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Court Upholds EU's Penalties Against Microsoft

A European court has upheld a European Commission ruling that Microsoft must unbundle its media player from the Windows operating system and allow access to some of its application programming interface (APIs) for software companies.

Microsoft had asked the European Court of First Instance to stay the March judgment by the European Union's Anticompetition Commission until its full appeal of the antitrust ruling is completed.

The ruling, announced Wednesday, said Microsoft's interim appeal to stay the penalties would be dismissed while the company's larger appeal goes forward.

The decision is a blow to Microsoft. But in a statement, Microsoft said "[a]lthough the Court ruled against Microsoft's request for interim measures, we are encouraged by a number of aspects of the Court's discussion of the merits of the case."

In its March ruling, the European Commission fined Microsoft a record $613 million (497.2 million euro) after it found the company abused its "virtual monopoly" with its Windows operating system and broke European antitrust laws governing competition. It ordered Microsoft to strip its media player from the Windows operating system within 90 days, and to allow more access to its application programming interface (APIs) for software companies within 120 days. Microsoft has already paid the fine.

As part of its request to stay the penalties while it appealed the commission's ruling, Microsoft had argued the decision would "cause serious injury to the valuable Microsoft and Windows trademarks because Microsoft would be required to sell a downgraded product inconsistent with its basic design concept."

In its statement Wednesday, the company said: "We continue to believe that the Commission's remedies will bring very few benefits to competitors and consumers in Europe, and will in fact harm many users of the Windows operating system and the thousands of companies across Europe who have built their businesses on the Windows platform."

In addition, Microsoft said it believes "that the code removal remedy, obliging Microsoft to release a degraded version of the Windows operating system, will be harmful to consumers and competition and undermines the technology integration that has been the backbone of the IT revolution over the past 3 decades."

Robert Badal, a partner in the law firm of Heller Ehrman White & McAuliffe, said if the penalties had instead been suspended, by the time the appeal process ended, the EU's order to sever the media player from the operating system might be moot.

The European Court of First Instance is the judicial body that considers appeals of rulings by EU Commissions and other entities. Today's is the first of two related rulings. A panel of judges will hear arguments in Microsoft's appeal of the actual antitrust judgment, a process expected to take up to five years.

The hearing on Microsoft's request for a stay in the judgment was handled as a separate matter from the appeal.

In June, Microsoft appealed the commission ruling that it had abused its monopoly position in two ways: By keeping too tight a grip on its server APIs, Microsoft limited the ability of other companies to create server software that interoperated with the Windows operating system. And, by bundling its own Windows Media Player with the OS, it squeezed out its rival, RealNetworks .

Since the EU launched its investigation into Microsoft's competitive practices in the first place, Microsoft has been settling long-running litigation brought against it by technology rivals.

In April, it announced it would pay Sun Microsystems $1.95 billion to settle a patent infringement suit brought by the network infrastructure and software vendor and signed a 10-year technology-sharing agreement. Sun was one of the companies that complained to the European Commission about Microsoft's practices in 2000, setting off the investigation that led to the ruling and fine.

In November, it also settled litigation with Novell and the Computer & Communications Industry Association (CCIA) involving antitrust charges. In return for $536 million from Microsoft, Novell said it would withdraw its intervention role in the European Commission's antitrust case with Microsoft.

In addition, Microsoft joined the CCIA, a trade group that helped spur the European Union Competition Commission's investigation into Microsoft's practices in the first place.

According to the agreement, the CCIA will drop its push to have the U.S. Supreme Court reverse the Department of Justice's antitrust settlement with Microsoft. It also will no longer participate as an intervener on behalf of the European Commission in Microsoft's appeal of the Commission's ruling.

RealNetworks , however, is suing Microsoft in the U.S., and using the EU's charges of abusing monopoly power as part of its argument.

Microsoft is holding conference calls Wednesday in order to discuss the Court of First Instance order on interim measures.

Susan Kuchinskas contributed to this story.