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Microsoft Loses Bid to Suspend EU Antitrust Order (Update5)  ListenListen

Dec. 22 (Bloomberg) -- Microsoft Corp. 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.

The world's largest software maker's request to delay the commission's measures pending an appeal was ``dismissed in its entirety,'' Bo Vesterdorf, president of the European Court of First Instance in Luxembourg, said today.

At issue is how far Redmond, Washington-based Microsoft can go in adding features to Windows, which powers more than 90 percent of the world's personal computers. The EU says the order will prevent the company from quashing competing products such as the free Linux operating system and RealNetworks Inc.'s media player. Europe accounts for about a third of Microsoft's sales, which were $36.8 billion in the year ended June 30.

``This is a very serious setback for Microsoft,'' Nicholas Economides, an economics professor at New York University, said in a telephone interview. ``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.''

Microsoft General Counsel Brad Smith said on a conference call that the company will comply immediately with the order. A version of Windows that meets EU demands will be available through software resellers by February, he said in an interview.

Microsoft shares trading in Germany fell 22 cents to $26.85 as of 11:39 a.m. in Frankfurt. The shares rose 12 cents to $27.07 yesterday in Nasdaq Stock Market composite trading.

`Encouraged'

Microsoft said the judge's ruling today may help it in its appeal of former Competition Commissioner Mario Monti's decision.

``We are encouraged by a number of aspects of the Court's discussion of the merits of the case,'' Microsoft said in an e- mailed statement. ``While the Court did not find immediate irreparable harm from the commission's proposed remedies, the court recognized that some of our arguments on the merits of the case are well-founded and may ultimately carry the day when the substantive issues are resolved in the full appeal.''

Monti also imposed a record 497 million-euro ($666 million) fine as part of his decision on the case, which began with a complaint by Sun Microsystems Inc. in December 1998. In July, Microsoft said it had paid the fine into a blocked escrow account managed by the commission's budget department.

Business Practices

The ruling won't have an immediate effect on Microsoft's business because most computer makers will buy the version of Windows with the media player, said New York University's Economides.

``It's a business practices issue rather than a money-losing issue,'' he said.

In the 91-page judgment, the court president said Microsoft's assertion that it 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 ``cannot be regarded as serious, owing to the financial power of Microsoft,'' Vesterdorf said.

Horacio Gutierrez, Microsoft's top lawyer in Europe, argued in June, when the company appealed the commission's decision, that the antitrust ruling forces the company to give up trade secrets and intellectual property.

Settlement Talks?

A Microsoft spokesman yesterday reiterated that the company would prefer a settlement rather than a lengthy appeals process. The commission today said the ruling backed its case.

``The commission is confident regarding the sound legal basis of the March 24 decision,'' commission spokesman Jonathan Todd said at a press conference in Brussels. ``The point of the remedies is to improve consumer choice and improve the level of competition in the markets.''

Microsoft said it will comply with the measures while it continues to the commission's March antitrust ruling. The company said it hasn't decided whether to challenge today's decision to the European Court of Justice, Europe's highest court, which can only be done on a point of law.

``We're very focused on complying with our obligations at least until the time our appeal can be heard by the court,'' Tom Burt, corporate vice president and deputy counsel at Microsoft, said in an interview. ``We're probably talking a year to two years before the court hears our appeal on the merits,'' Burt said.

European regulators were forced in August 2003 to drop an order against IMS Health Inc., the world's biggest seller of drug- market data, in another case involving intellectual property rights. Vesterdorf's court had suspended the order for IMS to license its data-collecting methods to competitors in October 2001 -- three months after it was issued.

In both the IMS and Microsoft cases, regulators are trying to break down barriers in markets dominated by a single company through trademarks and copyright.

``The court's refusal to allow Microsoft to continue its illegal conduct is a significant victory for the commission, consumers and ultimately RealNetworks,'' Dave Stewart, deputy general counsel for RealNetworks, said in an interview. ``Microsoft's bundling is a central part of their business model.''

The case is T-201/04, Microsoft Corp. v Commission of the European Communities.


To contact the reporter on this story:
Robert McLeod in Brussels on  rmcleod@bloomberg.net
Matthew Newman in Luxembourg at  Mnewman6@bloomberg.net.

To contact the editor responsible for this story:
Eamonn Sullivan at  esullivan@bloomberg.net.
Last Updated: December 22, 2004 07:52 EST

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