EU sanctions on MS with immediate effect

Douglas Bakshian and David Lawsky

LUXEMBOURG: Microsoft Corp. was ordered by a European Union court to change its business practices and immediately market a stripped-down version of Windows after it lost an appeal to delay sanctions imposed earlier this year.

The world's largest software maker said it would comply immediately by introducing a stripped-down version of its computer operating system without its Windows Media Player music and video software next month.

Microsoft, which will also share specifications with rival makers of server software, had tried to delay penalties that were imposed by the executive European Commission in March.

"Microsoft has not demonstrated specifically that it might suffer serious and irreparable damage," said Bo Vesterdorf, president of the Court of First Instance, the EU's second-highest court.

The commission had found the U.S. software giant abused the virtual monopoly of Windows and also levied a record 497 million euro ($665 million) fine.

Microsoft, which had reached separate settlements worth billions of dollars with rival companies and organizations supporting the commission's case, did not seek to avoid the fine.

"We will move forward immediately to comply with today's decision," Microsoft General Counsel Brad


Smith said in a conference call with reporters.

The company had not decided whether to appeal against Wednesday's order, Smith added, but indicated in a conference call with reporters that there was "cause for optimism" for future litigation.

Microsoft had pushed hard for a settlement, which would have required the EU to rescind a major decision for the first time in its history.

Smith nevertheless urged the commission to consider fresh settlement talks, arguing the judge had found some merit in Microsoft's arguments on the substance of the case.

But Jonathan Todd, a commission competition spokesman, said the court decision upheld the effectiveness of antitrust action and the EU executive was "not in a process of renegotiation."

"While the headline value of the court's ruling may have a slight negative effect on Microsoft's stock, we believe that the practical implications of the ruling are minimal," said Charles Di Bona, an analyst at Sanford C. Bernstein & Co.

CONSUMER VICTORY

"This is a victory for consumers," said Brussels lawyer Thomas Vinje, who represented an industry group that dropped out of the case after a $20 million settlement with Microsoft.

Microsoft wanted the penalties, which the commission suspended temporarily during the appeal, frozen until its court case on the substance of the EU ruling finishes years from now.

The EU executive argued the market would have moved on and the sanctions would be obsolete. Todd said there was no longer any reason to extend the voluntary suspension.

The commission found that Microsoft bundled Media Player to cripple rivals such as RealNetworks Inc.'s RealPlayer, which it shoved off its perch as the dominant player.

Now some versions of Windows will be shipped to computer makers without audiovisual software, a decision the commission designed to prompt computer makers to choose from various audiovisual offerings instead of accepting the Windows bundle.

"Anything that helps create a level playing field, anything that puts a premium on quality, not on monopoly, is good for RealNetworks," said Dave Stewart, RealNetworks deputy general counsel.

"We're going to do what we can to take advantage of the opportunity," Stewart said.

The commission ordered Microsoft to share data protocols -- software rules of the road -- with makers of work-group servers that are used in offices to access files and run printers.

"Microsoft is not required by the remedy...to disclose source code, nor does Microsoft dispute that," the judge said.

The ruling was a vindication for former Competition Commissioner Mario Monti, whose administration was dogged by a string of high-profile reversals from the court in recent years, and puts his successor, Neelie Kroes, in a strong position.

The decision on the sanctions can be appealed to the European Court of Justice, which would take another three to eight months, experts say.

Microsoft's main appeal will be heard by a panel of five judges of the lower court that will not include Vesterdorf.

To win Wednesday's appeal for so-called interim measures, Microsoft had to show not only that it had a reasonable case but also that it urgently needed relief and that the balance of interests between it and the public weighed in its favour.

(Additional reporting by Quentin Webb in Brussels and Reed Stevenson in Seattle)