Microsoft Loses Antitrust Appeal

The European commission today hailed a key ruling by the court of first instance, Europe's second-highest court, that upheld its March 2004 decision to fine Microsoft a record €497m (£345m) for abusing its dominance of the software market and force it to share critical information with rival companies.

After securing a comprehensive victory in its nine-year battle with Microsoft, Brussels is now free to pursue other high-profile cases against hi-tech companies such as Intel and has emerged as the world's leading antitrust authority. The company founded by Bill Gates will have to alter its business model as it faces stiff competition on new markets from the likes of Google and Apple.

The court, headed by retiring president Bo Vesterdorf and based in Luxembourg, delivered its long-awaited judgment in little more than four minutes before a packed grande salle, including Brad Smith, Microsoft's general counsel and architect of its fruitless appeal.

The company may appeal - only on points of law - to the European court of justice, Europe's highest court, but sources said before the hearing: "The company's done fighting. We have to move on; the market has moved on and there are new competitive pressures out there." Mr Smith said he and his lawyers would read the 248-page judgment before deciding.

Microsoft, fined an extra €280.5m in July 2006 for failing to comply with the remedies imposed by Mario Monti, the then-EU competition commissioner, secured only a minor victory when the CFI ruled that Brussels had been wrong to force it to accept an independent trustee - Prof Neil Barrett of Imperial College - to monitor its compliance though it will now have to propose its own trustee - and pay for him or her. The court told it to pay 80% of its own costs and of those of the commission, with Brussels meeting the rest.

On the critical issue of interoperability, the core of the commission's case, the court ruled that the commission has not tried to order Microsoft to disclose the source code behind its Windows operating system to its rivals - a strong element of the case brought by the world's biggest software group.

"The court also considers that the aim pursued by the commission is to remove the obstacle for Microsoft's competitors represented by the insufficient degree of interoperability with the Windows domain architecture in order to enable those competitors to offer work group servers operating systems differing from Microsoft's on important parameters.

"In that connection, 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 CFI ruled.

It added: "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 inter operate with Windows domain architecture on an equal footing with Windows ... 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."

It threw out the company's key argument that the commission was damaging its intellectual property rights (IPRs) and patents and damaging its ability to innovate on behalf of customers. Its dominance of the work group server market has grown from 40% to 80% since the case began in 1998.

Upholding Mr Monti's second remedy, the CFI ruled that the commission was right to force the company to sell a version of Windows without Media Player, its video and audio streaming software, already embedded - or tied. The commission and most lawyers thought Brussels might lose this part of the appeal.

Instead, the CFI comprehensively ruled in favor of the commission, saying that bundling Media Player appreciably altered the balance of competition in favor of Microsoft and to the detriment of other operators. "The court considers that that practice enabled Microsoft to obtain an unparalleled advantage with respect to distribution of its product and to ensure the ubiquity of Media Player on client PCs throughout the world, thus providing a disincentive for users to use third-party media players and for OEMs (PC manufacturers) to pre-install such media players on client PCs."