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Europe Votes for Microsoft Sanctions

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Times Staff Writer

European antitrust officials unanimously endorsed proposed sanctions against Microsoft Corp. on Monday, paving the way for a final ruling that could force the software giant to modify its Windows operating system and reveal more about how it works.

The penalties, likely to include substantial fines, would be the harshest so far faced by Microsoft, which has defended its business practices for years against antitrust litigation brought by competitors, customers and governments.

At a meeting in Brussels, representatives from all 15 European Union governments affirmed findings by the European Commission that Microsoft improperly used its monopoly over personal computer operating systems to gain an unfair advantage in software for playing audio and video clips and controlling computer networks.

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Monday’s vote dramatically reduced the chances for a negotiated settlement.

“It’s unlikely Microsoft is going to get out of it now,” said Davina Garrod, an antitrust lawyer in the London office of McDermott, Will & Emery. “I’m not going to rule out the possibility of a settlement, but I think it’s unlikely.”

Microsoft spokesman Lou Gellos said the company continued “to discuss this with the commission in hopes we can resolve the situation amicably.”

Microsoft shares fell 22 cents to $25.16 on Nasdaq.

A draft of the proposed ruling calls for a fine, with the amount to be set in a meeting March 22 and disclosed when the order becomes final, probably March 24, an EU official said on condition of anonymity.

London antitrust expert Christopher Bright of Shearman & Sterling said he would “expect something north of 100 million euros [about $123 million]. Maybe two or three times that.”

At the end of 2003, Microsoft had about $50 billion in cash and equivalents. More problematic than the fine for the company would be aspects of the ruling dealing with the inner workings of Windows.

People familiar with the proposal said it called for Microsoft to sell a version of Windows without the Media Player multimedia software. That version might be required to be cheaper than the standard version of Windows.

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The European Commission, EU’s executive arm, also is expected to demand that Microsoft divulge more information about how its operating system for server computers at the heart of corporate networks connects to the operating systems on individual personal computers.

The commission may allow Microsoft to negotiate with competitors including Sun Microsystems Inc. over how much it should have to disclose. But if there is no agreement, the commission will step in and make a more explicit ruling, Bright said.

“There is still the idea that they may come back after a period with a solution,” Bright said of Microsoft. “But to be alive, it has to address the issues the competitors have raised.”

Sun and Microsoft’s chief rival in the media player market, RealNetworks Inc., had no immediate comment.

Sun’s stock fell 21 cents to $4.16. Real’s dipped 3 cents to $5.72. Both trade on Nasdaq.

Several antitrust lawyers said they expected Microsoft to file a lawsuit challenging the order in the European Court of First Instance in Luxembourg. The company also may ask that the sanctions be put on hold until after the appeal is heard.

The most significant aspect of the anticipated ruling, Bright said, is that it would be the first to mandate changes to Windows. U.S. authorities considered such a step but dropped it during negotiations with Microsoft. The Justice Department settled its antitrust case against Microsoft in 2002.

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Such an order would set a precedent at odds with Microsoft’s basic strategy of constantly adding new functions to the operating system.

If the ruling is upheld, the EU might conduct additional investigations and require Microsoft to keep other functions out of at least some versions of Windows.

Also Monday, a Minneapolis trial opened in a lawsuit brought by computer users over what they say are overcharges for Windows and other Microsoft software. The consumers say Microsoft was able to charge too much because it acted illegally to protect its monopoly.

The Minnesota plaintiffs are seeking $425 million. It is the first case of its kind to reach a trial against Microsoft. The company has spent more than $1 billion to settle similar claims by consumers in California and other states.

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