The biggest loser in Microsoft's $732 million European Commission fine may be Google

The $732 million Microsoft has agreed to pay for violating its anti-trust agreement about browser choice may be a black eye and financial whack for Microsoft. But the real loser may be Google, because the agreement signals that the E.U. may be taking a harder line in anti-trust actions -- and it's got Google's core business in its sights.

The fine comes as a result of Microsoft violating an anti-trust settlement it made with the E.U. in 2009. Opera Software complained that Microsoft was unfairly gaining browser market share by tying Internet Explorer too tightly to Windows. Microsoft agreed to show European users of Windows a "browser ballot" that showed download links to various browsers, including Chrome, Firefox, and Opera.

Microsoft initially complied. But then, Windows 7 Service Pack 1 (SP1) didn't display the browser ballot, and for 14 months, between May 2011 and July 2012, users weren't shown it. An estimated 15.3 million people didn't ballot as they should have, estimates Joaquin Almunia, the European Commission's top antitrust regulator.

In July, 2012, Microsoft admitted that it had made a mistake and fixed it, but said the mistake was due to a "technical error" by an engineering team. Negotiations have been going on between Microsoft and the E.U. since then about a fine.

Microsoft had this to say about agreeing to pay the fine:

"We take full responsibility for the technical error that caused this problem and have apologized for it. We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake -- or anything similar -- in the future."

What does any of this have to do with Google? Plenty. The New York Times notes that this is the first time that the E.U. has fined a company for violating the terms of an anti-trust agreement. The paper reports:

It could signal their determination to enforce deals in other cases, including one involving Google, where such an agreement is under discussion.

The Times adds that Microsoft may even have agreed to pay the fine as a way to curry favor with the E.U., because the company has been asking the E.U. to take action against Google for what it considers anti-competitive search practices:

Although Microsoft has appealed many of its past punishments, it may be reluctant to do so this time, preferring to focus on its rivalry with Google. Microsoft is among the companies that have complained about Google's business practices to Mr. Almunia.

Google has been under investigation by the E.U. for anti-trust practices since November of 2010. What's at stake is much, much larger than 14 months of browser choice. The investigation focuses on whether Google uses its Internet search results to give its own service an illegal, unfair advantage over competitors. That's at the core of Google's business, not a side issue like browser choice is to Microsoft.

The financial implications can be staggering. The Times reports that Google could be fined "as much as 10 percent of Google's annual global sales, which came to about $50 billion last year." That's $5 billion --- and it's unclear whether that would be a one-time penalty, or whether there might additional penalties for more than one year. In addition, the E.U. would want Google to change the way it ranks search results, to ensure that Google's  own services aren't given unfair advantage over competitors.

Google and the E.U. are currently in talks about a potential fine and settlement. But the Times notes that the hard line the E.U. took against Microsoft doesn't bode well for Google:

A final agreement may not come until later this year, suggesting that the strategy of seeking quick results in antitrust technology cases through settlements instead of lengthy legal battles could be coming undone.

So yes, a $731 million fine and resulting bad publicity is never a good thing. But in this instance, Microsoft may have lost the battle as a way to hope to win the war.

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