Microsoft suffers decisive EU antitrust defeat

By David Lawsky and Sabina Zawadzki

BRUSSELS (Reuters) - Microsoft suffered a decisive antitrust defeat on Monday when a European Union court upheld a landmark ruling that the world's largest software maker had abused its dominant market position to crush rivals.

The second-highest EU court dismissed the company's appeal on all key points against the 2004 European Commission ruling and upheld a record 497 million euro ($689.9 million) fine.

A jubilant EU Competition Commissioner Neelie Kroes said the ruling should lead to a "significant drop" in Microsoft's 95 percent market share. Microsoft's top lawyer said it would affect the way the company markets its products in future.

Shares in the U.S. software giant were down 1.14 percent in morning New York trade after the Luxembourg-based court's ruling, suggesting investors were not overly concerned about the implications for Microsoft's successful business model.

Kim Caughey, senior analyst at Fort Pitt Capital Group, which oversees more than $1 billion including Microsoft shares, for clients, said: "Although this is probably a setback for Microsoft's strategy going forward, it's not that big a deal for investors. The fines have already been accounted for, so none of the stuff announced today had bottom-line impact."

Competition experts said the ruling had serious long-term implications for EU regulation of the hi-tech sector.

"It's clearly a major defeat for Microsoft. There is no doubt it will spur the Commission on to regulate Microsoft much more significantly," said UK competition lawyer Chris Bright.

It also gives Kroes a green light to pursue other antitrust cases and complaints involving Intel, Qualcomm and Rambus, and to issue draft antitrust guidelines that were put on ice pending the ruling.

CONSUMER CHOICE

The court said Microsoft was unjustified in tying new applications to its Windows operating system in a way that squeezed out rivals and harmed consumer choice.

The EU's Kroes told a news conference: "The court has confirmed that Microsoft can no longer prevent the market from functioning properly and consumers are entitled to benefit from choice and more innovative products."

An appeal against the ruling is possible only on points of law and not of fact.

Asked how the Commission would assess progress in the Microsoft case, Kroes said: "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."

Her spokesman later clarified that a fall in market share would be a logical consequence of fairer competition. A lawyer for Microsoft's rivals in the case said it was the abuse of the company's position that was the problem, not its market share.

"If Microsoft, competing on the merits, achieves more dominance, then so be it," Thomas Vinje, lawyer for the European Committee for Interoperable Systems (ECIS), told journalists.