Update: Microsoft loses appeal against EU antitrust ruling

And it must pay the bulk of the European Commission's legal bills

Microsoft Corp. failed today in its bid to overturn a European Commission antitrust ruling against it, when the European Union's second-highest court dismissed the company's appeal and ordered it to pay the bulk of the commission's legal expenses.

The long-awaited decision by the Court of First Instance in Luxembourg supports the EC, the European Union's top antitrust regulator, on the two essential aspects of the case.

The commission was right to take action to prevent Microsoft from bundling in Windows Media Player into the Windows operating system, the court concluded. It was also right to force Microsoft to reveal interoperability information to makers of server operating systems.

An order for Microsoft to pay a fine of $600 million also still stands.

The only fault the court found with the commission was the powers it granted to an independent monitoring trustee to oversee Microsoft's implementation of its 2004 antitrust ruling.

"We'll study this decision carefully and if there are additional steps that we need to take to comply with it, we will take them," said Brad Smith, Microsoft's top lawyer:

EC President Jose Manuel Barroso welcomed the ruling. "This judgment confirms the objectivity and the credibility of the commission's competition policy. This policy protects the European consumer interest and ensures fair competition between businesses," he said.

The EC's allies hailed the decision.

"This is a great day for European businesses and consumers," said Thomas Vinje, who heads the legal team for the European Committee for Interoperable Systems (ECIS). "This decision opens the prospect for dynamic competition in the software industry. No more user lock-in, no more monopoly pricing," he said.

Georg Greve, president of the Free Software Foundation Europe (FSFE), said, "Through tactics that successfully derailed antitrust processes in other parts of the world, including the United States, Microsoft has managed to postpone this day for almost a decade. But thanks to the perseverance and excellent work of the European Commission, these tactics have now failed in Europe." Carlo Piana, FSFE's legal counsel, described the court ruling as "a milestone for competition. It puts an end to the notion that deliberate obfuscation of standards and designed lock-in is an acceptable business model and forces Microsoft back into competing on the grounds of software technology." Software developer Jeremy Allison, co-author of the Samba open-source print and file server, also approved of the ruling. "This is a very important day for the Samba team," he said. "We hope to finally compete on a level playing field, without being denied access to interoperability information. Samba would then be able to offer consumers real choice, with the benefits of software freedom."

However, an industry group on Microsoft's side said the ruling was bad for small and midsize businesses.

"The commission just got a treat from the court, but [small and midsize businessess] and consumers will actually foot the bill. Microsoft did not win today, but it is European software developers and consumers that really lost," said Jonathan Zuck, president of the Association for Competitive Technology.

It will take several hours and days to get a true assessment of the implications, he said, suggesting that the detail of the ruling might yet contain a "silver lining" for businesses.

"Following today's judgment, consumers and developers are unlikely to see the technologies they are demanding -- like voice recognition and multitouch interfaces -- integrated into Windows," Zuck said.

The implications of the historic court ruling are being assessed by lawyers on both sides of the case, but some things are already clear.

On the bundling question, the court stood by the commission's order to Microsoft to develop a version of Windows with Media Player stripped out.

"The court makes clear that Microsoft retains the right to continue to offer the version of Windows bundled with Windows Media Player and that it is required only to make it possible for consumers to obtain the operating system without that media player, a measure which does not mean any change in Microsoft's current technical practice other than the development of that version of Windows," the court said in a statement summarizing the lengthy appeal ruling.

Meanwhile, there was little room for interpretation of the court's decision concerning the interoperability side of the case. The court agreed with the EC's finding that "Microsoft's refusal [to share interoperability information] limits technical development to the prejudice of consumers."

Regarding the trustee, the court said the commission was out of order in granting it an automatic right of access to Microsoft documents, premises and employees. It also said the EC was wrong to make Microsoft pay all of the trustee's expenses.

Microsoft was ordered to pay 80% of the commission's expenses, as well as those incurred by the EC's allies in the case, including ECIS, as well as 80% of its own expenses. The commission must pick up the tab for the remaining 20%. Microsoft's allies, including the Association for Competitive Technologies, were ordered to foot the bill for their own legal expenses.

Copyright © 2007 IDG Communications, Inc.

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