Microsoft doesn’t need bundling to acquire market share, counsel concedes

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Microsoft doesn't need bundling to acquire market share, counsel concedes

According to Reuters, Judge Cooke stopped Bellis when he cited that number, and asked in the interest of clarification, “And that’s without bundling?” Bellis nodded in acknowledgement. The tactic was intended to poke a hole in European Commission counsel Per Hellstrom’s argument that Microsoft used predatory tactics against RealNetworks. Although one of the EC’s selected interveners, the European Committee for Interoperable Systems, claims RealNetworks as one of its members, Real and Microsoft settled their long-standing dispute last October. Microsoft agreed not only to reveal its media-related API information to Real, but also to pay the company $460 million in cash.

Without RealNetworks’ direct involvement, however, the ECIS has been backing the EC action. In a statement late yesterday, the Committee was quick to cite evidence revealed by the EC, including the text of an internal e-mail written in 1999 by Anthony Bay, Microsoft’s general manager for the streaming media division, to then-CEO Bill Gates. The text is excerpted thus:

RealNetworks is still significantly ahead of us and not slowing down [and is] beating our [Netshow] v3 in reviews and is ahead in a few key feature areas. [We should therefore] reposition [the] streaming media battle from Netshow vs. Real to Windows vs. Real [and] follow the (Internet Explorer) strategy wherever appropriate.

By the latter statement, Bay presumably meant to suggest that Microsoft should employ the same tactic it used successfully against Netscape – tying the Web browser to the operating system – with regard to its Media Player, which was then called Netshow. The renaming of the product came soon thereafter, with the word “Windows” now featured more prominently. US courts found Microsoft’s bundling practices with regard to its Web browser illegal, but settlements with the US Justice Dept. have enabled Microsoft to avoid the most extreme penalties, one of which was a possible Bell System-style breakup of the company.

Another internal Microsoft e-mail cited by EC counsel, according to the Associated Press, came from Jim Durkin, then a product manager for multimedia. “[RealNetworks is] like Netscape; the only difference is we have a chance to start this battle earlier in the game,” Durkin wrote. Later in the e-mail, Durkin cited a comment from Bill Gates, saying, “this is a strategic area and we need to win it.”

Whether Microsoft’s comments constitute a “smoking gun” – or perhaps just a smoking of something – isn’t absolutely clear. Certainly, these e-mails are not as damning as those revealed during the infamous Caldera case, where during the mid- to late 1980s, company officials joked about topics including how fun it would be to confuse users of DR DOS when they tried to install Windows/386, by crafting scary-sounding, but false, error messages. Since that time, Microsoft has, at the very least, behaved more carefully.

According to reports from this morning’s Court of First Instance session, Judge Cooke applied a skeptical examination to both sides of the issue, grilling counsel for both Microsoft and the EC. First, reports say, Cooke cited the e-mails to Microsoft’s Bellis, and asked him whether he believed Microsoft’s strategy was explicitly designed to gain market share. There were apparently so many possible answers to that inquiry that Bellis left the issue on the table.

But later in the session, according to reports, Cooke verbally pinned down the EC’s Hellstrom, asking him whether he meant to suggest that it should become European law that all applications should become untied from operating systems. “Are you saying that an application should be marketed as a distinct product and not as a part of an operating system?” Cooke asked, according to Reuters. Hellstrom reportedly replied that programs could conceivably be bundled with operating systems, so long as customers had the option to “opt out.”

Yesterday, Microsoft revealed evidence of how well the option to opt out is playing, with the news that its Windows XP N edition – the version without Media Player, which the company was ordered by law to produced – shipped fewer than 2,000 copies to retailers in Europe. Hearings are scheduled to resume tomorrow.