The world's largest software maker was told by European Union regulators to pay a 497 million euro ($606 million) fine, decouple Windows Media Player from the Windows operating system and provide information on how its server software for networked computers works.

RealNetworks Inc., which makes the digital media software at the heart of the EC's ruling, applauded the EC decision, with deputy general counsel Dave Stewart calling the decision "fundamentally significant because the Commission has clearly ruled that Microsoft's strategy of bundling Windows Media Player into its software is illegal."

Yet the reaction among some of Microsoft's competitors fell well short of jubilation.

Sun Microsystems Inc., a longtime Microsoft adversary in the market for servers, said it wasn't sure whether Wednesday's ruling would help competition or its own ongoing antitrust case against Microsoft.

"All of those are things that need to get resolved before we're going to be able to say anything definitive about what we're going to do based upon this momentary decision," Sun vice president of legal affairs Lee Patch said.

Analysts point out that the U.S. government's antitrust case over Netscape ultimately resulted in a settlement allowing Microsoft to keep the Internet Explorer Web browser as part of Windows. Netscape now has a minimal presence in that market.

Microsoft Chief Executive Steve Ballmer, who is leading Microsoft's charge into new markets, said in a conference call that the EC's decision not to settle with Microsoft was a "much riskier course of litigation" for Europe.

"We believe we should have the ability to improve our products," Ballmer told reporters.

When settlement talks broke down last week, legal experts noted that Microsoft was essentially adopting the same strategy it did with the U.S. Department of Justice, by duking it out with authorities in courts and waiting for a more favorable political climate to reach a settlement.

LOOMING TRADE WAR?

In the U.S. capital, lawmakers were quick to come to Microsoft's defense, saying they would protest the EC's decision.

"I now fear that the U.S. and the EU are heading toward a new trade war -- and that the commission's ruling against Microsoft is the first shot," Senate Majority Leader Bill Frist, a Republican from Tennessee, said.

If the EC's decision prevails in what is expected to be a lengthy court battle in European courts, that would create a precedent making it difficult for Microsoft to bundle other features into its operating system software products.

"That's what Microsoft is really worried about," said Matt Rosoff, analyst at Directions on Microsoft, an independent research firm based in Kirkland, Washington.

Indeed, the breakdown in settlement talks between Ballmer and EU Competition Commissioner Mario Monti last week hinged on whether Microsoft would agree on general rules over software bundling for future disputes.

"That's why Monti was pressing so hard for a general rule," said Rosoff. "They were almost ready to reach a settlement until this issue over future rules came up."

At stake in future disputes could be any of the software market segments where Microsoft is hoping to make inroads, ranging from database and mobile phone software to speech software and applications for small and medium-sized businesses.

Oracle Corp. another Microsoft competitor in the database software market, declined to comment on Wednesday.

Still, security software vendors -- which provide security software that could potentially be bundled into Windows -- saw their shares rally on Wednesday on the view that the EC ruling would protect them from any potential Microsoft moves in the future.

Symantec Corp., best known for its Norton antivirus and firewall products, rose as much as 4.7 percent and RSA Security Inc., which sells network security software, soared 7.6 percent, both on the Nasdaq.

Source: Reuters