updated 12/7/2005 8:42:00 AM ET 2005-12-07T13:42:00

South Korean antitrust regulators ruled that Microsoft Corp. abused its software market dominance, fined it $32 million and ordered the company to offer alternative versions of its Windows operating system that country within six months. Microsoft said it will fight the decision in court.

The Korea Fair Trade Commission on Wednesday found Microsoft’s practice of tying certain software to Windows constitutes an “abuse of market dominant position and unfair trade practices,” Kang Chul-kyu, the commission’s chairman, told reporters.

The ruling comes after the world’s biggest software maker reached separate settlements with companies that then withdrew the complaints that led to the investigation. The companies had complained that Microsoft violated trade rules by tying its instant messenger software to Windows.

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In a similar case in March 2004, the European Union ordered Microsoft to pay $586 million, share code information with software rivals and offer a version of Windows without Media Player software. Microsoft, which is based in Redmond, Wash., is appealing that ruling.

In the South Korean ruling, the commission ordered Microsoft to offer two versions of Windows in South Korea within 180 days.

One version must be stripped of the Windows Media Player and Windows Messenger software, while the other version must come with links to Web pages that allow consumers to download competing versions of such software, the commission said.

Chairman: ‘Decision will restore competition’
Windows Messenger is an integrated feature that comes with Windows. MSN Messenger, another instant messaging software, must be downloaded separately.

“This decision will restore competition in the previously distorted markets,” Kang said. It will also “serve as an impetus for the domestic software industry, which has been behind in comparison to the hardware industry, to develop further.”

The corrective measures will remain effective for 10 years. After the first 5 years, Microsoft will have the opportunity each year to request a review of the remedy to account for changes in the market environment, the commission said.

“We are very disappointed with the commission’s decision,” said Tom Burt, a Microsoft vice president and deputy general counsel. “Ultimately, we will file a lawsuit in Korean court challenging the decision.”

In a release, Microsoft said the decision “could have the effect of chilling innovation in Korea,” though the company added it has no intention to pull out of the South Korean market.

In the wake of the European Union ruling in 2004, Microsoft produced a version of Windows without the media player which debuted in June in Europe. But European sales of that version — Windows XP N — appear to have been lukewarm as few computer manufacturers and retailers said they were planning to offer the new version to their customers. Microsoft doesn’t release sales figures.

Microsoft’s troubles in South Korea
Microsoft’s troubles in South Korean began when Daum Communications Corp., a local Internet portal, filed a complaint to the commission in 2001 that Microsoft allegedly violated trade rules by tying its instant messenger software to Windows.

Regulators widened the investigation last year after Seattle-based digital media company RealNetworks Inc. filed a complaint alleging Microsoft was undermining competition in the market by tying its Media Player and Media Server software to Windows.

RealNetworks withdrew that complaint after a $761 million legal settlement with Microsoft that ended all their antitrust disputes worldwide, including in South Korea. The commission said at that time it would continue its investigation.

Microsoft reached a $30 million settlement with Daum last month.

Microsoft Chairman Bill Gates, on a visit to India where he said the company plans to invest $1.7 billion and add 3,000 jobs in the country over the next four years, told reporters he wasn’t aware of the specifics of the ruling in South Korea.

“But consumers should wish the kind of competition that exists in software should be there in every other part of the economy,” he said.

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