Microsoft was left reeling yesterday after a bruising defeat at the hands of European judges who upheld a record fine on the software giant for abusing its dominant market position to crush competition.

In a landmark ruling by the European Court of First Instance, regulators won a comprehensive victory in a nine-year battle with the American company to force it to share its secret software codes and sell its products separately rather than in packages.

Microsoft executives said that they would comply with the European Commission’s demands to open up their products to greater competition, but vowed to study the 248-page judgment before deciding whether to appeal.

Anti-trust lawyers were divided last night over the wider implications but agreed Microsoft would have to make dramatic changes. Microsoft faces further complaints about the exclusivity of its Office and Outlook software, both of which it may now have to make much more open to competition.

Expert View

There is barely concealed delight in the European Commission over Microsoft. Delight and huge relief

David Charter, Europe Correspondent

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The judges in Luxembourg supported a fine of €497 million (£345 million) and confirmed the Commision’s ruling that by bundling up Windows Media Player with its Windows operating system, Microsoft had damaged rival media players’ ability to compete. They also upheld an order by the Commission in 2004 that Microsoft supply technical information to other companies, such as Sun Microsystems, so that they can make their servers compatible with Windows-based software.

Microsoft had argued that owners of Windows-based PCs were not compelled to use its media player and that by sharing protocols, which were protected by patents, it was being forced to give away valuable intellectual property at little or no cost. “The court observes that it is beyond dispute that, in consequence of the tying, consumers are unable to acquire the Windows operating system without simultaneously acquiring Windows Media Player,” the judgment said. “In that regard, the court considers that neither the fact that Microsoft does not charge a separate price for Windows Media Player nor the fact that consumers are not obliged to use that media player is irrelevant.”

Neelie Kroes, the Competition Commissioner, said: “Microsoft cannot abuse its Windows monopoly to exclude competitors in other markets.” She said that the verdict should see Microsoft’s 95 per cent share of the PC software market reduce, but would not name a target figure.

Microsoft has argued that the ruling will stifle its creativity and that of other successful companies by forcing them to hand innovative secrets straight to rivals. Brad Smith, Microsoft’s general counsel, vowed to comply with the demands.

Microsoft lost on all major points, winning only a minor victory on the technical issue of the independent trustee appointed to oversee the company’s implementation of the ruling.

Christos Genakos, a research associate at the Centre for Economic Performance, said: “This ruling has reestablished the credibility of EU’s competition policy and proves decisively that there is scope for intervention even in fast-evolving industries.”

Maurits Dolmans, a lawyer with the City firm Clearly Gottlieb, said: “The Commission is not going to suddenly regulate everybody. Microsoft is really an exception, there is no other company in the world that has so many products out there for so many consumers – 90 per cent plus of the market, close to a billion PCs out there with Microsoft products.”

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