Microsoft Is Facing Record EU Fine
European regulators on Monday endorsed a record $613.5-million fine against Microsoft Corp., setting the stage for a sweeping antitrust ruling this week that could limit how the company builds and sells software in one of its most lucrative markets.
After deliberating less than an hour, representatives of the 15 European Union states agreed to fine Microsoft for illegally using the dominance of its Windows operating system to crush rivals.
The fine of 497 million euros will be announced formally Wednesday, along with other sanctions that are potentially more damaging to Microsoft. Those could include requiring the company to reveal more about Windows’ inner workings to competitors and selling a version of Windows without Microsoft’s Media Player software.
Although the fine would be the largest imposed by the European Commission, it is considerably less than the $3 billion it could have levied against Microsoft, which has spent years battling lawsuits around the world alleging anti-competitive behavior.
The Redmond, Wash.-based company has settled many of those cases with payouts totaling more than $1.5 billion. The settlements give consumers who bought Microsoft programs vouchers they can use to buy computers and software from Microsoft or competitors.
Microsoft has more than $50 billion in cash reserves. It would take the company, which had global revenue of $32.2 billion last year, less than a month to earn $613.5 million. Nonetheless, Microsoft spokesman Jim Desler said the EU’s penalty was unjustified.
“It’s hard to see how a fine of this magnitude could be warranted under these circumstances,” Desler said. “It’s unprecedented for the commission to impose a fine on a company’s U.S. operations when those operations are already regulated by the U.S. government and the conduct at issue has already been permitted” by the Justice Department and the federal courts.
Since 2002, when Microsoft settled the landmark antitrust case filed against it by the Justice Department, the company has been required to share more of Windows’ internal workings with competitors and to give computer makers more leeway over the programs they install on their Windows-based machines.
Many Microsoft critics and competitors have been watching the European case closely, hoping the EU would impose tougher sanctions than the Justice Department.
Brussels antitrust lawyer Thomas Vinje, who represents Microsoft opponents, called the EU fine a “traffic ticket for Microsoft,” but said “the commission is obviously trying to send the most powerful signal possible that Microsoft must change.”
Until Monday, the largest fine levied by the European Commission was a 462-million euro penalty against Swiss firm Hoffmann-La Roche in 2001 for fixing the price of vitamins.
“We think a very large fine is appropriate for a company with this much money,” said Robert Kimball, general counsel of RealNetworks Inc., a Seattle-based software developer that provided testimony against Microsoft in the European case. “We are very impressed with the thorough, detailed and intelligent work the commission has done.”
European Competition Commissioner Mario Monti, Europe’s chief antitrust enforcer, is scheduled to announce the full sanctions against Microsoft on Wednesday. Later, he will send a 300-page report detailing the EC’s findings and legal conclusions.
The EC is expected to order Microsoft to remove its audiovisual software from some versions of Windows and to share more details about how the operating system interacts with the industrial-strength computers that run the Internet and corporate computer networks.
Experts say the sanctions will affect Microsoft’s ability to incorporate features of competing software into Windows. It could also potentially derail the company’s plans to enter huge and growing markets, such as transmitting phone calls over the Internet and using computer software to manage movies, music and other digital content rapidly accumulating in homes of personal computer users.
Europe accounts for about 30% of $11 billion in annual revenue that Windows brings Microsoft. Microsoft Chief Executive Steve Ballmer flew to Brussels last week for negotiations with Monti, but the talks broke down and Ballmer flew home without a deal.
“Any government-mandated unbundling of Windows’ features could have a profound long-term effect,” investment firm Legg Mason Wood Walker Inc. said in a report last week.
Following Monti’s announcement, Microsoft is expected to appeal the ruling to the Court of First Instance in Luxembourg. The company may also seek an emergency ruling allowing it to postpone any punishment until it exhausts its appeals, a process that could take years.
Valentine Korah, an antitrust professor at University College London in Britain, said Microsoft faces long odds in overturning an adverse ruling.
“The appeal ... is not a rehearing on the merits and the commission has been given a wide margin of discretion,” Korah said. “The appeal is ... confined to points of law.”
The case in Europe stems from a complaint filed by Sun Microsystems Inc., a Microsoft rival based in Santa Clara, Calif. Sun alleged that Microsoft used Windows, which powers more than 90% of all personal computers, to muscle rivals in the market for computer servers that manage PC networks.
Later, other software companies such as RealNetworks provided European investigators with evidence that Microsoft unfairly withheld technical information that made it difficult for Real to compete with Microsoft.
Times staff writer Joseph Menn in San Francisco contributed to this report.
