Working to Fulfill our Legal Obligations in Europe for Windows 7

UPDATE: June 11, 2009 – 5:30 p.m. Pacific

Posted by Dave Heiner 
Vice President and Deputy General Counsel

[Update to my original post earlier today below – I’ve added more historical context for readers who might be new to the issue – D.H.]

Earlier today CNET reported that Microsoft had sent a memo to computer manufacturers and retailers about our plans for Windows 7 in Europe.  We’re getting quite a few calls on this, so we thought it would be helpful to explain our plans.

First, a little context.  For the past three years Microsoft has been working to develop the next version of our Windows operating system, Windows 7.  We’ve taken feedback from literally millions of beta customers to ensure that Windows 7 delivers the power, simplicity and ease-of-use that customers want.  We’ve also worked hard to ensure that Windows 7 will promote choice and competition in the computer industry, in keeping with our Windows Principles.  We’ve held hands-on workshops with hundreds of industry partnersto ensure they have the information they need to build products that work well with Windows 7.  Customers running Windows 7 will be able to choose compatible products from among literally thousands of computer manufacturers, peripheral manufacturers, and software vendors. 

The worldwide launch of Windows 7 is fast approaching, but a pending legal case raises concerns about the sufficiency of competition among the Web browsers that are available to Windows users in Europe.  In January the European Commission provided its preliminary view that Microsoft’s “bundling” of Internet Explorer in Windows violated European competition law.

We’re committed to making Windows 7 available in Europe at the same time that it launches in the rest of the world, but we also must comply with European competition law as we launch the product.  Given the pending legal proceeding, we’ve decided that instead of including Internet Explorer in Windows 7 in Europe, we will offer it separately and on an easy-to-install basis to both computer manufacturers and users.  This means that computer manufacturers and users will be free to install Internet Explorer on Windows 7, or not, as they prefer. Of course, they will also be free, as they are today, to install other Web browsers.

Based on the progress our development teams have made, we announced last week that Windows 7 will be available to consumers worldwide on October 22nd.  In order to meet that release date, we needed to start telling computer manufacturers this week exactly what to expect in Windows 7 so they can begin all of the engineering and operational work necessary to have PCs available in stores in October.  We began that process earlier this week.

Windows 7 will be offered in Europe in all of the versions that will be available here in the United States, both 32- and 64-bit, with an “E” at the end of the product name (for instance, Windows 7 Home Premium E).  The E versions of Windows 7 will ship at the same time as Windows 7 ships in the rest of the world, and they will be available in 23 European languages.

What does this mean for European consumers?  The E versions of Windows 7 will include all the features and functionality of Windows 7 in the rest of the world, other than browsing with Internet Explorer.  Computer manufacturers will be able to add any browser they want to their Windows 7 machines, including Internet Explorer, so European consumers who purchase new PCs will be able to access the Internet without any problem.  Consumers will also be able to add any Web browser to their PCs, to supplement or replace the browsers preinstalled by their computer manufacturer. 

Most importantly, the E versions of Windows 7 will continue to provide all of the underlying platform functionality of the operating system—applications designed for Windows will run just as well on an E version as on other versions of Windows 7. 

Obviously, this is a big step for Microsoft.  But we’re committed to launching Windows 7 on time in Europe, so we need to address the legal realities in Europe, including the risk of large fines.  We believe that this new approach, while not our first choice, is the best path forward given the ongoing legal case in Europe.  It will address the “bundling” claim while providing European consumers with access to the full range of Windows 7 benefits that will be available in the rest of the world.  Our developers are focused on delivering a great Windows 7 experience to customers and a great browser as well.

Our decision to only offer IE separately from Windows 7 in Europe cannot, of course, preclude the possibility of alternative approaches emerging through Commission processes.  Other alternatives have been raised in the Commission proceedings, including possible inclusion in Windows 7 of alternative browsers or a “ballot screen” that would prompt users to choose from a specific set of Web browsers.  Important details of these approaches would need to be worked out in coordination with the Commission, since they would have a significant impact on computer manufacturers and Web browser vendors, whose interests may differ.   Given the complexity and competing interests, we don’t believe it would be best for us to adopt such an approach unilaterally. 

