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July 12, 2006

EU fines Microsoft with more hits coming

Posted by David Hunter at 10:18 AM ET.

Straight from the European Commission:

On the basis of an analysis of all the relevant evidence on the file, the Commission’s conclusion was that as of 20 June 2006, Microsoft has still not complied with its obligation pursuant to the Decision to supply complete and accurate interoperability information. Therefore, on 12 July 2006, the Commission adopted a Decision pursuant to Article 24(2) of Regulation 1/2003 (“the Article 24(2) Decision”) imposing on Microsoft a penalty payment of €280.5 million for non-compliance with its obligations (€1.5 million per day for the period from 16 December 2005 to 20 June 2006).

This Decision also warns that should Microsoft not be in compliance with its obligations from 31 July 2006, it is liable to face a daily penalty payment of up to €3 million from that date. Article 24 of Regulation 1/2003 entitles the Commission to impose such penalty payments not exceeding 5% of average daily turnover in the preceding business year per day.

€280.5 million is about $357 million and clearly they will feel more is owed from June 20 to whenever they deem the interoperability information is satisfactory, with the daily fine possibly rising after July 31. The only real surprise here is that they didn’t hit them with the maximum possible fine of 2 million euros per day. Microsoft says they will take the EC to court over the fine, but despite being treated so shabbily, they’re working hard on rounding up the required interoperability information. Also be aware that after the information is delivered, there is still an argument over licensing terms:

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.

There’s gold in them thar hills for the perpetually hard up EU bureaucrats! I’ve vented about both parties in this case recently, so I’ll restrain myself now and cut to the chase: Microsoft got off lightly in the 2004 decision, but by not handling the compliance properly and promptly while awaiting their day in court, they are now surrounded by circling bureaucrats who smell blood in the water and who would like to take a bite out of Vista too:

European Union Competition Commissioner Neelie Kroes said on Wednesday that Microsoft must take into account the EU’s 2004 antitrust ruling when it launches its new Vista operating system next year.

“I’m consistent in the philosophy and we are absolutely crystal clear what it’s about. So Microsoft is aware of it,” Kroes said, suggesting that the need to comply with EU rules was one reason why Microsoft had delayed the launch of Vista from this year into 2007.

Nice of Neelie to comment. The 2004 ruling was specifically only about a bundled media player and the interoperability information, but the feeling is that Kroes is talking more about the spirit than the letter of the decision:

In the decision that was intended to set a precedent, it also found that Microsoft harmed competitors by illegally bundling its Windows Media Player with the operating system, leaving consumers with little incentive to buy rival software to watch films or listen to music.

The bundling issue poses concerns already voiced by Kroes about Microsoft’s next operating system, Vista, which could package Internet search functions or software that creates fixed documents and thus threaten Google and Adobe.

More here, but even more ominous is Microsoft Smith: Have laid out 4 Vista alternatives:

General Counsel Brad Smith, in a conference call to discuss the $357 million fine the company received from the European Commission, said it’s laid out four alternatives to European regulators on what to do about its next-generation Vista operating system. Smith said the E.C. has yet to respond about the proposed alternatives, which he didn’t outline.

Given the European Commission’s track record to date, I’m surprised the four alternatives haven’t been leaked yet. Also given the Commission’s track record, maybe we should start calling it Vista 2008.

OK, Microsoft, let’s see you put this genie back in the bottle.

Update: CNET’s Dawn Kawamoto interviews Neelie Kroes who says, “I nevertheless take note that a significant number of companies, both European and American, are expressing concerns to us on the potential competition implications of Vista.”

Filed under Antitrust, General Business, Governmental Relations, Legal, Microsoft, OS - Client, Windows Vista

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3 Responses to “EU fines Microsoft with more hits coming”

  1. Vista unaffected by EU meddling? -- Microsoft News Tracker Says:

    [...] The elephant in the living room in the Microsoft dust up with the European Union is what the effect will be on the release of Windows Vista. As I mentioned yesterday, it is quite clear that there is active negotiation between the two parties generated at least in part by complaints from Microsoft competitors and Competition Commissioner Neelie Kroes was even taking credit for Vista schedule slips. To date there hasn’t been much of a concrete nature from Microsoft other than top lawyer Brad Smith’s “we offered them four alternatives but haven’t heard back,” but yesterday the head of Microsoft’s Japanese unit weighed in: A European fine on Microsoft Corp. will have no effect on the launch of Vista, its next-generation Windows operating system, the U.S. software giant’s Japan unit said on Thursday. [...]

  2. Microsoft appeals EU noncompliance fine -- Microsoft News Tracker Says:

    [...] As promised back in July, Microsoft is appealing the European Commission’s imposition of an additional fine for noncompliance with their original 2004 judgement against the company: Software giant Microsoft has filed an appeal against a 280.5 million euro ($356.4 million) fine the European Commission imposed in July, holding it defied a 2004 antitrust ruling. … The appeal was lodged with the Court of First Instance in Luxembourg, the second highest European Union court. …The 280.5 million euro fine was on top of a record fine of 497 million euros the Commission imposed in its landmark antitrust decision against the U.S. software giant in March 2004. If you’re having a hard time keeping track, Microsoft also appealed the original 2004 decision to the Court of First Instance, but no decision on that is expected until late this year or early next. There’s no forecast on when this latest appeal will be heard. Filed under Legal, Governmental Relations, General Business, Antitrust, Microsoft [...]

  3. Vista Security API dispute turns nasty -- Microsoft News Tracker Says:

    [...] Then there’s the whopping supplemental fine that the European Commission slapped on Microsoft for the sluggish delay in delivering interoperability information the last time around. Why does Microsoft persist in playing the same old tune? Do they think the regulatory reaction is going to be any better this time? If they really like waving a red flag at Neelie Kroes, they shouldn’t be surprised when she shows up snorting and pawing the ground. Filed under OS – Client, Windows Vista, Coopetition, Legal, Governmental Relations, General Business, Antitrust, Symantec, McAfee, Microsoft [...]

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