Judges asked to dismiss record fine against Microsoft

Microsoft Corp. said that the record antitrust fine levied against it in 2004 should be thrown out, or at least greatly reduced, because the punishment outweighed the infraction, the company’s lawyers said today.

But European Commission lawyers said that to throw out the fine, or even reduce it, would send a message that virtual monopolies would be harder to fight in court and impede regulators’ ability to keep a level playing field in the world of business.

“What is left to provide deterrents?” commission lawyer Fernando Castillo de la Torre said today, adding the amount of the fine was “proportionate to the gravity of the infringement.”

The European Commission ruled that the world’s largest software company had to pay a record €497m fine, share information with rivals and produce a version of its Windows operating system without Media Player software.

Speaking before the 13-judge panel of the Court of First Instance today, Microsoft lawyer Ian Forrester said the amount was far too much because the company did not knowingly take advantage of its dominance.

“No fine should have been imposed because Microsoft committed no wrong,” he told the judges in what was likely the last day of a five-day hearing about the ruling that the company had abused its position in the operating systems market.

Instead, he said the commission decided to levy the fine in order to draw media interest.

“The largest fine in history would make for large headlines,” he said, adding that the court should annul it completely or, at the very least, “significantly reduce it.”

The previous record fine issued by the EU was €462m against pharmaceutical company Roche in 2001 for price-fixing in the vitamin pills market.

While a court decision is not due for months, a ruling backing the commission could force Microsoft to change the way it does business in the future and endorse the EU’s ability to hold back aggressive corporate behaviour.

Earlier in the hearing, Forrester told the judges that the 2004 ruling effectively meant that the company was “being told to give a worldwide license in perpetuity” to its rivals that included its trade secrets and copyrights.

Doing that, he added in his summation today, would let the company’s rivals create a similar product and take away from its competitiveness.

But Anthony Whelan, a lawyer for the commission, said the case was about enabling companies to compete in a fluctuating market where innovation drives changes.

“It is not an ordinary case. It is exceptional in many ways,” he said, adding that Microsoft entered the server market later than its rivals, such as Novell Inc. and Sun Microsystems Inc., and became dominant by denying “repeated requests” for information to keep rivals’ products compatible with its own.

Microsoft, which posted quarterly earnings yesterday that rose 16% but fell shy of market expectations, has said it drew 10 billion dollars in revenue from “servers and tools” – one quarter of its global turnover – in the year that ended in June.

The company does not break down sales figures by region and would not say how much revenue it derived for the specific market mentioned in the EU case, workgroup servers.

“Competitors are denied interoperability who have concrete innovation to offer their customers,” Whelan said.

The hearing began on Monday centring on Microsoft’s bundled Media Player. Later in the week, it focused on a challenge to the order Microsoft give information to rivals to make its server software work more smoothly with the ubiquitous Windows operating system.

Judge John Cooke, in a terse exchange with Whelan yesterday, asked whether Microsoft’s proprietary information should be given away to its rivals, including patent information.

“The information which forms interoperability is hugely valuable commercial information … that’s why it’s difficult to understand the attitude of the commission that these are mere trade secrets,” the judge said – a reflection of Microsoft’s assertion that to give over the code would be forfeiting the hundreds of years in manpower that went into devising it.

Cooke, who will write the draft ruling, wanted to know if “competition rules require that be taken away from Microsoft, conveying a huge commercial advantage.”

Whelan said the value Microsoft placed on the code was merely a reflection of the amount of time and effort it had put into creating it, nothing more.

The commission has never asked Microsoft to open up its source code – the recipe for Windows – but Microsoft offered earlier this year to grant some access to rivals under certain conditions if it would appease both EU and US regulators.

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