Microsoft loses appeal of EU sanctions

Windows must be offered without some features


Microsoft Corp. lost a major appeal yesterday in a European court, which ruled that the world's largest software company must comply with sanctions imposed by regulators and strip features from its Windows product.

It must also share information about its products with other software companies and pay a $665.4 million fine imposed by the European Commission in March, when it found that Microsoft abused its monopoly of Windows.

"Microsoft has not demonstrated specifically that it might suffer serious and irreparable damage," said Bo Vesterdorf, president of the Court of First Instance in Luxembourg.

Vesterdorf added in the 91-page ruling that Microsoft's request to delay the commission measures pending an appeal was "dismissed in its entirety."

The immediate impact of the ruling is uncertain. But it may well open the door to continuing legal challenges, in Europe and elsewhere, to Microsoft's business strategy of adding more and more products and features to its Windows operating system. More than 90 percent of the personal computers in the world run Windows.

Under the ruling, Microsoft must sell to computer makers a version of Windows without its Media Player software for playing music, movies and video clips sent over the Internet on personal computers.

The commission ruled in March that Microsoft bundled Media Player with Windows in order to damage audiovisual rivals such as Real Player and Apple Computer Inc.'s QuickTime. Personal computer makers can offer those alternatives, but until now they could not sell Windows without Microsoft's Media Player. That choice can now be made by PC makers in the European market; a version of Windows without its Media Player could be available in the European market within two months.

Whether PC makers will widely offer the stripped-down Windows is unclear. Microsoft has said it will offer the two versions of Windows at the same price.

Large settlements

Microsoft has made several settlements with rival companies, which make the $665 million fine levied by the commission pale in comparison. Microsoft paid the fine amount into an escrow account after the commission ruled against it in the spring.

The Computer and Communications Industry Association, Novell Inc., RealNetworks Inc., Sun Microsystems Inc. and Time Warner Inc. all accused Microsoft of using its dominant position in the operating system market to give it an illegal advantage in other markets. All but one of those, RealNetworks, settled with Microsoft this year.

It was Microsoft's settlement in April with Sun, a longtime adversary, that was the most indicative signal of its new approach to regulatory affairs. In a broad agreement between the two companies, Microsoft agreed to pay Sun nearly $2 billion, including $700 million to resolve antitrust issues.

Microsoft stock closed down 10 cents to $26.97 on the Nasdaq stock market yesterday.

Goldman Sachs, which does some work for Microsoft, said in a statement that it believed the decision itself was not harmful to Microsoft's business, but that it set a precedent under which the commission could argue that "future enhancements to the operating system such as search or anti-virus must similarly be unbundled." It was the precedent that was `'really at issue," the statement said.

Although the ruling came down squarely against Microsoft, the company, based in Redmond, Wash., can appeal to the European Court of Justice.

`Full appeal'

A statement from Microsoft put a positive face on the order, saying, "We are encouraged by a number of aspects of the court's discussion of the merits of the case."

It added: "While the court did not find immediate irreparable harm from the commission's proposed remedies, the court recognized that some of our arguments on the merits of the case are well-founded and may ultimately carry the day when the substantive issues are resolved in the full appeal."

The European director of public policy for the Computing Technology Industry Association, Hugo Luders, called the ruling "discouraging news" for the computer industry in Europe and consumers around the world. Luders, in a statement issued in Brussels, Belgium, said information technology companies "will be less willing to innovate, fearing that their intellectual property will be appropriated by government intrusion into the marketplace."

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