Report: Why EU Socked It to Microsoft

According to a more than 300-page European Commission report, the EC attributes its doubling of the original fine it had planned in its antitrust case against Microsoft to the company's financial standing and refusal to change its business practices durin

The European Commission has more than doubled the fine it had originally planned in its antitrust case against Microsoft Corp. because of Microsofts considerable financial resources, according to the full text of the decision, due for publication this week.

The decision, which leaked widely on Thursday and was published by the online edition of the Wall Street Journal, shows that the EC relied extensively on information from Microsofts competitors, as well as on internal memos from Microsoft itself. Microsoft responded with a seven-page evisceration of the decision, arguing it "creates new law in an effort to justify unprecedented regulatory intervention." The EC is the executive arm of the European Union.

The more than 300-page document gives a lengthy justification for the ECs record fine, citing case history, evidence from competitors, market data and Microsoft s internal correspondence. In arriving at an amount for the fine, for example, the EC examined Microsofts financial standing and its refusal to change its business practices over the course of the investigation.

Initially, the commission planned to fine Microsoft 165.7 million euros, the decision said, "to reflect the gravity of the infringement." Later, the commission doubled that figure to 331.5 million euros, "in order to ensure a sufficient deterrent effect on Microsoft."

The doubling was necessary because "Microsoft is currently the largest company in the world by market capitalization," the decision noted in footnote 1,342, referring to Microsofts $49 billion cash reserve in June 2003, its 41 percent profit margin overall in the 2002-2003 fiscal year, and its 81 percent profit margin on Windows in the same time period.

Finally, the commission increased the fine by another 50 percent, to 497 million euros ($613 million) because the company refused to alter its business practices during the course of the investigation. The duration of Microsofts two abuses—refusing to supply server compatibility information and tying Windows to media player software—together added up to five years and five months in duration, the decision said.

Next page: Internal memos.