EU court dismisses Microsoft antitrust appeal

Record $689 million fine upheld

BRUSSELS -- Microsoft's appeal of the record €497 million fine imposed on it by EU regulators was comprehensively rejected by Europe's second-highest court Monday.

In a landmark ruling, the European Union's Court of First Instance backed the European Commission's 2004 decision to fine Microsoft and order the software giant to change its Windows operating system to make it more compatible with rival systems.

The 248-page judgment comes after nine years of legal wrangling over Microsoft's near-monopoly of the software market and its ability to muscle rivals out of the market.

The ruling's immediate impact probably is negligible because Microsoft already had paid the $613 million fine and, as ordered years ago, has been selling a version of its Windows software without the Media Player that has been the focus of complaints for about a decade.

Broadly, though, some observers worry about an EU that might be too quick to overregulate free markets, especially with Apple scheduled this week to defend its dominant iTunes online music store from complaints that sound similar to those leveled against Microsoft.

EU regulators also are looking at the way Intel prices its microchips and are mulling the proposed Google acquisition of DoubleClick.

Such concerns of overregulation prompted Assistant U.S. Attorney General Thomas Barnett to warn Monday that the Microsoft ruling, "rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition."

Microsoft said it will study the ruling carefully before deciding whether to appeal at the only court that can overturn it now, the European Court of Justice.

"It is clearly very important to us as a company that we comply with our obligations under European law," Microsoft general counsel Brad Smith said. "If there are additional steps we need to take in order to comply with it, we will take them."

EU Competition Commissioner Neelie Kroes described the victory as "bittersweet," saying that software customers still had no more choice than they did three years ago.

"Having worked in business for many years, I know the pernicious effects that the illegitimate actions of a dominant company can have," she said. "The court has confirmed that Microsoft cannot regulate the market by imposing its products and services on people."

Kroes said she now expects to see "a significant drop" in Microsoft's overwhelming market share as a logical consequence of fairer competition.

Microsoft shares fell 1.1% on Monday in New York to $28.73.

The court upheld the commission on the two main elements of its 2004 decision: that Microsoft's music and movie playing application, Windows Media Player, be separated from the Windows package because "bundling" the Media Player gave it an unfair advantage over such rivals as RealPlayer and QuickTime, and concerns about codes needed for rival office servers to communicate with one another to exchange files.

The court sided with Microsoft on only one minor issue, ruling that the commission's independent monitoring trustee charged with supervising Microsoft's behavior had too large a remit to scrutinize the software giant.

Microsoft had come to terms five years ago with the U.S. Department of Justice over accusations that the software giant was engaging in anticompetitive behavior in order to squeeze out competitors.

Leo Cendrowicz reported from Brussels; Paul Bond reported from Los Angeles.