EU Hits Microsoft With Record Fine

By Ian Betteridge  |  Posted 2004-03-24

EU Hits Microsoft With Record Fine

Microsoft Corp. has been hit by record fine of 497 million euros ($613 million) by the European Union for abusing its dominant market position with Windows. The company has also been ordered to effectively offer to manufacturers a version of Windows without Windows Media Player.

The previous highest fine in EU history was 462 million euros against Hoffman-La Roche in 2001, in a case that centered on the operation of a vitamin cartel. The previous largest fine in a case involving market dominance was 75 million euros. However, this fine is significantly less than the $3 billion the EU could have levied against Microsoft, based on 10 percent of its worldwide revenues.

Microsoft senior VP Doug Burgum sounds off on the EU. Read what he said.

According to Mario Monti, the European Competition commissioner, Microsoft had abused its dominance of the operating systems market both by tying Windows Media Player to Windows and by failing to release information about Windows to competitors in the server market. The company now has 120 days to provide information to other server vendors and 90 days to provide a version of Windows without Media Player.

The commissioner also ruled that Microsoft must supply the version of Windows lacking Media Player without any commercial or technological handicaps that would have the effect of "rendering the unbundled version of Windows less attractive or performing. In particular, it must not give PC manufacturers a discount conditional on their buying Windows together with the Windows Media player," he said.

"Dominant companies have a special responsibility to ensure that the way they do business doesnt prevent competition on the merits and does not harm consumers and innovation," Monti claimed.

Next page: Microsoft attacks the decision.

Microsoft Attacks Decision

Microsoft was quick to attack the decision, with Brad Smith, senior vice president and general counsel for the company, claiming it is "a setback for our entire industry, and also for consumers." Smith claimed the remedies proposed by the commission offer less to consumers than the settlement the company had offered it last week. "Instead of getting immediate action in 2004, were now on a path to have some action in 2009, he claimed, pointing to the drawn-out nature of any appeal.

The company also claimed that the version of Windows without Media Player would be a significant step back for functionality in Windows, and that many third-party applications and other Windows features rely on Media Player being present.

"Whatever the commission is ordering us to produce is not Windows. It amounts to the commission ordering us to give a compulsory license to our intellectual property for the commission to insist on us using the Windows logo on it," Smith claimed.

The unprecedented size of the fine has already led some commentators to speculate that Microsoft may have fallen prey to a political decision. "If settlement talks failed because Microsoft failed to offer enough concessions … thats the process at work," said Joe Wilcox, senior analyst at Jupiter Research. "If Microsoft made a legitimate offer but fell prey to politics, then justice has stumbled."

In a statement, Microsoft claimed that the settlement it proposed to Monti last week "would have been better for European consumers."

Microsofts Smith questioned what the judgment set out to achieve."If [Real] is able to distribute its software to hundreds of millions of people every year, why is any action required at all?"

Microsoft immediately announced it will appeal the decision to the European Court of First Instance, in a legal battle that may take many more years to complete.

For more on Microsofts appeal, read "Microsoft to Appeal European Sanctions."

However, there was praise for the decision from some quarters. Michael Reynolds, a lawyer representing Sun Microsystems Inc. at the London firm of Allen & Overy, said, "Were very pleased to see a decision in this case. We havent had a major decision in this sector since the IBM, case, and even that wasnt a decision, that was settled. Absent this decision, there was no guiding principle relating to this sector, so were definitely better off."

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