Microsoft Loses European Appeal


The upholding of an EU antitrust ruling obliges the tech giant to share code with rivals, offer Windows without Media Player, and pay a $613M fine

By the Associated Press, with BW staff reports

Microsoft (MSFT) lost its appeal of a European antitrust order Monday that obliges the technology giant to pay a record $613 million fine, share communications code with rivals, and sell a copy of Windows without Media Player.

In a stinging defeat for the world's biggest software maker, the court decision also affirms Europe's role as the lead international regulator of dominant companies.

"In global markets, the antitrust policy that matters is the most restrictive one," said M.J. Moltenbray, a partner at Freshfields Bruckhaus Deringer.

The EU Court of First Instance ruled against Microsoft on both major parts of the case, saying the European Commission was correct in concluding that the company was guilty of monopoly abuse in trying to use its power over desktop computers to muscle into server software.

Microsoft, based in Redmond, Wash., said it would withhold comment on the decision and on whether it would appeal to the EU's highest court, the European Court of Justice, until it had gone through the 248-page ruling. It has two months to appeal.

"I don't want to talk about what will come next," said Microsoft lawyer Brad Smith. "We need to read the ruling before we make any decision."

But he said the company accepted that it may need to do more to comply with EU demands—without giving specifics.

"It's not our desire and it is not our goal to have continuous arguments and disputes. We want to move forward," he told reporters—saying he had called the Commission earlier to congratulate them.

The court had confirmed that regulators had "quite broad power and quite broad discretion" over companies with large market shares, he said, citing Google (GOOG), Apple (AAPL), and IBM (IBM) as those that needed to heed the decision.

While the fine was the largest ever assessed by EU regulators, Microsoft has plenty of resources—it earned $14.07 billion last fiscal year.

Its shares fell 29¢ to $28.75 in morning trading Monday.

The court said regulators had clearly demonstrated that selling media software with Windows had damaged rivals.

"The court observes that it is beyond dispute that in consequence of the tying, consumers are unable to acquire the Windows operating system without simultaneously acquiring Windows Media Player," it said.

"In that regard, the court considers that neither the fact that Microsoft does not charge a separate price for Windows Media Player nor the fact that consumers are not obliged to use that Media Player is irrelevant."

But it did overturn regulators' decision to appoint a monitoring trustee to watch how Microsoft had complied with the ruling, saying the Commission had exceeded its powers by ordering Microsoft to pay for all the costs of the trustee.

The mood at EU headquarters in Brussels, Belgium, was one of elation and the court's decision was hailed as a big victory for the EU's competition policy and for consumer rights.

"The ruling confirms more than ever that Microsoft must comply," said EU Competition Commissioner Neelie Kroes. "I will not tolerate continued noncompliance."

Kroes said however that the victory did not yet mean that software customers have more choice than they did three years ago, when Microsoft was slapped with the original EU fine.

"The court has confirmed the Commission's view that consumers are suffering at the hands of Microsoft," she said.

She refused to say what the implications of Monday's decision would have on other ongoing legal fights between the EU and Microsoft.

The decision drew reactions far and wide on the Internet. At Slashdot.org, a Web site with many supporters of open-source software, one commentator said the decision didn't amount to true justice because it was "too little, too late." "The biggest problem is that it took 10 years to get to this point, and Microsoft still hasn't disclosed the specs for how to make interoperable products," wrote the commentator, identified as jafoc. At LinkedIn, the social-networking site for business people, one intrepid member was already looking for opportunity. "Suppose you are CEO/Board member of a company that has built a new alternative to the Windows operating system," writes Ashish Gope, who identifies himself as "entrepreneur." "How would you take advantage of the situation now that Microsoft have lost its appeal in the EU and faces a steep fine?"

At the Seattle Post-Intelligencer, Microsoft's hometown paper, Todd Bishop on the Microsoft blog took on the broader issue of Europe's growing power in the tech industry. He quotes Brad Smith, Microsoft's general counsel, as raising concerns that the European Commission could go after a number of companies with strong market position, including Apple, Google, and IBM. "I think that the decision very clearly gives the commission quite broad power and quite broad discretion," says Smith. Kroes took a swipe at what she described as "scare stories." "Let me be clear, ladies and gentlemen, there is one company that will have to change its illegal behavior as a result of this ruling, and that is Microsoft," Kroes said. "Other companies will benefit from increased opportunities to compete, to the greater good of consumers."

Some commentators said it's time to be worried for Microsoft, not worried about it. Andrew Donoghue, at tech publisher ZDNet said the EU-Microsoft battle over software for playing music and movies "seems pretty old-school now." More important for Microsoft is its effort to sell its new operating system, Vista, an effort that may prove challenging given the fierce competition it's facing in the marketplace. "A real feeling in the market has taken hold that [Microsoft] has lost whatever innovative direction it might have had and just has nothing to offer when it comes to competing with Apple's brilliantly realised consumer offerings and Google's complete dominance of the Internet—and increasing office productivity tools. Microsoft is rapidly being painted into a corner—with no real idea of how to get out."

The European Committee for Interoperable Systems called the ruling a good result.

"It's a very good day, for it signals that there will be fair competition for the sector," said Maurits Dolmans, a lawyer for the group.

In its ruling, the court upheld both the Commission's argument and its order for Microsoft to hand over information on server protocols to rivals. Microsoft had claimed these were protected by patents and the Commission was forcing it to give away valuable intellectual property at little or no cost.

The court confirmed "that the necessary degree of interoperability required by the Commission is well founded and that there is no inconsistency between that degree of interoperability and the remedy imposed by the Commission."


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