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European Union court rejects Microsoft's appeal in historic case

Court of First Instance sides with European Commission on Windows interoperability, bundling of Windows Media Player and the amount regulators fined the company.

The European Union's Court of First Instance handed Microsoft a major defeat on Monday, slapping down the software maker's appeal in three significant areas of the historic antitrust case brought by the European Commission.

In the closely watched case, which has dragged on since March 2004, the Luxembourg-based court upheld the Commission's findings that Microsoft abused its dominant position in the market.

The highlights:

Interoperability. The court agreed with the Commission that Microsoft was stifling competition by withholding certain technical specifications, or protocols, from rivals. The court also agreed that the Commission wanted Microsoft to share only the system protocols, and not its source code. After all, not everyone wants to be "like" Microsoft.

"The court rejects Microsoft's claims that the degree of interoperability required by the Commission is intended in reality to enable competing work group server operating systems to function in every respect like a Windows system and, accordingly, to enable Microsoft's competitors to clone or reproduce its products," the Court of First Instance stated in its decision.

The decision further noted that "the court considers that the Commission was correct to conclude that the work group server operating systems of Microsoft's competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably--the absence of such interoperability has the effect of reinforcing Microsoft's competitive position on the market and creates a risk that competition will be eliminated."

Bundling. The court upheld the Commission's decision that Microsoft was bundling two products together--the Windows operating system and its Windows Media Player--as a means to lock out competition.

"The court considers that the factors on which the Commission based its conclusion that there was abusive tying are correct and consistent with Community law."

The decision was based on four factors, which, in court parlance, are as follows: the concerned company must have a dominant position in the market for the tying product (the Windows operating system, in this case); the tying product and tied product (Media Player) must be two separate products; consumers don't have a choice to obtain the tying product without the tied product; and the practice must foreclose competition.

"In respect of each of those factors, the court considers that the Commission's decision is well founded," the ruling said.

The fine. What about that megafine--the one for 497 million Euros, or $613 million that was part of the Commission's March 2004 order?

Microsoft is stuck with the bill.

"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. Since the abuse of the dominant position is confirmed by the Court, the amount of the fine remains unchanged at EUR 497 million," the court ruled.

Microsoft can appeal the court's decision to the Court of Justice of the European Communities. But the appeal is limited only to points of law.

Round three, anyone?


Microsoft isn't yet ready to say whether it will seek an audience with the European Court of Justice, but one thing the software giant plans to do is comb through the full decision.

Microsoft's general counsel, Brad Smith, noted that while it was clear the court agreed with the Commission on a number of points, Microsoft appreciated that the court had sided with the software maker on the issue of the Commission using a monitoring trustee to help it evaluate the technicalities of the case, Smith said during a press conference in Europe.

"The court criticizes, in particular, the obligation imposed on Microsoft to allow the monitoring trustee, independently of the Commission, access to its information, documents, premises and employees and also to the source code of its relevant products. It observes that no limit in time is envisaged for the continuing intervention of the trustee," the court stated.

As a result, Microsoft is no longer holding the bill for all costs associated with the monitoring trustee.

And the court also reigned in the power of the trustee, finding the Commission has no authority to compel Microsoft to grant the trustee powers which the Commission is not authorized to confer on a third party.

Smith also said that Microsoft has been working hard to comply with the March 2004 order and that progress has been made. He added that he hopes the court's decision will bring further clarity to the issue of interoperability, as well.