Antitrust battle: Microsoft loses appeal of EU fine; mulling its next move

Press Association, Europe -- Manufacturing Business Technology, 9/18/2007

Microsoft is considering a last-ditch appeal after losing the latest round in a marathon legal battle with the European Commission.

The European Court of First Instance in Luxembourg - the EU's second-highest court - threw out Microsoft's attempt to overturn a record £343 million fine for abusing its dominant market position in computer operating systems and software.

The world's largest computer software company has two months to decide whether to take the case to the European Court of Justice.

Microsoft Senior Vice President Brad Smith told a press conference in Brussels on Monday that court's ruling was ``disappointing'' - but the company was ``100 percent committed'' to complying with EU requirements to open up access for its rivals to the computer software market.

Microsoft's Windows operating system is used in about 90 percent of personal computers and the company has faced years of pressure from Brussels to end a virtual monopoly by making Windows easier to integrate with non-Microsoft software.

That means selling Windows without the obligatory Microsoft Media Player software, and providing rivals with crucial communications codes to enable them to market compatible software to Media Player.

In 2004, the Commission handed down its biggest single fine yet, accusing Microsoft of failing to comply, and thereby breaching EU rules outlawing abuses of a dominant commercial position.

Monday's  appeal ruling backed the Commission, declaring that bundling Microsoft operating systems and software together put fair competition at risk, and that the failure to offer enough Microsoft technical data to rivals to help them compete also amounted to a block on fair competition.

Competition Commissioner Neelie Kroes said the result backed more consumer choice and set an important precedent obliging dominant companies to allow competition, particularly in high-tech industries.

Commission President Jose Manuel Barroso added: ``This judgment confirms the objectivity and credibility of the Commission's competition policy, which protects European consumer interest and ensure fair competition between business in the internal market.''

The Software and Information Industry Association said the ruling was ``a victory for innovators and consumers everywhere'' and challenged Microsoft to open up its sales monopoly and provide the technical data for rivals to offer Windows-compatible software.

The Centre for Economic Performance commented: ``First, by illegally bundling Windows Media Player into its ubiquitous Windows operating system, Microsoft has driven rival media player firms out of the market.

``Second, by refusing to provide critical technical information about Windows, it has severely disadvantaged rival manufacturers who needed this information to make their server operating systems run smoothly with Windows-dominated personal computer operating systems.''

But the Computing Technology Industry Association countered that the judgment was ``a significant blow to free enterprise in Europe''.

The association's anti-trust counsel, Lars Liebeler, went on: ``This decision encourages competitors to bring legal action against each other rather than compete aggressively in the marketplace.

``The decision will drive away innovative firms that succeed in the market by threatening them with confiscation of their intellectual property.''

The judgment reduced incentives for investment in product research and development, he said.

Microsoft's Brad Smith said the issue raised concerns about the protection of trade secrets and he pointed out that, in the monopoly stakes, IBM had ``99 percent to 100 percent'' of the European market in mainframe computers, that Apple's iPod had about 70 percent of its market sector, and Google dominated its sector, with 80 percent to 90 percent of the search engine market.

But he said Microsoft was prepared to ``take new steps to broaden inter-operability partnerships'', and cooperate with the Commission in trying to adjust the prices Microsoft charged for access to the communications protocols' required by other firms to produce software fully compatible with the Windows operating system.

And he vowed the growth in Microsoft investment in European technology research and development - running at around £350 million a year compared with about £2 million a year a decade ago - would not be affected by the verdict.

Meanwhile, Windows would continue to be sold as a package with Media Player software - but customers would also be able to buy Windows separately if they wished.

Asked about the possibility of a last appeal, he said the company was still studying the judgment details, and had up to two months to decide what to do next.