Microsoft offers to add rival browsers to settle case

(Bloomberg) — Microsoft Corp., the world’s largest software maker, offered to include rival Web browsers in the Windows operating system to settle a European Union antitrust case.

mircosoft

Microsoft logo.

Microsoft accepted a key European Commission demand that it give consumers a choice of browsers through a so-called ballot screen, the commission said in a statement today in Brussels. The company also offered to resolve a second antitrust case over word-processing and spreadsheet software.

‘Microsoft is basically capitulating,’ said Matt Rosoff, an analyst at Kirkland, Washington-based Directions on Microsoft. ‘Microsoft was able to absorb fines and be more aggressive with their legal strategy when business was good, but when you’re looking at ongoing fines in a downturn, it makes more sense to settle.’

Yesterday, Microsoft reported sales for the quarter ended June 30 that fell 17 percent to $13.1 billion, more than $1 billion short of the average estimate in a Bloomberg survey of analysts. The Redmond, Washington-based company, which has been fined 1.68 billion euros ($2.39 billion) in previous EU antitrust cases, would avoid another penalty if it reaches a settlement.

The ballot screen would allow consumers who buy new personal computers to set a default browser from a range of software makers. Microsoft rivals and consumer groups will have an opportunity to offer comments on the proposed settlement before the EU makes a final decision.

‘Big Step’

Microsoft said that if the EU accepts the proposed settlement, it will begin shipping versions of Windows with the option in Europe. It will be available for Windows XP and Vista — as well as Windows 7, once it’s released in October.

‘This would mark a big step forward in addressing a decade of legal issues and would be good news for European consumers and our partners in the industry,’ Brad Smith, Microsoft general counsel, said in a statement.

Microsoft fell $2.11, or 8.3 percent, to $23.45 at 4 p.m. New York time in Nasdaq Stock Market trading.

‘The commission welcomes this proposal, and will now investigate its practical effectiveness in terms of ensuring genuine consumer choice,’ the EU regulator said.

Choice of Browsers

The proposal tries to navigate between the commission’s demand for choice and Microsoft’s desire to avoid shipping Windows with rival browsers preinstalled.

Existing Internet Explorer users will get a Web application downloaded to their machine. The program will offer them a choice of browsers, listed in order of market share. If the user chooses something other than Internet Explorer, that browser will be downloaded to the machine and the Explorer code will be disabled.

Microsoft said last month that it will ship the new Windows 7 without Internet Explorer to avoid breaking EU law. The commission said at the time that the proposal wasn’t adequate because it offered consumers less choice of browsers. The commission accused Microsoft in January 2008 of illegally tying its browser to Windows, harming consumer choice and product innovation.

Microsoft also offered to disclose information that would allow competing word-processing and spreadsheet products to function more smoothly with the company’s Word and Excel programs, the commission said.

Opera Software

The EU regulators began the probe following a complaint from rival browser maker Oslo-based Opera Software ASA.

Microsoft’s browser dominance has eroded in recent years. Internet Explorer had 65.5 percent of the market in May, according to Net Applications, compared with 22.5 percent for Mozilla Corp.’s Firefox and 8.4 percent for Apple Inc.’s Safari. Opera has 0.7 percent.

Thomas Vinje, a lawyer for Opera, called Microsoft’s offer a ‘dramatic reversal.’ He said without a settlement Microsoft likely would have faced a large fine and still been forced to adopt the ballot screen.

‘The settlement would have to be on the commission’s terms,’ Vinje said. ‘It’s a welcome development after Microsoft fought so hard against it.’

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