Microsoft suffered a decisive antitrust defeat on Monday when a European
Union court upheld a landmark ruling that the world's largest software maker
had abused its dominant market position to crush rivals.
The second-highest E.U. court dismissed the company's appeal on all key
points against the 2004 European Commission ruling and upheld a record 497
million euro ($689.9 million) fine.
A jubilant E.U. Competition Commissioner Neelie Kroes said the ruling should
lead to a "significant drop" in Microsoft's 95 percent market share.
Microsoft's top lawyer said it would affect the way the company markets its
products in future.
Shares in the U.S.
software giant were down 1.14 percent in morning New York trade after the Luxembourg-based
court's ruling, suggesting investors were not overly concerned about the
implications for Microsoft's successful business model.
Kim Caughey, senior analyst at Fort Pitt Capital Group, which oversees more
than $1 billion including Microsoft shares, for clients, said: "Although
this is probably a setback for Microsoft's strategy going forward, it's not
that big a deal for investors. The fines have already been accounted for, so
none of the stuff announced today had bottom-line impact."
Competition experts said the ruling had serious long-term implications for E.U.
regulation of the hi-tech sector.
"It's clearly a major defeat for Microsoft. There is no doubt it will
spur the Commission on to regulate Microsoft much more significantly,"
said U.K.
competition lawyer Chris Bright.
It also gives Ms. Kroes a green light to pursue other antitrust cases and
complaints involving Intel, Qualcomm and Rambus, and to issue draft antitrust
guidelines that were put on ice pending the ruling.
The court said Microsoft was unjustified in tying new applications to its
Windows operating system in a way that squeezed out rivals and harmed consumer
choice.
The E.U.'s Ms. Kroes told a news conference: "The court has confirmed
that Microsoft can no longer prevent the market from functioning properly and
consumers are entitled to benefit from choice and more innovative
products."
An appeal against the ruling is possible only on points of law and not of
fact.
Asked how the Commission would assess progress in the Microsoft case, Ms. Kroes
said: "A market level of much less than 95 percent would be a way of
measuring success ... You can't draw a line and say exactly 50 (percent) is
correct, but a significant drop in market share is what we would like to
see."
Her spokesman later clarified that a fall in market share would be a logical
consequence of fairer competition. A lawyer for Microsoft's rivals in the case
said it was the abuse of the company's position that was the problem, not its
market share.
"If Microsoft, competing on the merits, achieves more dominance, then
so be it," Thomas Vinje, lawyer for the European Committee for
Interoperable Systems (ECIS), told journalists.
The court endorsed Commission sanctions against Microsoft's tying together
of software and refusal to give rival makers of office servers information to
enable their products to work smoothly with Windows.
The Commission ordered the company to sell a version of Windows without the
Windows Media Player application used for video and music, which few have
bought, and to share information allowing rivals' office servers to work
smoothly with Windows.
The court annulled only the EU regulator's imposition of a Microsoft-funded
trustee to monitor compliance.
Microsoft General Counsel Brad Smith called the ruling unprecedented and
disappointing, saying it gave the Commission "quite broad power and quite
broad discretion."
He promised the company would comply fully and said it had not decided
whether to appeal to the European Court of Justice.
Microsoft, which had argued that it was entitled to protect its patents and
copyright, has used every legal recourse in every case brought against it by
governments and regulators.
The firm has weathered a series of defeats in high profile antitrust cases
over a decade.
Ms. Kroes declined to discuss the implications of the ruling for a pending
complaint from ECIS against the new Microsoft Vista on grounds that this
operating system too had problems with interoperability.
ECIS and other rivals welcomed the court verdict as setting the ground rules
for the company's future behavior and as a signal that E.U. authorities will
not allow Microsoft to pursue anti-competitive practices with impunity.
Another winner was the Free Software Foundation, which makes free, open software
for workgroup servers. "Microsoft can consider itself above the law no
longer," said Georg Greve, president of the FSF Europe.
The judges ordered Microsoft to pay the lion's share of the costs of the
Commission and of business rivals.
Since the original decision, the Commission has fined Microsoft a further
280.5 million euros, saying it had failed to comply with the interoperability
sanction. The EU regulator is considering a further fine for non-compliance.