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Microsoft Antitrust Penalties Upheld By European Court

At least one analyst expects Microsoft to appeal the decision, which it must decide to do within two months.
Europe's second highest court on Monday rejected an appeal by Microsoft and said the European Commission's antitrust claims against the company are valid. The court said the software maker "abused its dominant position" while marketing Windows products on the Continent.

As a result of the decision, Microsoft remains liable for the nearly $1 billion in fines that the commission imposed on it, the court said. "The court finds that the commission did not err in assessing the gravity and duration of the infringement and did not err in setting the amount of the fine," said an official statement released by the European Court of First Instance.

Through the commission, the European Union fined Microsoft $613 million in 2004 following a five-year antitrust investigation sparked by a complaint from Sun Microsystems. The EU cited anticompetitive behavior that included Microsoft's bundling of Windows Media Player with the Windows operating system and overcharging rivals for technical documentation needed to make their software interoperate with Microsoft's Windows server products.

The EU added $357 million to the fine last year after claiming the software maker hadn't sufficiently modified its behavior.

Microsoft originally appealed the ruling to the Court of First Instance in 2004. The company claims that control of the intellectual property behind its interoperability tools is essential to its ability to innovate. It also contends that there's plenty of competition in the media player market.

In its ruling, the court rejected both those arguments. "Microsoft has failed to show that if it were required to disclose the interoperability information that would have a significant effect on its incentives to innovate," the court said. It also found that Microsoft's bundling of Windows Media Player with Windows gave it "an unparalleled advantage" over competitors such as Real Networks in the media player market.

In addition to the fine, Microsoft must continue to offer in Europe a version of Windows without Windows Media Player and make its interoperability tools available to competitors on a fair basis. "If we need to take additional steps in order to comply with today's ruling, we will do so," said Brad Smith, Microsoft's general counsel, in a statement.

Microsoft can appeal the decision, on points of law only, to the Court of Justice of the European Communities, Europe's highest court. It must do so within two months. David Mitchell, a senior researcher at U.K.-based market watcher Ovum, said he believes Microsoft will exercise that option, given the stakes. "There is likely to be an appeal to a higher court," Mitchell wrote in a report Monday.

The decision was handed down Monday morning in the European Court of Justice building in Luxembourg before a throng of EU officials, Microsoft representatives, and journalists. The outcome of the case was widely seen as a test of the extent to which Europe's tough anti-competition rules can be used to slow a hi-tech juggernaut like Microsoft. In this case, Europe's regulators prevailed.

Microsoft's appeal wasn't a total loss. The Court of First Instance annulled a portion of the commission's action against the company that required Microsoft to submit documents, premises, and employees to inspection by a monitoring trustee.

Monday's decision, for now at least, puts a cap on bickering between the EU and Microsoft that's been ongoing since the 2004 action. As recently as March, the EU accused Microsoft of failing to live up to the terms of the agreement. The European Commission says Microsoft's share of the workgroup server market in Europe has grown from 35% to 75% during the eight years since it has been investigating the company.