Unbundled

Could the software giant's bundling strategy be coming apart?

When it comes to snatching victory from the jaws of defeat, Microsoft is a past master. The world's largest software firm tends to lose its legal battles, only to manipulate the subsequent regulatory environment so that courtroom defeats end up having little effect on its behaviour. But this disquieting pattern may now be coming to an end.

On December 22nd, the European Court of First Instance in Luxembourg ruled that sanctions against the company for antitrust violations should be imposed now, before Microsoft's appeal on the merits of the case itself is heard. Microsoft had wanted the European Commission's penalties, announced in March, to be suspended during the appeal. (It also hoped that its settlements with its industry opponents in the case, involving paying them large sums of money, would strengthen its hand.) But the court ruled that justice delayed would be justice denied. Microsoft must now change its behaviour in two ways.

First, it must provide in European markets a stripped-down version of its Windows operating system without a media player (the software that plays music and video on a PC). This is to prevent Microsoft's media format becoming the de facto industry standard by dint of the firm's operating system monopoly. Second, Microsoft must license technical information to rivals so their products can interface with its server software as' efficiently as Microsoft's own products do. The commission will appoint a trustee to oversee these remedies, and has also fined the firm €497m ($600m).

Making Microsoft "unbundle" its media player is a symbolic victory: it is not certain that PC-makers will actually offer PCS with the stripped-down version of Windows. Yet it could set a precedent that will force Microsoft to unbundle other bits of Windows in future. That is why the firm was so keen to reach a settlement with the commission.

Microsoft's ability to dominate new markets by bundling software with Windows also faces a second threat, this time internal. With the firm's legions of programmers busy fixing security holes in the current version of Windows, the next version has been repeatedly delayed; it is now due in 2006. As it fights Google and Yahoo! in the field of search technology, Microsoft will not be able to use its usual trick to crush rivals by bundling its own search product into a new version of Windows. For this battle, at least, the playing field will be unusually level. Microsoft must compete on merit.

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Where credit's due

Further exchanges in the Parmalat affair

Enrico Bondi, special administrator of Parmalat, a family-controlled Italian dairy group that went spectacularly bust a year ago, has consistently maintained that plenty of people knew, or should have known, that a brazen fraud lay behind the firm's healthy facade. To make his point, Mr Bondi sued several of Parmalat's biggest banks, as well as two of its auditors, claiming €10 billion (then $12 billion) that he argues is owed to the group. The banks have defended themselves vigorously.

That legal conflict looks both simpler and more complicated than it did. On December 17th Giuseppe Coscioni, a judge in Parma, Parmalat's home city, ruled that some €15.5 billion of disputed credits, many of them claimed by big international banks, should be included in the official list of the firm's debts.

As a consequence the banks, previously excluded by Mr Bondi, will now take their place among other creditors who must vote to approve a proposed debt-for-equity swap that will be followed by a re-listing of Parmalat's shares. The re-admitted credits will account for some 25% of the "new" Parmalat's equity: bondholders account for most of the rest. Mr Bondi has proposed a reflotation as early as March. The banks are unlikely to contest that now.

If that looks like a victory for the banks, Mr Bondi is not about to back away from his central contention-that Parmalat's lenders connived in fraud. The day before Mr Coscioni's ruling, he sued 45 banks, 35 of them Italian, claiming more than €5 billion. Under Italian law, money or collateral received during the year before a bankruptcy must be repaid if the plaintiff can show that the recipient had reason to suspect something amiss. Mr Bondi's claim is that this undermines the banks' claims on collateral offered by Parmalat.

Prior to this latest raft of so-called "clawback" lawsuits (there are more to come), Mr Bondi had been accused of discriminating against Parmalat's international lenders. Nonsense, he said; he was merely suing the most blatant offenders first. Yet the onus will remain on him to establish in various courts that banks and auditors are liable. This is no easy task against determined opponents.

Jurisdictional quirks add to the difficulties. Parmalat has not yet launched actions for damages in Italy, for example, because, once begun, no further evidence can be submitted. So before crossing that threshold, the dairy group needs help, not least from prosecutors in Parma, in securing vital material. An irony is that, because the odds of saving Parmalat as a business are distinctly brighter, Italian officialdom might soften the hard line it adopted a year ago. How fast prosecutors move will be one important sign to watch. The banks will be watching more closely than most.

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