FRANCE MICROSOFT BALLMER
Christophe Ena  /  AP
Microsoft CEO Steve Ballmer speaks during his keynote adress as part of the MIX 06 conference in Paris Thursday. A panel of EU judges are weighing to reduce or throw out an antitrust fine levied against the software company two years ago.
updated 4/28/2006 2:43:22 PM ET 2006-04-28T18:43:22

Upholding a landmark antitrust decision against Microsoft Corp. would unfairly penalize the company, its lawyers said Friday to end a weeklong hearing. Opponents argued that such a ruling would ultimately protect innovation and consumers.

The European Commission said it was merely asking Microsoft to obey the law and not use its “hostile and aggressive” business methods and its power as the dominant supplier of desktop software to muscle into other strategic markets, stifling the kind of competition that could generate more reliable and sophisticated products.

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A decision by the EU’s second-highest court on the 2004 ruling is not due for months, and could still be appealed to the European Court of Justice — dragging out the clash of computer science and competition law for years to come.

The case will likely set a precedent for the fast-moving technology sector.

Microsoft is already anxious about EU limits on future products, asking Competition Commissioner Neelie Kroes to set out any potential problems with its next-generation operating system, Windows Vista. The consumer version is due out early next year.

For the Commission, its reputation as a regulator ready to punish abuses after careful investigation is on the line.

“The Commission is not asking Microsoft to be nice to its competitors. It is asking it to compete on the merits,” said EU lawyer Per Hellstrom. He said the world would look “very different indeed” if Microsoft had allowed competition to flourish in the media player or workgroup server markets.

In a letter to Microsoft CEO Steve Ballmer last month, Kroes expressed concerns about Vista’s integrated Internet search, digital rights management tools used to protect copyrights, and software that would create fixed-document formats comparable to Adobe Systems Inc.’s Portable Document Format, or PDF.

Speaking to reporters after the final hearing, Microsoft’s chief lawyer Brad Smith said companies need to have confidence they can develop new products with the features customers desire.

“We will continue to work with the Commission to resolve these kinds of matters,” he said.

The European Commission ruled in March 2004 — after a five-year investigation — that the world’s largest software company had to share information with rivals and produce a version of its Windows operating system without the Media Player software.

Microsoft argued Friday that the record 497 million euro ($613 million) fine levied against it should be tossed out or at least greatly reduced because the punishment outweighed the infraction.

Lawyer Ian Forrester said the EU regulator slapped such a large fine on the company to draw media interest. “The largest fine in history would make for large headlines,” he said.

The Commission said to throw out the fine, or even reduce it, would send a message that 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, adding the amount of the fine was “proportionate to the gravity of the infringement.”

Earlier in the hearing, Forrester said 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.

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

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, Whelan said.

In a terse exchange with Whelan on Thursday, Judge John D. Cooke 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 U.S. regulators.

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