It has been a confusing time for potential Windows 7 customers in Europe who remain uncertain as to whether or not their product will ship with a browser. With the tide recently turning in favor of European users who hope to browse without tricks, we stop to take a look at the sordid legal history which has grown from business politicking into a matter with very real implications for European consumers.

Throwing the first gauntlet

The recent browser confusion is just the latest step in a saga that stretches back more than 16 years to a complaint filed by Novell in 1993. Novell argued at the time that it was anti-competitive to demand royalties on computer sales from vendors that carried Microsoft products even if a system did not ship with a Microsoft operating system. The European Union agreed and reached a settlement with Microsoft in 1994.

Four years later, Sun Microsystems added to the growing dissent with a 1998 complaint that Microsoft was intentionally withholding “interface information” in the server space to bar rivals from creating servers with compatible communications protocols. The fallout from this case continues to this very day.

Having established a history of abuse, the EU launched an independent investigation into Microsoft’s bundling practices surrounding Windows Media Player. Competing software developers argued that the practice gave Microsoft a competitive advantage strong enough to preclude healthy competition.

The European Union agreed and by 24 March, 2004 it levied a €497 million fine for anti-competitive practices. In addition to what was the largest penalty for its time, EU regulators also gave Microsoft until June of 2004 to ship a version of Windows XP without a media player and until July of 2004 to indefinitely offer and maintain a repository of specifications for the withheld communications protocols.

As the software maker had sought to settle the case, it quickly expressed resentment for the ruling’s severity.

“Microsoft and the commission worked very hard and in good faith to try and resolve the very complex legal issues around this case,” said spokesman Jim Desler. “It’s hard to see how a fine of this magnitude could be warranted under these circumstances.”

Microsoft quickly appealed with the Union’s Court of First Instance with a claim that the ruling’s stipulations would seriously harm the company, but Court of First Instance President Bo Vesterdorf disagreed.

“The evidence adduced by Microsoft is not sufficient to show that implementation of the remedies imposed by the Commission might cause serious and irreparable damage,” he wrote in a court statement.

Unconvinced, the Court of First Instance ordered Microsoft in December of 2004 to comply with the terms of the March ruling by December of the following year.

The birth of Windows XP N editions

With little recourse, Microsoft moved to strip Windows Media Player from Windows XP and launched it as the Windows XP N edition in 2005. Few OEMs, much less customers, ever saw the value in the N editions. Priced identically and not to the exclusion of regular editions of Windows XP, it was critically and commercially panned.

The UK’s largest PC retail chain, PC World, rejected the Windows XP N editions as a poor value proposition.

“The reason is that XP N is the same retail price as the full version of XP. Obviously we face the choice of stocking both, or one or the other. We’ve taken the decision to just stock the full version because it contains more features, so is better value to our customers,” PC World said in a statement.

A cadre of Europe’s largest OEMs including Dell, Hewlett-Packard, Lenovo and Fujitsu-Siemens also refused to ship Windows XP N edition on their products. Customers, meanwhile, proved no friendlier to the SKU and even by aggressive estimates never bought more than 5000 licenses.

With Windows XP N failing by every imaginable metric, the appeals court delivered a second blow in September, 2007 with a ruling that upheld the original €497 million fine, the Windows Media Player bundling mandate, and the communications protocol mandate.

A snowball of fines

Many pundits saw the ruling coming in the wake of a 2005 statement by European Commission Competition Minister Neelie Kroes which alleged that Microsoft had not complied with the spirit of the communications protocol portion of the 2004 decision.

“Microsoft has claimed that its obligations in the decision are not clear, or that the obligations have changed. I cannot accept this characterization–Microsoft’s obligations are clearly outlined in the 2004 decision and have remained constant since then,” she said.

“Indeed, the monitoring trustee appointed in October 2005, from a shortlist put forward by Microsoft, believes that the decision clearly outlines what Microsoft is required to do. I must say that I find it difficult to imagine that a company like Microsoft does not understand the principles of how to document protocols in order to achieve interoperability.”

Indeed, Microsoft’s decision to provide the source code–rather than the requested specifications–of Windows Server 2003 SP1 to the Workgroup Server Protocol Program seems rather fatalistic in retrospect.

First with an appeal, then by missing the 16 December, 2005 deadline set by the appeal, and finally by blowing a five week grace period granted until the end of January, 2006, Microsoft had thrice ditched their obligations to provide the protocol specifications.

