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Monday, September 17, 2007, 03:35 pm PT (06:35 pm ET)

EU ruling on Microsoft anti-trust sets precedent for Apple

The rejection of an appeal by Microsoft in a major European Union anti-trust case could provide ammunition for allegations that Apple's iTunes Store is engaging in unfair pricing.

Europe's Court of First Instance upheld a 2004 ruling against the Windows developer that found it responsible for abusing its monopoly of the software business, maintaining that the company owed the equivalent of $689.7 million in fines and had to ensure that its business practices followed European laws.

The original decision was the result of a six-year anti-trust investigation by the European Commission which found that Microsoft had illegally preserved its foothold on media playback software in Europe by bundling Windows Media Player with its operating system. RealNetworks and other firms participating in the investigation had argued that they were unable to gain meaningful marketshare, as few customers were aware of (or needed) an alternative program to play music and videos. RealNetworks decided against waiting for the appeal's decision and settled privately with Microsoft for approximately $761 million in 2005.

An additional complaint leveled against Microsoft in the case blamed the firm for hiding program source code that prevented Sun Microsystems and other rivals from building software that could interoperate with Windows servers.

Microsoft's general counsel Brad Smith said the company would agree to any final terms but was uncertain as to whether it would file an appeal with its last possible resort, the European Court of Justice. The ruling by the Court of First Instance was "serious and substantial" and deserved a cautious response, Smith said.

Though this leaves Microsoft's fate uncertain, the ruling could set an immediate precedent for future anti-trust cases. Until the latest ruling, the European Union had lacked few opportunities to test its anti-monopoly laws but has now gained a supporting case to wield against companies suspected of tactics similar to those reportedly practiced by Microsoft.

One of these is likely to be Apple. The California firm was accused along with record labels EMI, Sony-BMG, Universal, and Warner of crafting illegal deals for the iTunes Store that limited customers to buying from the online shop targeted at their country of origin. This kept prices artificially high for the same music in certain countries, the European Commission said when it began an investigation in April of this year.

Apple has so far denied that it had deliberately segmented the European market, contending that it had wanted a Europe-wide store from the beginning and had been pushed into negotiating separate deals by its record label partners. An EU spokesperson agreed that the focus should be on the four labels and that Apple was primarily involved only by association.