- The Washington Times - Wednesday, March 24, 2004

BRUSSELS - The European Union slapped Microsoft Corp. with a record $613 million fine yesterday for abusively wielding its Windows software monopoly and ordered sanctions that go well beyond the U.S. antitrust settlement — setting up what could be another lengthy court battle.

Microsoft, the world’s largest software maker, called the 15-nation European Union’s decision “unwarranted and ill-considered” and said it would ask a judge to suspend the order pending appeal.

The European antitrust office said it sought to alter Microsoft’s behavior because its five-year investigation found that the software giant tried to squeeze competitors out of Windows-related markets and “the illegal behavior is still ongoing.”

It gave the company 90 days to offer European computer manufacturers a version of the Windows operating system stripped of the company’s digital media player, the software for viewing video and listening to music that is expected to become pivotal in the industry as multimedia content becomes more pervasive.

The European Union also gave Microsoft 120 days to release “complete and accurate” information to rivals in the office server market so their products can work more smoothly with desktop computers running Windows.

“Microsoft has abused its virtual monopoly power over the PC desktop in Europe,” EU antitrust chief Mario Monti said. “We are simply ensuring that anyone who develops new software has a fair opportunity to compete in the marketplace.”

Mr. Monti said he limited the order to Europe in deference to regulators in the United States and other countries, but that doing so “will not unduly undermine the effectiveness,” given the size of the European market. Microsoft, which had $32 billion in revenue last year, does about 20 percent of its business in Europe, the Middle East and Africa.

U.S. lawmakers rallied to Microsoft Corp.’s defense and called on the Bush administration to protest the sanctions.

Senate Majority Leader Bill Frist and other lawmakers criticized the European Commission’s ruling as preempting the settlement of the U.S. government’s antitrust case. That accord was reached after a U.S. appeals court ruled in 2001 that Microsoft illegally protected its monopoly for Windows, which powers 95 percent of the world’s personal computers.

“I now fear that the U.S. and the EU are heading toward a new trade war and that the commission’s ruling against Microsoft is the first shot,” Mr. Frist, Tennessee Republican, said in a statement. “If the U.S. government does not make a clear and strong statement objecting to the EU actions, we will lose influence and credibility for years to come to the detriment of the U.S. economy and U.S. consumers.”

Microsoft’s general counsel, Brad Smith, said he would ask the presiding judge at the European Court of First Instance to stay the order pending appeal — a process that could take years.

“The European Commission has the first word, but the European courts have the final word,” he said.

Microsoft Chairman Bill Gates, announcing a new speech server product in San Francisco yesterday, did not mention the case.

The fine would be suspended automatically upon appeal, but antitrust experts were divided on the company’s chances for winning emergency relief from the rest of the order.

Mr. Monti called the ruling “proportionate” and “balanced,” adding that “dominant companies have a special responsibility to ensure that the way they do business doesn’t prevent competition.”

He said the decision should set a “framework” for resolving similar complaints pending against Microsoft’s latest operating system, Windows XP.

“Maybe fewer cases will materialize because of the clarity which we hope to bring forward with this decision,” he said.

Mr. Smith called the order to produce a version of Windows without media software an “unwarranted and ill-considered” violation of intellectual property rights under World Trade Organization rules.

Doing so would be difficult and make other features and even some Web sites work less effectively, he said.

The company made similar claims in the U.S. case, which surrounded Microsoft’s inclusion of its Internet Explorer Web browser in Windows.

Microsoft was also found guilty of monopolistic behavior in the U.S. case, but the European order strikes deeper, at the heart of Microsoft’s business strategy — regularly adding new features to Windows to help sell upgrades.

The Redmond, Wash., company argues that such “bundling” benefits consumers. Rivals call it unfair competition, given that Windows runs more than 90 percent of personal computers worldwide.

The European Union said it was concerned that a stranglehold on media players could let Microsoft dictate future standards for how digital music and video files are encoded, distributed and played.

Under the EU order, Microsoft can continue selling a version of Windows with its media player software installed, but must not make the stripped-down version less attractive or a poorer performer.

The ruling could boost other makers of media software, which also are based in the United States and are led by RealNetworks Inc. and Apple Computer Inc.

Bob Kimball, RealNetworks’ general counsel, said the EU decision “confirms the merit” of his company’s private antitrust lawsuit against Microsoft.

The European case also involved low-end servers that tie desktop computers together in offices. Sun Microsystems Inc. complained to the European Union in 1998 that Microsoft refused to provide details needed for Sun programs to “talk” to Windows computers as efficiently as Microsoft’s own server software.

Microsoft’s shares rose 26 cents to close at $24.41 on the Nasdaq Stock Market.

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