Court blow to Microsoft as it loses appeal against record £343m fine

MICROSOFT was last night considering whether to mount a last-ditch appeal after losing the latest round in its marathon legal battle with the European Commission.

The European Court of First Instance in Luxembourg - the second-highest court in the European Union - threw out Microsoft's attempt to overturn a record £343 million fine for abusing its dominant market position in computer operating systems and software.

The firm has two months to decide whether to take the case to the European Court of Justice.

Brad Smith, Microsoft's senior vice president, said the outcome was "disappointing", but the company was "100 per cent committed" to complying with EU requirements to open up access to the computer software market to its rivals.

Microsoft's Windows operating system is used in about 90 per cent of personal computers and the company has faced years of pressure from Brussels to end a virtual monopoly by making it easier to integrate with non-Microsoft software.

That means selling Windows without the obligatory Microsoft Media Player software, and providing rivals with crucial communications codes to enable them to market compatible software to Media Player.

In 2004, the EC handed down its biggest single fine, accusing Microsoft of failing to comply with that, thereby breaching EU rules outlawing abuses of a dominant commercial position.

Yesterday's ruling backed the commission and said bundling Microsoft operating systems and software together put fair competition at risk. It also said the failure to offer enough Microsoft technical data to rivals to help them compete was also a block on fair competition.

Neelie Kroes, the competition commissioner, said the result backed more consumer choice and set an important precedent, obliging dominant companies to allow competition, particularly in high-tech industries.

Jose Manuel Barroso, the EC president said: "This judgment confirms the objectivity and credibility of the commission's competition policy, which protects European consumer interest and ensures fair competition between business in the internal market."

The Software and Information Industry Association said the ruling was "a victory for innovators and consumers everywhere", and it challenged Microsoft to open up its sales monopoly and provide the technical data for rivals to offer Windows-compatible software.

The Centre for Economic Performance said: "First, by illegally bundling Windows Media Player into its ubiquitous Windows operating system, Microsoft has driven rival media player firms out of the market.

"Second, by refusing to provide critical technical information about Windows, it has severely disadvantaged rival manufacturers who needed this information to make their server-operating systems run smoothly with Windows-dominated personal computer operating systems."

But the Computing Technology Industry Association said the judgment was "a significant blow to free enterprise in Europe". Lars Liebeler, its anti-trust counsel, said: "This decision encourages competitors to bring legal action against each other rather than compete aggressively in the marketplace.

"The decision will drive away innovative firms that succeed in the market by threatening them with confiscation of their intellectual property."

Microsoft's Brad Smith pointed out that, in the monopoly stakes, IBM had "99 per cent to 100 per cent" of the European market in mainframe computers, Apple's iPod had some 70 per cent of its market sector, and Google dominated its sector, with 80-90 per cent of the search-engine market.

But he said Microsoft was prepared to "take new steps to broaden inter-operability partnerships" and co-operate with the commission in trying to adjust the prices Microsoft charged for access to the communications "protocols" required by other firms to produce software fully compatible with the Windows operating system.

He said Windows would still be sold as a package with Media Player software - but customers would also be able to buy Windows separately if they wished.

Asked about a possible final appeal, he said the company was still studying the judgment and had up to two months to decide what to do next.

CONSUMERS STILL LOSING OUT, SAYS EU

NEELIE Kroes, the EU competition commissioner, described yesterday's court victory over Microsoft as "bittersweet" because software customers still have no more choice than they did three years ago. She said: "The court has confirmed the (European) Commission's view that consumers are suffering at the hands of Microsoft.

"It has been clearly said in this ruling that Microsoft must comply ... there's no escape anymore."

Ms Kroes insisted that the court ruling did not confirm "scare stories" that the decision would stop companies investing in innovative products.

She added: "Let me be clear about this - there is one company that will have to change its illegal behaviour as a result of this ruling: Microsoft."