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Microsoft To Defend Business Practices in EU Antitrust Appeal

Microsoft will fight for the way it conducts future business next week as it urges the European Union's second highest court to overturn an antitrust ruling that ordered it to pay a record $613 million fine.

Both the world's largest software company and its rivals argue the right to innovate lies at the heart of the case. Microsoft says must be allowed to enhance its programs and guard its intellectual property. Critics argue the giant cannot be allowed to use its near-monopoly to strangle competitors.

"At issue is whether companies can improve their products by developing new features, and whether a successful company must hand over its valuable intellectual property to competitors," Microsoft said in a statement.

In March 2004, the European Commission levied its largest fine ever after it found Microsoft guilty of breaking the antitrust rules that govern fair play in business.

Its five-year investigation concluded Microsoft had taken advantage of its position as the leading supplier of software for PC operating systems to elbow in on rivals for work group server operating systems and for media players.

To solve these problems, the commission ordered Microsoft to share information and communications code with rivals to help them make software that worked smoothly with Windows and to market a version of Windows without the media player to give consumers a free choice of media software.

Microsoft challenged the penalties in court but lost -- finally putting out a media player-free Windows in the summer of 2005.

However in December, the EU said the company had not done enough to help rivals develop compatible software and threatened Microsoft with daily fines of up to $2.4 million a day, backdated to Dec. 15, unless it complied. It has not yet decided whether it will levy these extra fines.

The five-day court hearing in Luxembourg next week will thrash out Microsoft's behavior in the late 1990s with EU regulators using evidence from RealNetworks on the media player case and IBM, Novell, Oracle and Sun Microsystems on systems compatibility.

None of those companies are currently involved in the legal battle although they are members of two broad industry coalitions -- the European Committee for Interoperable Systems and the Software & Information Industry Association -- that will back the commission.

History speaks for itself, Microsoft officials claim. Real has survived despite Microsoft's alleged antitrust abuse, it says. Apple has gained ground in Microsoft's core desktop market with its media-friendly iMacs.

Microsoft's actions have not stopped the emergence of a new force in the server market -- the popular Linux software that shares its code openly.

Times may have changed, but Microsoft's behavior has not, ECIS asserted as it filed a new complaint with regulators in February, claiming that Microsoft was up to the same tricks on a wider scale.

ECIS lawyer and spokesman Thomas Vinje says the latest version of Microsoft's desktop software, Vista -- which is due in stores early next year -- will try to squeeze out rivals by giving away security, search engine and office functions.

Microsoft said it was merely doing its job and doing it well -- introducing new products with breakthrough technologies that benefit consumers.

For Vinje, Microsoft vs. the European Commission has the potential to set the "rules of the road" for Microsoft before it launches Vista.

"The bottom line in this case is about the future, whether consumers will have the choice of that innovation in future or whether Microsoft will be allowed to contain competition and innovation," he said.

"Vista takes the exact same behavior condemned in the commission decision (of March 2004) and takes it to a new level," he said.

Windows Vista is Microsoft's first major update to the company's flagship operating system since Windows XP was released in late 2001.

The EU has said it has also received other complaints about Microsoft but had not yet decided to proceed with in-depth investigations into other areas of the software industry.

EU officials and lawyers say any further action depends on the outcome of Microsoft's challenge to the 2004 ruling.

The commission cannot take any action against Vista before the product hits the market -- but the prospect of another long drawn-out antitrust dispute has already prompted Microsoft to ask EU regulators about any possible concerns they had about the software.

EU Competition Commissioner Neelie Kroes wrote to Microsoft chief executive Steve Ballmer last month to express competition 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.