Dec. 7 (Bloomberg) -- Microsoft Corp., the world's largest software maker, was punished for breaching antitrust rules by South Korea, which followed the European Union in ordering the company to sell multiple versions of its Windows operating system.

Microsoft will have to offer consumers the choice of buying Windows without its media player and instant-messaging software and pay a 33 billion won ($32 million) fine, the Korea Fair Trade Commission said in a statement today. Microsoft will appeal, company lawyer Tom Burt said in an e-mail.

The verdict mirrors a March 2004 ruling by European regulators that fined the Redmond, Washington-based company 497 million euros ($584 million) and ordered a similar stripped-down Windows. While Korea accounts for less than 1 percent of Microsoft's sales, the ruling may encourage companies to challenge Microsoft in other countries, according to Brendon Carr, a lawyer at Aurora Law Offices in Seoul.

``It could increase the hassle factor in all the other small markets around the world,'' said Carr, who advises multinational companies on issues including antitrust in Korea.

In October, Microsoft threatened to pull Windows out of Korea if regulators forced the company to remove code or redesign the operating system because it would create glitches in the overall program and increase programming costs.

Similar Cases

``It could pave the way for other governments to build similar cases against Microsoft,'' said Matt Rosoff, an analyst at Kirkland, Washington-based researcher Directions on Microsoft. The cost of developing multiple versions of Windows may be billions of dollars and ``gravely increase the cost of building their main product and hamper their ability to develop software.''

``We are disappointed with the commission's decision and strongly believe that their case is without basis in law or in fact,'' Burt, Microsoft's deputy general counsel, said in the e- mail. ``We will be appealing this decision and are confident that we will ultimately prevail.''

In Washington, the U.S. Justice Department said the ``Korean remedy goes beyond what is necessary or appropriate to protect consumers.'' J. Bruce McDonald, a deputy assistant attorney general, said in a statement any order to ``strip out functionality can ultimately harm innovation and the consumers that benefit from it.''

Lackluster Demand

McDonald said there has been ``lackluster'' demand for the stripped-down version of Windows ordered by the European Commission. In 2001, the Justice Department settled its antitrust case against Microsoft when the company agreed to allow computer makers to promote competing Web browsers, media players and other software applications.

Microsoft probably won't withdraw Windows from South Korea because the measures announced today are different from an earlier proposal to force the company to only offer a stripped- down version of the operating system, Burt said.

Korean Regulators said Microsoft's inclusion of its Media Player and MSN Messenger programs with Windows hurt consumers and ordered the company to sell a version of the operating system stripped of the programs, which allow computer users to watch videos, listen to music and send real-time messages.

The other version will have the programs and contain links to Web sites allowing consumers to download competing products, the regulator said. It called for the changes within 180 days.

Fair Trade Commission director-general Kim Byung Bae said at a press briefing in Seoul that regulators will consider reviewing the validity of other programs if the ruling is challenged.

Pullout

Jonathan Zuck, president of the Association for Competitive Technology, a U.S. trade group that has lobbied on behalf of Microsoft, said the Korean ruling threatens to hinder innovation in the industry.

``By dictating how successful companies can innovate their products, this decision will have dangerous consequences for the industry and consumers throughout the world,'' Zuck said in a statement today. ``The future of innovation will be jeopardized if every successful company is strangled by a patchwork of different and often conflicting international regulations.''

Microsoft Chairman Bill Gates is seeking to increase sales by making computers part of home-entertainment systems for playing music and games and staying in touch with friends and relatives. Part of that strategy has been to sell such systems included, or bundled, with the Windows operating system.

Settled Disputes

Sales in Asia, Europe and other regions outside the U.S. accounted for almost a third of Microsoft's $40 billion in revenue last fiscal year.

The sanctions will apply for 10 years after the software maker is officially notified and Microsoft can appeal after five years, the Korean commission said.

Before the ruling, Microsoft settled disputes with Daum Communications Corp. and RealNetworks Inc., which had lodged complaints with Korean regulators.

Daum, which competes with Microsoft with its own messenger service and filed its complaint in 2001, in November settled for $30 million. Media player programmer RealNetworks, which filed a grievance last year, dropped its complaints after a $761 million settlement in October.

The EU relied in part on testimony by RealNetworks in deciding to hand Microsoft the record 497 million euros fine. Microsoft is appealing the EU case.

Shares of Microsoft dropped 1 cent to $27.68 as of 1:07 p.m. New York time in composite trading on the Nasdaq Stock Market.

To contact the reporter on this story: Young-Sam Cho in Seoul at ycho2@bloomberg.net

Last Updated: December 7, 2005 13:34 EST