EU fines Microsoft another $1.3B

Wraps up 2004 case, but new investigations into Office and IE will continue, says antitrust chief

The European Union's chief antitrust regulator fined Microsoft Corp. another $1.3 billion (899 million euros) today for what she said were business practices that "continued to stifle competition" after it was ordered to change four years ago.

"The commission's latest fine is a reasonable response to unreasonable actions by Microsoft," said Neelie Kroes, the EU's commissioner for competition.

Microsoft didn't dispute today's move by the EU, but said it was old news. "These fines are about the past issues that have been resolved," the company said in a statement. "As we demonstrated last week with our new interoperability principles and specific actions to increase the openness of our products, we are focusing on steps that will improve things for the future."

Microsoft had already been fined a total of $1.16 billion by the EU in two previous levies, including the original March 2004 ruling and a 2006 penalty for noncompliance. Including today's fine, the company will have been hit with penalties that total just under $2.5 billion.

"If you break the rules, you will be caught," Kroes said in a press conference announcing the fine.

Today's fine, she said, was applied because Microsoft continued to thumb its nose at the EU for more than a year -- 488 days, Kroes said at one point -- by charging an "unreasonable price" to rivals that licensed Windows' communication protocols to make their own software work more smoothly with the U.S. software maker's server products. Last October, after losing an appeal in Europe's second-highest court, Microsoft announced changes to its protocol licensing, and reduced fees to a flat-rate 10,000 euros.

After that move by Microsoft, Kroes said the company was in compliance with the 2004 order, but made it clear that fines for its past behavior were still on the table.

"In plain English, Microsoft continued to abuse its powerful market position after our March 2004 decision requiring it to change that practice," Kroes said. "Microsoft continued to stifle competition by charging prohibitive royalty rates ... which effectively rendered the offer of information pointless."

The fine, Kroes said, could have been nearly twice as large as the one applied today. Microsoft, in fact, had done the calculations earlier, and in a January filing to the U.S. Securities and Exchange Commission, had said it might be ordered to pay as much as $2.26 billion (1.5 billion euros). "We could have gone as far as 1.5 billion," Kroes said. "The maximum amount is higher than what we did at the end of the day."

Today's fine comes less than a week after Microsoft unveiled more changes to its licensing and information disclosure practices. Last Thursday, CEO Steve Ballmer and other executives rolled out what they called "interoperability principles" that they said included documenting Windows protocols and APIs.

The EU's Competition Commission was skeptical then, and Kroes remained that way today. "Talk is cheap. Let's wait and find the reality in this case," she said. "First show me."

She also wasted no time in separating today's fine -- the final chapter in the EU's long-running battle with Microsoft over server protocols -- from still-active complaints against the company that her agency is investigating.

In December, Opera Software ASA, the Norwegian maker of the Opera browser, filed a formal complaint that charged Microsoft with stymieing competition by tying the Internet Explorer browser to Windows. Last month, the commission said it would look into Opera's complaint and another that involved Microsoft's Office suite. The second complaint, which was filed by the European Committee for Interoperable Systems, a trade group whose members include many of Microsoft's rivals, including Adobe Systems Inc., IBM, Oracle Corp. and Sun Microsystems Inc., involves Office 2007's native file format, Open XML.

"This is about the 2004 decision only," Kroes said today, talking about the latest fine, "and not about any of Microsoft's other actions." The investigations announced in January, she said, are not connected to today's fine and will continue.

She also warned Microsoft to toe the line. "There are lessons I hope Microsoft will learn," she said. "Talk, as you know, is cheap. But flouting the rules is expensive."

Copyright © 2008 IDG Communications, Inc.

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