Microsoft Loses E.U. Anti-Trust Case

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Timothy A. CLARY / AFP / Getty

A landmark E.U. antitrust case upholds a record 497 million Euro fine imposed by the European Commission.

Microsoft has frequently found itself under scrutiny by regulators over the years, but the software giant has rarely felt more out of step with authority than on Monday, when a European court threw out its appeal against a 2004 antitrust decision.

The ruling comes three and a half years after the European Commission — the E.U.'s antitrust authority — ruled that Microsoft had unfairly abused the near-monopoly power of its Windows personal computer operating system to muscle out rivals.

The European Union's Court of First Instance in Luxembourg — Europe's second-highest court — has now upheld the Commission's March 2004 decision that fined Microsoft a record $670 million and ordered the software giant to change its Windows package to make it more modular and compatible with rival systems.

It's a crushing blow to Microsoft, which has engaged in a bitter nine-year wrangle with the Commission. But the ruling also confirms the role of the Commission, which had staked its reputation as an antitrust regulator on the case. A defeat would have undermined its authority and risked a flood of court appeals against every Commission decision.

The Commission, naturally, welcomed the ruling and said it meant a super-dominant company could not unfairly influence rivals that attempted to offer more innovative and price-competitive products. Commission President José Manuel Barroso said the ruling "confirms the objectivity and the credibility" of the Commission's competition policy. "This policy protects the European consumer interest and ensures fair competition between businesses," he said. E.U. Competition Commissioner Neelie Kroes said the Court had set "an important precedent," that dominant companies have to allow competition.

The decision was also welcomed by Microsoft's rivals. Thomas Vinje, the lawyer for the European Committee for Interoperable Systems (ECIS), a group of technology companies that includes IBM, Nokia, Oracle and Sun Microsystems, said, "This is a great day for European businesses and consumers." He added: "At long last, the decision opens the prospect for dynamic competition in the software industry. No more user lock-in, no more monopoly pricing." He said the ruling was a landmark that set standard for Microsoft's future conduct — and empowered the Commission to impose it on the European market if necessary.

But Microsoft has said the ruling would have a disastrous impact on innovation, and it is expected to appeal. The company said it would undermine efforts by market-leading firms across the globe to improve their products for consumers, as they would not be able to benefit from their own innovations.

The ruling hinged on two key issues. The first was whether Microsoft was allowed to sell its Windows operating package with the music and movie playing application Windows Media Player. But the Commission said that with Windows on 95% of all computers, it gave Media Player an unfair advantage over rivals like Apple's QuickTime or RealPlayer. Throwing Media Player into the Windows package for free is described as "bundling," and the Commission said this effectively killed off RealPlayer.

The second issue concerns the technology needed for office servers to communicate with one another when they use rival software to share files or printers. The Commission said that without these protocols, computers running rival server operating systems, like open-source software Linux, cannot work properly with Windows.

Many observers expected the court to give a mixed ruling, but instead it sided with the Commission on the two major issues, and upheld the fine (the ruling also activates a Commission decision from July last year that fined Microsoft a further $378 million for dragging its heals in compliance). Indeed, the only point that Microsoft won was a minor one on whether it should be forced to pay for a trustee to monitor its compliance with the 2004 decision.

With monthly profits of $1 billion, Microsoft can easily afford to appeal the ruling. But at this point, after years of legal wrangles and so many clear reverses, it has to ask whether it is now time to just move on.