We will continue to discuss browser issues and other matters with the Commission.  But even as the Commission processes continue, we know we need to have a clear plan in place to address the “bundling” issue in Europe because, at the end of the day, the obligation to comply with European competition law belongs to Microsoft alone. 

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Today’s news is, of course, only the latest development in a story that has been unfolding since the launch of Windows 95. (At that time, the primary concern was that the inclusion of MSN access software in Windows 95 would block competition from AOL.) Having joined Microsoft in 1994 I’m perhaps more familiar than I’d like to be with the history of the antitrust cases relating to the features included in Windows. But for others who don’t follow this day to day, I thought it might be helpful to provide a quick summary of the cases and earlier court rulings that have brought us to this point.

Since the mid-1990s governments have been focused on promoting robust competition between Windows and products that compete with features of Windows, such as Web browsers and media players. Microsoft has emphasized that consumers benefit when products such as Windows are improved over time by the addition of new features. We have also emphasized that because Windows is an open platform, including a feature in Windows does not prevent competitors from offering competing products. Others have argued that including a feature in Windows gives Microsoft too great an advantage over competing products because so many people use Windows. How these differing views are reconciled is important because consumers benefit when popular products such as Windows are continuously improved and when products such as Windows face robust competition.

A legal framework to resolve these concerns was established by a series of court rulings and a consent decree in the U.S. Department of Justice case against Microsoft. Since 2001, Microsoft has been required to adhere to a range of legal requirements governing the design and distribution of Windows. These were put in place to promote competitive opportunities for products that compete with features of Windows, including Web browsers and media players. Since then, of course, we’ve seen new competition to Internet Explorer offered by Mozilla Firefox, Apple Safari, Google Chrome and others. For media, we’ve witnessed the success of Apple iTunes running on Windows and Adobe Flash for playing YouTube and other Web video.

Microsoft has complied with the requirements of the U.S. court rulings on a worldwide basis. In 2004, however, the European Commission determined that the U.S. approach did not sufficiently address the Commission’s concerns relating to the inclusion of media player software in Windows. The Commission adopted a different approach: within Europe Microsoft was required to offer a version of Windows without its built-in media player and permitted also to offer a version of Windows with its media player. Microsoft was also ordered to pay a large fine. Microsoft complied with the Commission decision, as it must, and at the same time exercised its right to appeal to a European court. In 2007, the court ruled in favor of the Commission and broadly adopted its reasoning. (We will, of course, continue to comply with the March 2004 decision with respect to Windows Media Player—the European versions of Windows 7 will be available with and without WMP.)

In late 2007 a European browser vendor filed a complaint with the Commission arguing that the reasoning of the WMP case should be applied to Web browsing software as well. We disagreed, but concluded that the most prudent course was to try to address any concerns before releasing Windows 7. Therefore, in September 2008, we told computer manufacturers that we would offer Windows 7 in Europe in two versions, following the approach of the Commission’s 2004 decision: one version with all features included and another version without certain programs (Internet Explorer 8 and WMP). Computer manufacturers could choose either version.

In January 2009 the Commission sent Microsoft a “Statement of Objections.” In it the Commission advised Microsoft of its preliminary view that the inclusion of Web browsing software in Windows violates European competition law. The Commission said in this document that it intends to impose a fine for this. The Commission also said that, with hindsight, the remedy adopted in its 2004 decision was not effective because there was very limited consumer demand for the versions of Windows without media player. We were, of course, disappointed to learn that the approach we took in September 2008 would not adequately address the Commission’s concerns.

Microsoft filed its response to the Commission’s Statement of Objections in April. We believe we made a strong showing that including Internet Explorer in Windows is lawful so that no remedy is needed. We hope that the Commission will ultimately agree with us. In the meantime, we have to move forward with final planning for the release of Windows 7, so we’ve decided that instead of including Internet Explorer in Windows 7 in Europe, we will offer it separately. As noted, we will continue to discuss browser issues and other matters with the Commission.

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