EU Levies $357M Fine on Microsoft, Threatens More Penalties Unless Company Obeys Antitrust Order
The European Union levied a second massive fine on Microsoft e280.5m ($357.3m) for defying a 2004 antitrust ruling, and warned the company to comply or face bigger fines from next month and order to share technical details of its Windows operating system with rivals.
The new penalty is the first of its kind and comes on top of a record e497m fine the Commission imposed in its landmark antitrust decision against Microsoft in March 2004. It also faces new penalties of 3 million euros ($3.82 million) a day beginning July 31.
"Microsoft has still not put an end to its illegal conduct." The EU Commission cannot allow such illegal conduct to continue indefinitely. No company is above the law, said EU Competition Commissioner Neelie Kroes.
"I have no alternative but to levy penalty payments for this continued compliance, Kores said."
Each and every company, large or small, operating in the EU must abide by EU law, Kroes said. The Commission required Microsoft to provide technical information to rival server software makers after it found the company abused the dominance of it Windows operating system and squeezed out competitors.
Microsoft — which in comparison earned $2.98 billion in the quarter ended March 31 — said it would appeal, claiming the “unprecedented” amount was unfair.
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 that the EU had never been clear about what it wanted.
“Microsoft did not even come close to providing adequate information,” Kroes said. The fine covers the period from December 16 to June 20 at e1.5m daily. It fell short of a possible daily maximum of e2m. Microsoft faces a further fine of up to e3m a day if it still does not comply by July 31.
The EU told the company to supply “complete and accurate technical specifications” to developers to help them make software for servers that help computers running Windows, printers and other devices on a network talk to each other. It accused Microsoft of using its monopoly position with Windows to elbow into the new server software market.
But Smith said the EU had not been clear about its demands and how Microsoft should present the information.
“Before one imposes a fine of hundreds of millions of euros, I think that there is a responsibility the government has to be specific and concrete about what it wants someone to do,” he told reporters in a conference call. “The decision did not do that.”
The move signals the Commission’s determination to force the software giant to obey its order and a loss of patience after the company had two years to comply and used virtually every available legal and court procedure to spin out the process.
The Commission’s hard-line approach contrasts with that of the U.S. which in 2000 made similar findings against Microsoft but is still awaiting technical documents from the company as ordered by the US Justice Department in 2002. By May this year, the process was so troubled that Microsoft and the court started over again in a process that took the cue from what a US judge called “the European Commission’s direction”.
Kroes said Microsoft’s earlier efforts had not come even close to a readable manual developers could use. Her decision is based on reports from an independent monitor — computer science professor Neil Barrett — and other technical advisers.
They have had harsh words for Microsoft. In December, Barrett called the documentation "totally unfit" for its intended purpose.
“The documentation appears to be fundamentally flawed in its conception, and in its level of explanation and detail,” he wrote in his report. Overall, the process of using the documentation is an absolutely frustrating, time-consuming and ultimately fruitless task. The documentation needs quite drastic overhaul before it could be considered workable.
In March, information technology consulting group TAEUS looked again at a revised document Microsoft had supplied. They did not change their tune.
TAEUS described the manual as “entirely inadequate,” “devoted to obsolete functionality” and “self-contradictory.”
Microsoft said it has made efforts to comply with the Commission’s 2004 ruling and now has 300 people working to complete its package by an agreed deadline of July 18.
It called the fine unjustified, but said that will not slow its effort to comply. Microsoft, which has appealed against every ruling against it so far by the Commission, said it will appeal against this decision too.
Despite these fines, Microsoft remains totally committed to full compliance with the Commission’s 2004 decision, the company said in a statement. The court is already reviewing an underlying challenge by Microsoft to the original Commission decision, and conducted a hearing in April on it.
However, Kroes praised the company’s recent work to improve the documentation, saying it was "extremely good." On June 20, Barrett had told her that just one out of 70 documents was ready for testing.
After years of investigation, the Commission found in 2004 that Microsoft used the near-monopoly power of its Windows operating system to harm competitors making workgroup servers, which run printing and sign-on services in offices.
The Commission ordered Microsoft to give rivals the information needed so their servers could compete on a level playing field with Microsoft’s own. Microsoft must help its rivals interconnect smoothly with Windows.
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. “The launch next year (of Vista) will hopefully be in a shape in which all those 2004 decision items are taken into account,” Kroes said.
Kroes, though, said she had showed restraint on the new fines as the EU can fine a company up to 5 percent of its global revenue. This would mean a fine of 4.3 million euros ($5.5 million) a day out of Microsoft’s daily revenue of 85.7 million euros ($109 million) from July 2004 to July 2005, she said.
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.
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 do not buy Microsoft’s line that they did not know what was being asked of them because the March 2004 decision is absolutely crystal clear,” Kroes said.
Microsoft said it only fully understood what it needed to do after talks with the monitor in April. The company said it has 300 people working to supply the information. Six of seven installments have already been delivered, it said, and another is due shortly.
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.
Ronald Cass, consultant and a former Microsoft adviser, said the EU showed an “arrogant certainty” in the correctness of its decision by levying fines without waiting for the company to complete its current project.
It is the first time the EU has fined a company for not obeying an earlier order. Microsoft has three months to pay fine.