24 March 2004 Microsoft wasted little time in launching an appeal against Brussels’ landmark antitrust ruling, but warned that the case could get bogged down in the European legal system for several years.

Microsoft said it will take a “legal review” of the European Commission (EC) ruling to Europe’s second-highest judicial body, the Court of First Instance, asking for the EC’s sanctions against the company to be put on hold until an appeal can be heard.

No date has been set for the beginning of the legal review, although experts say that the Luxembourg court would be unlikely to rule on a possible suspension of sanctions until at least summer 2004. If Microsoft were to lose this case, it has the right of appeal to a higher court.

Appeals against EC antitrust rulings have been known to drag on for several years, and Microsoft has indicated that it is prepared for a long fight.

The legal process follows the EC’s decision to impose a fine of €497 million on Microsoft – the biggest penalty it has imposed in an antitrust case.

But the ruling goes further. Microsoft must ‘unbundle’ its video application, Media Player, from Windows within 90 days in order to provide two versions of the PC operating system in Europe.

In addition, Microsoft must disclose what the EC terms “complete and accurate” information about its work group server APIs (application programming interfaces) and protocols to server competitors within 120 days. That part of the ruling will be seen as a victory for Sun Microsystems, Microsoft’s bitter enemy, which had complained to Brussels about its difficulty in making its servers work with Windows machines.

A trustee will be appointed later to ensure that Microsoft complies with the EC ruling.

The judgement amounts to a two-pronged attack on controversial elements of Microsoft’s business model, namely its practice of bundling new features with Windows and its determination to protect its intellectual property from rivals.

Microsoft’s CEO, Steve Ballmer, has said that adding new features to Windows is “fundamental” to the company’s strategy. But the EC said it was “concerned” that bundling practices “deter innovation and reduce consumer choice in any technologies which Microsoft could conceivably take an interest in and tie with Windows in the future.”

It is not yet clear what effect, if any, the ruling will have on the make-up of the next version of Windows, currently codenamed ‘Longhorn’ and due for release around 2006.

The new Windows version is expected to come with new firewall capabilities, an updated SQL Server file system and new search engine software. Its release is also thought likely to coincide with new versions of Microsoft applications written to more tightly integrate with Windows.

Under the EC ruling, which comes at the end of a five-year inquiry, Microsoft was found to have violated European competition laws by “abusing its near monopoly in PC operating systems”.

Mario Monti, the European Competition Commissioner, said: “Today’s decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a strong dominant position.”

In his immediate reaction to the ruling, which was faxed to Microsoft’s Seattle headquarters moments before Monti’s official announcement was delivered in Brussels, Ballmer said the action taken by the EC was “unfortunate” but promised to continue to cooperate with European governments and the European industry on matters of shared concern.

He went on to express regret that long-running talks between his company and the EC had ended without a settlement being reached.

“We worked hard to reach an agreement that would address the European Commission’s concerns and still allow us to innovate and improve our products for consumers,” said Ballmer. “We respect the Commission’s authority, but we believe that our settlement offer from last week [mid-March 2004] would have offered far more choices and benefits to consumers.”

For the first time, Microsoft publicly set out the terms of the proposed settlement that had been rejected by the EC.

The company said it offered to change its business practices worldwide, not just in Europe. It said it was prepared to provide competitors with “unprecedented access” to its technology. And all Microsoft-based PCs would be sold with three non-Microsoft media players, it added.

But, from the wording of the statement, it was unclear how far Microsoft was willing to open up its code. Similarly, the company did not spell out whether it would have been willing to bundle non-Microsoft media players with Windows, as its competitors wanted, or whether PCs would merely be shipped with CDs of rival media player products, such as Real Networks’ Real Player and Apple’s QuickTime.

Still, Microsoft’s chief lawyer, Brad Smith, conveyed barely disguised frustration that the settlement offer had been rejected. “Instead of getting immediate action in 2004, we are now on a path to getting a result in 2009,” he said.