It is Microsoft’s failure to comply within the final grace period that would prove most costly. Regulators had stipulated that running afoul of the five week extension would trigger fines of €2 million per day retroactive to 25 December, 2005 and for every day of non-compliance thereafter.

In June of 2006, nearly six months after violating the grace period, Microsoft announced that it had begun to distribute specifications, but the European Union said it was too late. On July 12, 2006, Microsoft was slapped with a brand new €280.5 million fine for the non-compliance period between December 16, 2005 and 20 June, 2006. The EU also threatened to increase the fines to €3 million per day on 31 July, 2006 if the firm continued drag its heels.

Compliance, new fines and more appeals

Indeed, Microsoft continued to resist distribution of its protocol specifications until October/November of 2007. Though the company was finally complying in earnest with the 2004 ruling by offering the specs for a one-time access fee of $15,992 and a 0.4% commercial royalty rate, its 15 month delay had once again attracted the ire of EU regulators.

Making good on their promise to fine Microsoft some €3 million per day for every day of non-compliance past 31 July, 2006, the company was treated to an €899 million fine in 2008 for the period between 21 June, 2006 and 21 October, 2007.

Certifiably on the hook for 2004’s €497 million fine and 2006’s €280.5 million fine, Microsoft has appealed the €899 million doozy and that case now winds its way through the EU courts.

The bundling war rages on

The legal history between Microsoft and the European Union now comes to Internet Explorer, which has been cut from Windows 7 for its European editions.

The decision to axe Internet Explorer from Windows 7 came in early June when Microsoft moved to comply with European regulators, which mandated that users be offered their choice of browser. Commissioners noted at the time that leveraging Windows 7 as a platform for browser incumbency ran afoul of the region’s competition laws.

Competition Minister Jonathon Todd said that it was an issue of market fairness.

“The Commission would intend to impose remedies that enabled users and manufacturers to make an unbiased choice between Internet Explorer and competing third party web browsers,” he said.

Though the decision complies with the letter of the law, it carries an air of spite which has obviously irritated Commission regulators.

“As for retail sales, which amount to less than 5 percent of total sales, the Commission had suggested to Microsoft that consumers be provided with a choice of Web browsers,” the Commission said. “Instead Microsoft has apparently decided to supply retail consumers with a version of Windows without a Web browser at all. Rather than more choice, Microsoft seems to have chosen to provide less.”

As an alternative, opponents such as Opera have been outspoken about their desire to see a “ballot screen” that offers users their choice of browsers. The European Union, too, has seemed tacitly receptive to the idea.

“A potential remedy … and which would not require Microsoft to provide Windows to end-users without a browser, would be to allow consumers to choose from different web browsers presented to them through a ‘ballot screen’ in Windows,” the European Commission said in a June 12 statement.

Indeed, a ballot screen may be the perfect solution to a halo of unwanted effects that have come about as a result of Internet Explorer’s European vacation:

• Substantially higher European pricing.
• No upgrade SKUs will be available at launch time.
• Customers that purchase retail boxes are unable to install a browser without a second PC or an arcane loophole.

And there are signs that the EU and Microsoft may soon arrive upon a peaceful resolution. A recent overture towards the ballot screen may yet give Europeans their share of the upgrade SKUs which have proved sensationally popular during the US preorder period.

“Under the proposal, Windows 7 would include Internet Explorer, but the proposal recognises the principle that consumers should be given a free and effective choice of web browser, and sets out a means–the ballot screen–by which Microsoft believes that can be achieved,” reads the statement. “The Commission welcomes this proposal, and will now investigate its practical effectiveness in terms of ensuring genuine consumer choice.”

Where do we go from here?

Though many Europeans have already taken the news to mean that their region will not be saddled with a dearth of SKUs, a great number of questions remain even if Microsoft does consent to the ballot screen: Will Microsoft add code to an OS which has gone gold, precluding changes to the code base? Will Microsoft retain their December timetable for upgrade SKUs and continue to offer full versions at the higher price? Will Microsoft align the European offerings with that of North America? Will the firm attempt to substitute upgrade copies for the full versions offered during European preorders? These are serious and important issues that Microsoft and the European Union must work together to answer.

The sixteen-year war between the EU and Microsoft is no longer confined to alternative products and corporate penalties. It is a war that has grown to have a very real and considerable impact on a consumer’s choice and wallet. We can only hope that both parties will restrain their obsession with escalation and act in the best interests of the party that really matters here: We the people.