European Court Denies Microsoft’s Bid To Delay Sanctions

Microsoft today lost its bid to put European antitrust regulators’ sanctions against it on hold — including requirements that it share its source code and make different versions of Windows available — while it fights what is expected to be another epic courtroom battle over whether it used its market power to squelch competition.

Bo Versterdorf, the president of the European Court of First Instance, dismissed Microsoft’s appeal “in its entirety,” saying the sanctions levied by the European Commission in March of this year, which also include a record US$665 million fine, should go into effect immediately.

“Microsoft has not demonstrated specifically that it might suffer serious and irreparable damage,” Vesterdorf said as he released the 91-page ruling. Observers said the length and detail of the decision was likely to forestall any attempts to appeal it.

Settlement Negotiations

Speculation was that the ruling would create another window in which the two sides could reopen settlement talks, something Microsoft said in a statement it was willing to do. “As we have always stated, we believe that there are better ways to address such complex and technical issues, with a minimum of harm to European consumers and the European technology sector,” Microsoft said.

However, the company said it was also ready to comply with the sanctions starting immediately. In fact, the company has already paid the fine, which was the largest ever levied by the European Commission for antitrust behavior.

In a conference call to discuss the ruling, Microsoft general counsel Brad Smith said a version of Windows that doesn’t contain the Media Player software will be available within a month and that a Web site will be made available with instructions for how rivals in the server software space can license the communications protocols the ruling said it must release.

Microsoft found some solace in the ruling, which said in part that Microsoft’s case might have some merits. “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,” Smith said.

Impacts Debated

There are numerous theories about the eventual impact of the ruling and the sanctions themselves. While some say the decision might embolden more companies in Europe to file private antitrust suits against Microsoft — a similar trend emerged in the U.S. when the Justice Department charged Microsoft with antitrust behavior — others said the actual damage from compliance with the penalties will be small.

For instance, the Windows platform without Media Player will be made available to PC makers — and likely to consumers — for the same price as the fully loaded version, making it unlikely that consumers will choose it in large numbers.

That’s important because a centerpiece of Microsoft’s strategy going forward is to more tightly integrate all the components used on a desktop, especially the media software that does everything from help users download and play music to displaying video clips. The Media Player is the engine that Microsoft sees driving the computer-as-entertainment device revolution it hopes to be a big part of it, Yankee Group analyst Laura DiDio said.

“The real concern for Microsoft would be where it has to not only break the components apart but reduce their compatibility and functionality in any way,” DiDio added.

Real Winner?

Ironically, many analysts said it was unlikely that the ruling would help Real Networks gain market share in Europe. It was Real’s complaint that it was being elbowed out of the media player market that sparked the European Commission inquiry, culminating with the ruling and penalties handed down in March.

Following settlement agreements earlier this year with Novell and the Computer & Communications Industry Association, Real Networks was the only remaining major plaintiff in the European case.

Jupiter Research analyst David Schatsky said Microsoft can probably just as effectively create a system of software that works best together — and grabs the vast majority of market share — even if not bundled together.

“If Microsoft’s goal is to establish new components as standards and to dominate not only the operating system market but also the markets for all adjacent functionality, it’s unclear that simply offering a component would be much less effective for them than bundling that component,” Schatsky said. “With Microsoft’s market power, they’ll probably amount to almost the same thing.”

Conciliatory Note

Though the company itself sounded a somewhat conciliatory note, some of Microsoft’s supporters said the ruling would have a chilling effect on technology companies and reduce innovation.

“The ruling sends a message to the industry that intense competition will be penalized, not rewarded,” said Hugo Luders, director of public policy for the Computing Technology Industry Association. “There is no evidence to suggest that the Commission’s order will result in benefits for consumers or enhance competition in the media player market in any way. Instead, significant costs and confusion will be imposed on the market and on consumers as a direct result of this ruling.”

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