News

EU Fines Microsoft $357M, Threatens More

The EU fined Microsoft Corp. $357 million and threatened more penalties, saying the company failed to obey a 2004 antitrust order to share technical information with rivals.

• By The Associated Press
• 07/12/2006

Microsoft said it would appeal the fine, which was set at 280.5 million euros, claiming the hefty amount was unfair. Its shares fell 36 cents, or 1.6 percent, to $22.74 in early trading on the Nasdaq.

The European Union also said it would double fine rates to 3 million euros a day --or $3.82 million, at current exchange rates -- starting July 31 unless the company supplies "complete and accurate" technical information to help rivals make software that works smoothly with its ubiquitous Windows operating system.

"Microsoft has still not put an end to its illegal conduct," said EU Competition Commissioner Neelie Kroes. "I have no alternative but to levy penalty payments for this continued compliance. No company is above the law."

Microsoft General Counsel Brad Smith said the company would ask the EU's second highest court, the Court of First Instance, if its compliance efforts have been sufficient, claiming the EU had never been clear about what it wanted.

"We have great respect for the Commission and this process, but we do not believe any fine, let alone a fine of this magnitude, is appropriate given the lack of clarity in the Commission's original decision and our good-faith efforts over the past two years," he said in a prepared statement.

The EU imposed daily fines of 1.5 million euros ($1.91 million) after a Dec. 15 deadline to June 20, when it decided that Microsoft was still violating EU law. In comparison, Microsoft earned $2.98 billion in the quarter ended March 31 on revenue of $10.9 billion.It has three months to pay Wednesday's fine.

The EU already had levied a record 497 million euro fine on Microsoft in 2004 and ordered it to hand over communications code to rivals, saying it had deliberately tried to cripple them as it won control of the market.

Kroes also said Wednesday she warned Microsoft it had to take care to avoid antitrust problems with its new operating system Vista, which will include an Internet search and a PDF-type document reader that could pose problems for current rivals.

Smith said Microsoft had put forward four options for the way it could offer Vista in Europe. One would see it withdraw technology similar to the PDF file reader made by Adobe Inc., he said. The Commission has so far not responded.

Kroes said she had showed restraint on the new fines, since the EU can fine a company up to 5 percent of its annual global revenue. This would mean a fine of 4.28 million euros ($5.47 million) a day out of Microsoft's daily revenue of 85.7 million euros ($109.47 million), she said.

Rejecting Microsoft's claims that the EU's demands were vague and shifting, the EU said the obligations were specific and have not changed: "I don't buy that line," Kroes said, describing the EU's demands of March 2004 as "crystal clear."

Microsoft said it only fully understood what it needed to do after talks with an independent monitor this spring. The company said it has a team of 300 people working on a framework to supply the information. Six of seven installments have already been delivered, it said, and another is due next Tuesday.

Smith said despite the fines, Microsoft "remains totally committed to full compliance," adding that the company had handed over "thousands of pages" of technical documents to EU experts.

He said claims made by the EU that it was dragging its feet were also unfair and revisions of requested information were delivered "promptly."

Kroes was unrepentant, saying the independent monitor appointed to supervise Microsoft's revision of the documents had reported that only half are now ready to be tested.

"I sincerely hope that the latest technical documentation being delivered by Microsoft will bring them into compliance and that further penalty payments will not prove necessary," she said.

Even after Microsoft has supplied the information, it will take at least a month for it to be revised and around two months for the entire manual to be tested.

Any decision on new fines will be made in the fall. Regulators must also decide if the material is being supplied "on reasonable terms."

If they find that Microsoft is charging too much in royalties, they may also file new charges and levy new fines of 500,000 euros ($637,000) a day backdated to Dec. 15. Officials, however, said they would focus on getting Microsoft to deliver "quality" documentation before they come to any conclusions on royalty payments.

The fines will be fed back into the EU budget and divided between EU governments.

Two industry groups that backed the EU's case - the Software and Information Industry Association and the European Committee for Interoperable Systems - said they supported the new fine.

"Microsoft continues to profit in the market from every day of non-compliance," said ECIS in a statement. "(The) immediate decision to appeal these fines suggest that it will continue to impede EU antitrust enforcement at every possible opportunity."

The group's members include companies with a history of disputes with Microsoft: Adobe Inc., IBM Corp., Oracle Corp., RealNetworks Inc. and Sun Microsystems Inc.