Microsoft suffered a stunning defeat on Monday when a European Union court backed a European Commission ruling that the U.S. software giant illegally abused its market power to crush competitors.
The European Union's second-highest court dismissed the company's appeal on all substantive points of the 2004 antitrust ruling.
Microsoft shares traded in Frankfurt were down 2 percent at 20.40 euros in trading on Monday, underperforming the European technology index, which was down 0.4 percent. About 15,000 shares had changed hands, roughly the 30-day average daily trading volume.
The court said Microsoft, the world's largest software maker, was unjustified in tying new applications to its Windows operating system in a way that harmed consumer choice.
The verdict, which may be appealed only on points of law and not of fact, could force Microsoft to change its business practices.
It also gives EU Competition Commission Neelie Kroes a green light to pursue other antitrust cases and complaints involving Microsoft, Intel, Qualcomm and Rambus, and to issue draft new antitrust guidelines that were put on ice pending the ruling.
"Microsoft must now comply fully with its legal obligations to desist from engaging in anticompetitive conduct. The Commission will do its utmost to ensure that Microsoft complies swiftly," Kroes said in a statement.
The court upheld a record $689 million fine imposed on the company as part of the original decision.
More important, it 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, used by 95 percent of computers.
It annulled only the EU regulator's imposition of a Microsoft-funded independent trustee to monitor compliance.
"The Court of First Instance essentially upholds the Commission's decision finding that Microsoft abused its dominant position," a court statement said.
Downbeat
Microsoft General Counsel Brad Smith was downbeat in speaking to reporters at the courtroom, promising the company would obey the ruling in full. He said there was no decision yet on whether to appeal to the European Court of Justice.
"It is clearly very important to us as a company that we comply with our obligations under European law," Smith said. "We will study this decision carefully and if there additional steps we need to take in order to comply with it, we will take them."
Microsoft has used every recourse open to it in every case brought against it by governments and regulators.
The company has weathered a series of defeats in antitrust cases in the last decade and sees legal setbacks as almost part of its business model and a price for its near-monopoly.
Microsoft has already moved to new battlegrounds such as seeking acceptance of its technical standards across the industry, while continuing to bundle new features into its new Vista desktop software.
Rivals welcomed the EU court decision as a signal that authorities do not intend to allow Microsoft to pursue anticompetitive practices with impunity.
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.
No objective justification
"Microsoft has not demonstrated the existence of objective justification for the bundling, and ... the remedy imposed by the Commission is proportionate," the court statement said.
A spokesman for Microsoft opponents, the European Committee for Interoperable Systems, said the ruling confirmed Microsoft had abused its near-monopoly in computer operating systems and set ground rules for the company's behavior.
"This decision establishes principles for the behavior of this company. Microsoft should now finally comply with the Commission decision on operability," lawyer Thomas Vinje said.
Another winner was the Free Software Foundation, which makes free, open software for work group 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 costs of FSF and those of the software giant's business rivals, which had supported the Commission's case. By contrast, Microsoft's allies were forced to bear their own costs.
The Commission must pay 20 percent of its own costs and 20 percent of Microsoft's while Microsoft must pay 80 percent of its own costs and 80 percent of the Commission's.
The ruling was made by the 13-judge Grand Chamber of the Court of First Instance in Luxembourg, the first time such a matter has been broadcast on live television.
Since the original decision, the Commission has fined Microsoft a further $381.4 million, saying it had failed to comply with the interoperability sanction. The EU regulator is considering a further fine for noncompliance. The Commission also says it'll seek to reduce Microsoft's market share in Europe.
"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," Kroes told a news conference.
The company's Windows operating system runs on about 95 percent of the world's personal computers.
