South Korea's antitrust regulator fined Microsoft 33 billion won ($32 million) for violations of fair trade regulations and ordered the company to remedy alleged unfair trade practices on Wednesday, a Microsoft representative said.
"We are very disappointed at the commission's decision," said Tom Burt, vice president and deputy general consul at Microsoft. "We will appeal the decision. We are quite confident we will win," he added.
Angry regulators demand open Windows
South Korea's Fair Trade Commission (FTC) ordered the world's largest software maker to offer two versions of Windows in the country. In one version, Windows Media Player and Instant Messenger software must be removed; the other version must include links to sites that allow consumers to download comparable software offered by competitors.
In addition, the company must send CDs to existing users of Windows, allowing them to replace Media Player and Instant Messenger. The FTC also ordered Microsoft to unbundle Windows Media Service from the Windows Server operating system.
"The Korea Fair Trade Commission found such tying practices liable because they constitute abuse of a market dominant position and unfair trade practices under monopoly regulations and the Fair Trade Act," Kang Chul-kyu, the commission's chairman, told reporters in Seoul.
The FTC decision comes following the conclusion of an investigation into Microsoft's business practices that began in April. That investigation was sparked by a complaint that South Korea's Daum Communications filed with the FTC in 2001 over its messaging software and separate antitrust charges brought by RealNetworks in 2004.
Microsoft earlier reached settlements with Daum and RealNetworks in these cases.
"In essence, the FTC is asking us to create two new versions of Windows that are not sold anywhere else in the world," said Oliver Roll, Microsoft's regional spokesman. "That is bad for the consumer and bad for the Korean IT industry."
Roll said he did not have the appropriate information to say how technically onerous it would be for Microsoft to make the changes demanded by the FTC to Windows.
Microsoft has 180 days from the date it receives the ruling to make the changes demanded, said Yi Sok-joon, director of the FTC's Competition Policy Division, in a telephone interview. Microsoft is expected to receive a detailed ruling in the next few weeks.
Legal battle begins
Yi anticipated a tough legal battle ahead.
"They may ask for a stay order from the court. If the court does not grant one, then they have to do it," Yi said. He added that the appeal could go all the way to South Korea's highest court, a process that could ultimately take between five and ten years.
Microsoft is currently appealing a 2004 European Union ruling that orders it to sell a version of Windows that does not include Media Player.
Asked whether he expected Microsoft to pull out of Korea should the FTC decision go against it - which the firm hinted at in a filing to the US Securities and Exchange Commission last month - Yi said: "I don't think so. They cannot pull out of the Korean market."
Microsoft said it has no immediate plans to withdraw.
"The remedy announced by the FTC means it looks like we won't have to withdraw Windows from Korea," Roll said. "A few weeks ago, one of the remedies being discussed with the FTC would have made us withdraw Windows from Korea, but with what we know today, we will not have to."
Some analysts suggested that the US company might reconsider after reviewing the numbers.
"Because of the piracy issue here, Microsoft's revenues in Korea may not be enough to make it worthwhile to spend more time and effort on this product," said Brendon Carr, an attorney with IT expertise at Aurora Law in Seoul.
Although it is not clear how much money Microsoft makes in Korea - the company does not separate its sales country by country in public filings –- the nation is not only the world's eleventh largest economy, it is also an IT powerhouse. But some say that a combination of endemic software piracy and an order to modify Windows in Korea may cause Microsoft to question its commitment to the market.
"The game now for Microsoft is getting a stay order," said Carr. "If they do not get that, they have some really tough decisions to make."