Microsoft Set Back in Europe

A court in Luxembourg won't stay mandated antitrust sanctions.
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Updated from 7:57 a.m. EST

A European court refused to grant

Microsoft

(MSFT) - Get Report

a stay on antitrust sanctions Wednesday, forcing it to move ahead with plans to sell a version of Windows that doesn't include the Media Player music and movie program.

"After examining the circumstances of the case, the president finds that Microsoft has not shown that it might suffer serious and irreparable damage as a result of implementation of the contested decision," the Court of First Instance in Luxembourg said in a statement.

The ruling upholds a March order from the European Commission that found Microsoft enjoyed unfair advantages because of its stranglehold on the market for computer operating systems. Microsoft had sought to delay implementation of the order while it appealed the ruling, which also included a $612 million fine and a requirement that it publicize certain programming code related to Microsoft's server business.

Shares of the Redmond, Wash., company were recently down 6 cents to $27.01.

Microsoft already paid the fine imposed by the EC on June 29. The company plans to offer a new version of Windows without Media Player -- at the same price as Windows with Media Player -- in Europe to PC manufacturers in January. The new version will make its way into the entire distribution channel by February.

Meanwhile, Microsoft plans to launch a Web page later Wednesday to provide information about how to license communication protocols. The EC is requiring Microsoft to make available to competitors for a royalty fee technical interface information necessary to allow non-Microsoft work-group servers to achieve full interoperability with Windows PCs. Any company in the world can license those protocols, but they can only be used in the European economic area, according to Microsoft.

Microsoft General Counsel Brad Smith said the company has not yet decided whether it will appeal Wednesday's decision on the sanctions, but it expects to reach a decision in less time than the two months allowed by the court.

Smith maintained that the ruling Wednesday does not set a precedent for future bundling of other products with Windows, but rather only establishes that removing features from Windows is not likely to cause irreparable harm to Microsoft. Only Microsoft's pending appeal on the merits of the case will establish a precedent, he said. The appeal could take years to resolve.

Smith also suggested that parts of the court's decision offered reasons to be optimistic about the company's broader appeal. In particular, Smith noted that the court highlighted Microsoft's argument that the commission should have given greater weight to the positive benefits of Microsoft's bundling. In addition, the court noted that content providers do have recourse to different media formats; the EC has not disputed this.

"We are hopeful that the issues highlighted by the court will create an opportunity for the parties to discuss settlement," Microsoft said in a statement. "As we have always stated, we believe that there are better ways to address such complex and technical issues, with a minimum of harm to European consumers and the European technology sector."

Microsoft has said the EC's original decision undermines innovation and imposes new obligations on companies to license proprietary technology to competitors. Smith noted that rival

Sun Microsystems

(SUNW) - Get Report

, which has shown the most interest in gaining access to technical information related to Microsoft's server business, already achieved that goal through a separate settlement. Meanwhile, he said Microsoft has always been skeptical that consumers and even competitors would be interested in an unbundled version of Windows without Media Player.

The EC, by contrast, said the unbundling of Windows Media Player will give consumer and computer manufactures a choice between taking Windows with Media Player or a different player, ultimately leaving it to the market to decide the final outcome of the competitive process. The access to how technical information about servers will eliminate an "unbeatable advantage" enjoyed by Microsoft.

Currently, only

Hewlett-Packard

(HPQ) - Get Report

preinstalls rival

Real Networks'

(RNWK) - Get Report

competing RealPlayer on PCs sold in the U.S.

"We intend to work with partners and potential partners to try to take advantage of the opportunity created by the European Commission to offer more choices to PC makers and consumers," RealNetworks deputy general counsel Dave Stewart said Wednesday. Stewart called the decision Wednesday a "step in the process to creating a level playing field in digital media."

Last month, after Microsoft

settled with two of the five major players involved in the EU case, RealNetworks remained as the last hold out still fighting Microsoft.With those two settlements, Microsoft for the first time put a price tag on its remaining antitrust legal exposure, at $950 million. RealNetworks is still fighting Microsoft over antitrust charges in the U.S.