The European Union finally issued its ruling in the long-running case against Microsoft, fining the American software giant $613 million, the heaviest punishment in any European competition case to date.

European Competition Commissioner Mario Monti ruled that Microsoft had failed to provide rivals with information that they needed to compete fairly in the market for server software and that the company has been offering Windows on the condition that it come bundled with Windows Media Player, stifling competition.

Microsoft now has 120 days to provide the information that rival server makers need to compete fairly, and it must continue to update this information in the future, Monti said.

It also has 90 days to provide a version of Windows without Media Player, although it can also continue to provide a version that includes the media software.

In the EU’s judgment, Microsoft must refrain from using any commercial, technological or contractual terms that would have the effect of "rendering the unbundled version of Windows less attractive or performing. In particular, it must not give PC makers a discount conditional on their buying Windows together with the Windows Media player".

Following the release of the decision, Monti said he is sure that the antitrust ruling against Microsoft will stand up to any appeal in the European courts and that it will act as an effective deterrent.

"Of course, I’m confident we have produced a decision that will stand before any appeal," Monti said. "As for future deterrents, I believe there may be an indirect aspect...to the extent that the decision by the European Commission may be used in the context of private actions against the company," he said.

The remedies and the legal precedent were more important than the level of the fine, he added.

Microsoft reiterated its plan to appeal the decision. "We will go forward and seek legal review of this decision in the European Court of First Instance," Brad Smith, Microsoft general counsel, said in a conference call, referring to the EU’s second highest court. He said the company would request that implementation of some parts of the commission’s decision be suspended—specifically the EU’s demand that the software giant produce a second version of the Windows operating system without the Windows Media Player.

"We will ask for that and probably other parts of the remedies to be suspended," he said. He added that he expected "four or five years" of litigation ahead.

Microsoft attempted to settle the case, but talks ended last week after both sides failed to reach an agreement on how to govern Microsoft’s future business practices. Microsoft had offered to modify Windows to place copies of competing media player software on PC hard drives during the installation, instead of selling a version of Windows without Media Player, as the EU ultimately ordered the company to do.

Smith played down the impact of the EU decision on the next major update of Microsoft’s flagship operating system, which is code-named Longhorn.

"We have had our lawyers working with the product development teams...Based on the work that we have done so far...it is our sense that the kinds of innovations that we have planned for Longhorn are innovations that pass muster under EU law as well as the law elsewhere in the world," he added.

Despite the intense media scrutiny of the five-year investigation, when the verdict came it was with more of a whimper than a bang. Some observers welcomed the ruling, saying it would provide clarity in a complex market.

"One benefit of the case going to court is that we will get a lot more information, so both Microsoft and others will know what sorts of activities are illegal in Europe,’’ said Nic Francis, a consultant with a London-based consultancy.

Others expressed surprise at the severity of the fine in a case that turns on some tricky legal arguments.

"This is not a classic parallel trade infringement or cartel case—it’s unusual. On the server issue, there’s compulsory licensing to a competitor of intellectual property. Generally these cases are borderline," said Marc Hansen, an attorney with Latham & Watkins in Brussels. "On the Media Player, it’s a really novel bundling issue, and that is one of the more unresolved areas of law. Suddenly there’s a 497 million euro fine for something that no one really knew was illegal?"

Source: CNET News.com research by Dawn Kawamoto

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