EU fines Microsoft $357M in antitrust case

It says the company has not complied with its '04 decision

The European Commission said today that it has fined Microsoft Corp. $357 million for failing to comply with the terms of a March 2004 antitrust judgement against the company.

Microsoft has already paid a fine of more than half a billion dollars as a result of the judgement, in which the commission found that Microsoft had used its near-monopoly in the PC operating systems market to gain advantage in the markets for workgroup server operating systems and media players.

At the time, the EC also ordered the company to release a version of Windows XP without a built-in media player and to provide its competitors with technical details of certain communication protocols used by its server products.

The hefty fine announced today is to punish the company for failing to provide those technical details in a timely manner. If Microsoft continues to fail to comply, the commission will increase the amount of the daily fine to $3.8 million per day, it said.

"Microsoft says it's committing huge resources to tackling this problem. It's a shame they didn't do so two years ago," said Neelie Kroes, the European Union's competition commissioner.

Microsoft immediately dismissed the decision as inappropriate given its "good-faith efforts" to comply with the judgement over the past two years. Its general counsel, Brad Smith, called the level of the fine unjustified and said Microsoft will appeal to the European courts to determine whether the fine is justified.

"The fine announced today is larger than the fines the commission has imposed for even the most severe competition law infringements, such as price-fixing cartels," he said in a statement. "When you consider Microsoft's massive efforts to comply with this ruling, and the fact that more than a dozen companies are already using similar documentation provided in the U.S. to ship actual products, we do not believe this fine is justified."

He reiterated Microsoft's position that the EC's original decision lacked clarity.

The commission clearly had not accepted that argument, however.

"I don't buy Microsoft's line that they didn't know what the commission wanted. It was clear. Microsoft's documentation fell significantly short of the requirements," Kroes said.

Asked how the decision affects Windows Vista, Kroes said the forthcoming operating system must "avoid the problems highlighted in the 2004 decision."

"Hopefully, when Vista launches next year, all the issues of the 2004 ruling will have been taken into account," she said.

The commission initially gave Microsoft 120 days to disclose details of the software interfaces used by its server products to communicate with the desktop versions of Windows so that competing vendors could build compatible systems. Progress was slow, and in March 2005, and then again in June, the EC threatened the company with additional fines if it didn't fully comply with the ruling.

Microsoft succeeded in pushing back the deadline numerous times as negotiations continued, but the commission remained unsatisfied with Microsoft's progress, notably in documenting its software interfaces.

Microsoft is due to submit the final batch of technical documentation required by the commission by next Tuesday, according to a timetable the two parties agreed to with the independent monitoring trustee appointed to oversee matters.

"Nearly 50% of the documentation is there. Now we must check if the specifications are correct," Kroes said. She added that she felt sure that the company would not ignore the daily fines and that it has been making "constructive efforts" to comply since June 20.

The commission had earlier threatened fines of up to $2.54 million a day until all the required information about the communications protocols had been supplied. The $357 million figure is based on a fine of $1.9 million per day for the period from Dec. 15 to June 20.

On Nov. 10, the EC warned Microsoft that the company had not complied with two elements of the antitrust judgement and that it would be fined $2.54 million a day if it did not comply by Dec. 15.

More recently, the commission determined that as of June 20, Microsoft had still not complied with one of those obligations, supplying the documentation. This failure eliminated the effectiveness of the remedy, the EC said, and so it decided to impose a larger part of the daily penalty payment of $2.54 million.

If Microsoft has still not complied by July 31, then the commission could decide to increase the fine to $3.8 million per day.

In a separate action, Microsoft has also appealed against the antitrust ruling itself. The European Court of First Instance in Luxembourg finally heard that appeal in late April and is now considering its decision.

Copyright © 2006 IDG Communications, Inc.

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