Regulators across Europe are set to take a tougher line when applying competition law to large companies after the European Commission's decision to fine Microsoft nearly €500m (£348m) for abusing its dominant position in the desktop software market was upheld by Europe's second-highest court.
In what was viewed as a comprehensive victory for regulators, the Court of First Instance rejected Microsoft's appeal against the 2004 antitrust ruling, and ruled that the US company had to pay the record fine and continue to assist its rivals to develop products that are interoperable with the Windows operating system.
The court dismissed Microsoft's argument that the original ruling damaged the software company's intellectual property rights and thus threatened its ability to innovate.
In an additional blow to Microsoft, the court ordered that the software company cover 80 per cent of the European Commission's legal costs.
Microsoft was initially accused of abusing its dominant position in the software market to squeeze smaller rivals with products that compete against specific applications offered by the US company.
The European Commission ruled that the company had to offer its rivals information about its operating systems, and also forced the company to strip out its media player from the bundle of applications offered under the Windows banner.
The case against Microsoft has been ongoing for nine years, and is likely to go yet another round as the US giant has the right to appeal. Competition lawyers said Microsoft is likely to take a new appeal to the European Court of Justice – Europe's highest court – but noted that it can only do so on points of law.
Brad Smith, Microsoft's general counsel, said the company would consider its options after carefully digesting the 248-page ruling. "I don't want to talk about what will come next in terms of the legal process ... we need to read the decision, it's a long decision, and it really helps to read something before one makes a conclusion about what to do about it."
Unsurprisingly, European regulators were overjoyed the original decision to punish Microsoft for its alleged anti-competitive behaviour was upheld in court, arguing that a strong precedent has been set for how companies with a dominant position behave, particularly in the high-tech industry.
Neelie Kroes, the European competition commissioner, said: "The court ruling shows that the commission was right to take its decision. Microsoft must now comply fully with its legal obligations to desist from engaging in anti-competitive behaviour."
Competition lawyers said the landmark case is likely to strengthen the resolve of regulators in applying competition law and could encourage smaller rivals, particularly in the software industry, to use competition law to attack larger and more established rivals.
Guy Lougher, national head of the EU & Competition Group at law firm Pinsent Masons, said: "Today's decision will invigorate the European Commission and national competition authorities across the EU, which have been soft-peddling in relation to a number of ongoing cases in the software and other industries pending the CFI's judgment."
European regulators are already investigating the commercial practices of a number of high-tech companies including Intel, Rambus and Qualcomm.
Michael Reynolds, a partner at Allen & Overy, said: "The judgment has very important consequences for Microsoft going forward and will need to be noted carefully by other companies in the sector which have dominant positions, and the rules which have now been reaffirmed by the court will apply to them as well."
Lawyers also noted that the ruling has implications for any company that bundles products.
"The bundling aspects of the case will need to be reviewed carefully by large incumbent operators in other industries who sell goods or services only as a package, but where there is demand to purchase them separately, if the bundling adversely affects rivals and where there is no objective justification for the bundling," Mr Lougher said.
However, Rony Gerrits, a partner with Morrison & Foerster, said most companies should look to offer customers the option to opt out of specific applications when subscribing to bundled products to avoid regulatory issues.
Microsoft did succeed in overturning one detail of the original ruling after the Court of First Instance argued that the appointment of an independent trustee to ensure that Microsoft complies with the regulator's demands was a step too far.