Microsoft Loses E.U. Antitrust Challenge
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Microsoft Corporation must sell a version of Windows without a music and video player and license proprietary information to competitors after a European Union court rejected the company’s bid to suspend an antitrust order. Yesterday’s decision may restrict Microsoft’s ability to add features to Windows and hurt its efforts to fend off corporate-network software competitors in Europe, which accounts for about a third of the company’s sales. The E.U. said the order will prevent Microsoft from quashing rival products such as the free Linux operating system and RealNetworks’ media player.
“This is a very serious setback for Microsoft,” said an economics professor at New York University, Nicholas Economides. “It’s the first time that a court has told them what they can and can’t include in Windows. It’s like telling General Motors what features it should have in their cars.”
The president of the European Court of First Instance in Luxembourg, Bo Vesterdorf, dismissed a request by Microsoft to delay the European Commission’s measures pending an appeal of a March ruling that Microsoft violated antitrust law. He heard arguments September 30 and October 1 and announced his decision yesterday in an emailed statement.
Shares of Redmond, Wash.-based Microsoft fell 10 cents to $26.97 in Nasdaq Stock Market composite trading. They have dropped 1.5% this year.
Microsoft, the world’s biggest software maker, will comply immediately with the order, said the general counsel, Brad Smith. Windows powers almost 95% of the world’s personal computers, and the company will make a version without a media player available to PC makers in January and through software resellers in February, he said.
“This is by far a more serious series of remedies than they have faced before, so maybe these will be the ones they will finally stub their toe on,” said Ernest Gellhorn, who teaches antitrust law at George Mason University’s law school in Arlington, Va.
Former Competition Commissioner Mario Monti imposed a record $666 million fine as part of his March 24 decision on the case, which began with a complaint by Sun Microsystems in December 1998. Microsoft paid the fine into a blocked escrow account managed by the commission’s budget department.
Microsoft hasn’t decided whether to challenge yesterday’s decision to the European Court of Justice, the E.U.’s highest court. Such an appeal can only be done on a point of law.
A decision from the Court of First Instance on Microsoft’s appeal of a ruling that it violated European Union antitrust law probably won’t come until 2006, Mr. Smith said. The E.U.’s antitrust body said yesterday’s ruling backed up its case and nothing in it will force renewed settlement negotiations.
While yesterday’s ruling hurts Microsoft’s ability to bargain for a settlement it would consider reasonable, the company said it remains interested in settling the case.
In the 91-page judgment on the question of whether to delay the measures, Mr. Vesterdorf said the assertion that Microsoft would suffer tens of millions of dollars of damages if it is forced to release information on how its products communicate with servers “is not supported by any evidence.”
The financial damage from yesterday’s decision “cannot be regarded as serious, owing to the financial power of Microsoft,” he said.
Horacio Gutierrez, Microsoft’s top lawyer in Europe, argued in June that the antitrust ruling forces the company to give up trade secrets and intellectual property. The damage can’t be easily reversed if the antitrust ruling is later overturned.
Microsoft said it’s optimistic it will win on appeal.
Yesterday’s ruling may limit Microsoft’s ability to add new features into Windows, a tactic it has used to thwart competitors such as Netscape Communications and RealNetworks.
The company is “already avoiding bundling more products into Windows,” such as a planned anti-virus program to be sold separately, said an analyst at UBS Securities in New York, Heather Bellini. Instead the company is combining more products with its Office word processing and e-mail software, she said.
The European case against Microsoft “is not just about media player, it is about their strategy to bundle and continue to bundle” new features into Windows to squelch competition, said Andrew Gavil, who teaches antitrust law at Howard University in Washington.
If the ruling is upheld, competitors could gain protections from Microsoft’s tactics.
“The court’s refusal to allow Microsoft to continue its illegal conduct is a significant victory for the commission, consumers, and ultimately Real-Networks,” the deputy general counsel for RealNetworks, Dave Stewart, said in an interview.