Microsoft's European Catch-22

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It's a real pity that the classic American sitcom Diff'rent Strokes never got broadcast in Luxembourg. If it had, I could almost see the judges at Microsoft's antitrust hearing right now, declaiming: "Whatchutalkinabout, William?" (Gates, that is.)

Over in Luxembourg, Microsoft (Nasdaq: MSFT) is about to argue an appeal of a European Commission finding that the software maker violated EU antimonopoly laws by engaging in anticompetitive conduct in the market for computer operating systems. Microsoft was pretty unhappy with the orders the Commission issued to restore the balance of competition on the continent. And the most important of those orders is one I suspect might give Microsoft's lawyers a headache.

The Commission focused particularly on Microsoft's practice of "bundling" different kinds of programs into its operating system, a practice that the Commission deemed unfair to competitors such as RealNetworks (Nasdaq: RNWK), Roxio (Nasdaq: ROXI), and Apple (Nasdaq: AAPL). Not unreasonably, the Commission felt that a consumer who received Microsoft's Media Player software "for free" would be less likely to then spend more money to buy, for example, RealNetworks' RealPlayer as well. For this reason, the Commission instructed Microsoft to offer consumers a scaled-down version of its software, one that did not include bundled programs such as Media Player.

On that score, Microsoft says it will comply with whatever decision the European Court of Justice's Court of First Instance requires. However, the company complains that doing so would cause it "great harm." And it's that argument that I think will bring about Microsoft's Diff'rent Strokes minute. For Microsoft is already, and of its own accord, designing and selling "abridged" versions of its Windows operating system -- namely, the Windows XP Starter Edition being sold preinstalled on machines marketed in Thailand, Malaysia, and Indonesia.

As described by fellow Fool Alyce Lomax back in June (read her article here), Microsoft designed the Starter Edition to combat the twin threats to its international sales posed by (a) pirated versions of its software and (b) legitimate copies of the Linux operating system, which is repackaged and marketed by companies such as Red Hat (Nasdaq: RHAT) and Novell (Nasdaq: NOVL). It seemed a clever move at the time, and Microsoft is reportedly expanding its distribution to two more countries. But you have to wonder whether the EU judges are going to cite this clever move as proof that Microsoft is in fact able to tinker with its operating system without suffering "great harm" at all.

For more Foolish news and commentary on both these Microsoft stories, read:

• Microsoft Heads Down Market
• Microsoft Strips Down
• Microsoft's Punishment Delayed
• Microsoft Strikes Back
• EU Takes a Bite of Microsoft

Fool contributor Rich Smith owns no shares in any company mentioned in this article.