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Nicholas Economides, Sep 20, 2007
On September 17, 2007, the European Commission’s (EC) antitrust decision of 2004 in Microsoft was upheld on appeal almost in its entirety by the Court of First Instance (CFI). The case had two parts: the first on the inclusion of Windows Media Player (WMP) in Windows, and the second on the interoperability of Windows clients with Sun servers. The consequences are significant both for Microsoft and the computing industry. With regard to media players, the Commission forced Microsoft to sell in Europe “Windows-N,” a version of Windows without WMP. Microsoft complied. Windows-N sales were less than 1% of Windows sales. It is evident that consumers and computer manufacturers do not want an operating system with less functionality. However, with its decision upheld, the Commission can now force any dominant firm (and remember that dominance can be established at much lower market shares in the EU than the U.S.) to sell products with functionality or components removed from them. Is the EU requirement likely to make a difference? The marketplace said no. And, while the EU battled Microsoft on media players for nine (!) years at the behest of Real Networks, Adobe’s Flash emerged as the dominant PC video player and Apple grabbed the lion’s share in the online song download market with a proprietary format. The Commission’s “indirect network effects theory” (that the ubiquity of distribution of WMP through Windows will result in content providers coding content only for WMP and that this will reinforce the WMP market share) has been proven completely irrelevant by the marketplace.