Microsoft has lost its bid to suspend sanctions imposed on its business practices by European regulators pending the outcome of an appeal.
The President of the Court of First Instance, the European Union's second-highest court, ruled on Wednesday that Microsoft must offer a version of its Windows operating system that does not include its Media Player software, and must also publish APIs (application programming interfaces) that should make it easier for competitors to make server products that work well with its Windows software.
The software maker has failed to prove that carrying out the sanctions imposed by the European Commission would cause "serious and irreparable harm" to its business, the court said.
The decision is seen by some as a blow to Microsoft, which had appealed against the Commission's decision issued in March. It means Microsoft will have to comply with the measures at once, pending the outcome of a longer-term challenge to the decision, which is expected to take as long as five years.
A version of Windows without Windows Media Player will be available from PC makers in Europe from January, and through other distribution channels such as retail stores in February, Microsoft General Counsel Brad Smith said in a conference call after the decision was issued.
The company will also post a Web site immediately with information about how makers of server products can license the communications protocols Microsoft has been required to release, he said.
While the court ruled against Microsoft's request to suspend the sanctions, the company said it was encouraged by parts of its discussion of the merits of Microsoft's case, issued by the president of the Court of First Instance, Bo Vesterdorf.
"While the Court did not find immediate irreparable harm from the Commission's proposed remedies, the Court recognized that some of our arguments on the merits of the case are well-founded and may ultimately carry the day when the substantive issues are resolved in the full appeal," Microsoft said in a statement.
For example, Smith noted, the court determined that the Commission has yet to fully prove its claim that Microsoft's rivals in the server software market need access to its communications protocols in order to compete with it effectively. Microsoft's arguments to the contrary are "not at first sight unfounded," the court said in a statement about its decision.
The court's recognition that Microsoft's arguments may hold merit gives it hope that a settlement may still be reached, Microsoft said. "There's ample room for us to press forward with optimism," Smith said.
The Commission did not immediately comment on the Court of First Instance's decision.
One legal observer said that the Commission's sanctions had to be applied at once in order to have a meaningful impact on Microsoft's behavior.
"If Microsoft had managed to obtain a suspension of these requirements, by the time the court got around to ruling the horse could have bolted, given the speed at which these markets move. ... Competitors would have lost their opportunity," said Anthony Woolich, a partner at London legal firm Lawrence Graham LLP and the head of its EU/competition team.
Still, the fact that Microsoft must offer a version of Windows without Media Player is not a substantial blow for the company, according to Graham. Because of the way the Commission phrased the requirement, Microsoft isn't required to charge a lower price for the version of Windows without the media software, meaning customers will have little incentive to choose it, he said.
The Court of First Instance concluded that any harm Microsoft may suffer from the sanctions could be repaired if it eventually wins its appeal, Smith said. For example, it could withdraw the version of Windows without Media Player from the market at a later date.
Microsoft can appeal Vesterdorf's decision not to suspend the sanctions pending the final outcome of the case, but the appeal will be difficult to argue and must be based on concerns regarding matters of law, as opposed to facts in the case, according to sources close to the case. Vesterdorf has taken steps to ward off a successful appeal by preparing a long and detailed judgment, one source said.
The case now goes to a five-judge panel that will begin the lengthy task of assessing Microsoft's long-term appeal. The outcome of that broader appeal, which is expected to take years, will determine whether the sanctions become permanent or are lifted.
The Commission wrapped up a long investigation into the software maker in March, ruling that it had abused its dominance in the PC operating systems market to gain advantage in related markets, such as that of digital media players, where its competitors include Apple Computer Inc. and RealNetworks Inc.
Along with the behavioral remedies, it slapped Microsoft with a fine of ?497 million (US$665 million), which the Court said the company has paid. The remedies were due to take effect at the end of June, but Microsoft filed a request for the sanctions to be suspended pending the outcome of its appeal.
(Scarlet Pruitt in London contributed to this report.)