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Last Updated: Sunday, 23 April 2006, 15:15 GMT 16:15 UK
Microsoft and Europe in court showdown
By Theo Leggett
BBC Europe business reporter in Luxembourg

A Luxembourg courtroom is to play host to a crucial showdown between the European Commission and Microsoft.

Microsoft Windows on sale
Microsoft says the EC's ruling is unfair

The software giant is appealing against the commission's decision to fine it hundreds of millions of dollars for allegedly breaking European Union competition law.

When the commission announced its decision in March 2004, it followed more than five years of intensive investigations. It was the highest-profile competition case the regulator had ever tackled, and resulted in the largest fine it had ever imposed: 497m euros (344m; $613m).

The Commission ruled that Microsoft had been trying to hinder its rivals' attempts to make software systems which could work with its own Windows operating system.

It also said that by including video and audio programmes - or media players - within the basic windows package, it was preventing rival firms from selling their own media software.

As well as being fined, Microsoft was ordered to give its rivals more information about how Windows works, so that their software can be made more compatible with the ubiquitous operating system.

And finally, it was told to make a version of Windows available without the built-in media players.

The whole package was justified as a means to prevent Microsoft from dominating the market - to the detriment of both its rivals and its customers.

Innovation arguments

Microsoft, needless to say, has always said the ruling was far too severe.

If the Commission doesn't win this one, one can wonder which case it can win
Thomas Vinje, Clifford Chance

And this week, at the European court of first instance in Luxembourg, it will make its formal appeal.

The company says the Commission's arguments are legally flawed. Moreover, it argues that by preventing it from adding new features to Windows, the ruling means consumers will be the losers.

Ultimately, though, Microsoft accuses the Commission of trying to create new law, by suggesting that dominant firms should be forced to share the fruits of their research and development with other companies in the same market.

Several other organisations have weighed into the case.

One, a lobby group called the Association for Competitive Technology (ACT), has spent the past eight years arguing Microsoft's case in a series of anti-trust actions.

"This case fundamentally is about innovation," says Jonathan Zuck, its president.

"It's about Microsoft's innovation and also the innovation of the thousands and thousands of developers who develop on the windows platform."

Microsoft is widely thought to be a major funder of ACT, although the organisation insists it represents many other, much smaller firms as well.

'Grand-daddy'

Microsoft believes it has a strong case - but so too does the Commission.

It has the backing of several rivals to Microsoft, and Thomas Vinje - of law firm Clifford Chance, which represents a number of rival firms - says the Commission's factual and economic analysis is much more solid than any of its previous competition decisions.

"This is the grand-daddy of them all," he says. "If the Commission doesn't win this one, one can wonder which case it can win."

What is beyond doubt, however, is that this is a courtroom battle which neither side can really afford to lose.

If Microsoft wins, analysts say, the Commission could lose much of the international credibility which it has built up by its aggressive stance against the company - and would find it harder to impose its will in future cases.

But if the appeal fails, Microsoft is likely to face further investigations and the possibility of yet more lawsuits.




BBC NEWS: VIDEO AND AUDIO
The battle between Microsoft and the European Commission explained



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