

The last-minute debate came just before the lengthy decision was sent electronically to the 15 EU national antitrust offices last Friday for final review, the sources said on condition of anonymity.

Initially there was no reference to geographic scope--an omission noticed while it was circulating this month among other branches of the EU's executive Commission for discussion.

While some in Competition Commissioner Mario Monti's circle then argued for making it global, others with responsibility for trade and single market issues warned that doing so could make the EU look hypocritical on the issue of "extraterritoriality"--a sore subject with Washington especially.

Most recently, the EU was outraged after the United States pushed through new accounting and corporate governance rules following the Enron scandal that, among other things, established a federal oversight board for the accounting industry--including non-U.S. firms that audit U.S.-listed companies.

EU officials accused Washington of seeking to extend its jurisdiction to Europe.

The Commission itself provoked sharp criticism from Bush administration officials in 2001 when it blocked the proposed merger of two U.S. conglomerates--General Electric Corp. and Honeywell Inc.--that had already been cleared in Washington. Although the deal was abandoned, GE is challenging the EU's decision in European courts.

In the Microsoft case, Monti ultimately decided to limit the scope in the draft decision to Europe, believing that would still be a big enough market to have an impact on the U.S. software giant, sources said.

EU spokesman Reijo Kemppinen sought Thursday to dispel reports of divisions in the 20-member Commission about the Microsoft ruling, which is expected to be issued as early as next month unless a settlement is reached.

"There has been no fighting and no bloody noses," he said, adding that Monti had the "full backing" of his fellow commissioners.

The draft decision finds Microsoft violated EU competition law by bundling its media player into Windows, and by failing to provide competitors in the server market with enough programming code to make their products operate as well with Windows as Microsoft's own.

Sources say the Commission intends to order fines for the past infringements and set standards for server interoperability that Microsoft will have to meet, while allowing Microsoft to work out the details of how to meet them.

The EU proposed last August that Microsoft could settle the media player half of the case by agreeing either to strip its program from Windows or add those made by rivals such as RealNetworks Inc. and Apple Computer Inc. as well.

One source said the draft decision contains a "clear recipe" on that issue, but would not elaborate. Another, also speaking on condition of anonymity, said Monti probably would not make the final decision until after hearing from the advisory committee of national regulators, which is scheduled to meet March 15 and 22 in Brussels.

Ongoing settlement talks with Microsoft could also influence the final decision, the source said.

Microsoft wants to avoid an order to strip applications from its desktop operating system--an issue it successfully fought off in the landmark U.S. antitrust case that centered on Internet browsers.

Microsoft argues doing so would compromise the functionality of Windows and lead to an inferior product being sold in Europe or a gray market springing up as Europeans sought out the full version from elsewhere.

Such an order could also complicate plans for Microsoft's next version of Windows, which is expected to incorporate an Internet search engine that would compete with Google Inc.