Microsoft Yields to European Regulators
Software Giant Ends Years-Long Antitrust Fight

By Catherine Rampell
Washington Post Staff Writer
Tuesday, October 23, 2007

Microsoft yesterday capitulated to European Union regulators, ending a decade-long antitrust battle that some say could shape how U.S. companies operate in Europe.

As part of the settlement, the world's largest software firm agreed to abide by the terms of a Sept. 17 European court decision that requires the company to slash the royalties it is paid for access to information needed to create software that can run on the Windows operating system. Microsoft, which has paid $956 million in fines to the European regulators, may be ordered by the end of the year to pay an additional $1.58 billion.

This battle, one of many Microsoft has fought around the world, was considered a test of wills and reflects a gradual softening of Microsoft's approach to antitrust challenges.

The European Commission, the executive branch of the E.U., began investigating Microsoft for anti-competitive practices in 1998 after Sun Microsystems complained that Microsoft would not share technical data needed for creating programs that worked with Windows. In 2004, the commission ordered Microsoft to pay a record $613 million fine, divulge information to its rivals to allow their products to operate with Microsoft's software, and offer a version of Windows that didn't come with Windows Media Player. In 2006, when the commission determined that Microsoft hadn't fully complied with the 2004 ruling, regulators started imposing additional daily fines.

Last month, Microsoft lost its appeal of the commission's 2004 ruling.

"Now that Microsoft has agreed to comply with the 2004 Decision, the company can no longer use the market power derived from its 95 percent share of the PC operating system market and 80 percent profit margin to harm consumers by killing competition on any market it wishes," Neelie Kroes, the E.U.'s competition commissioner, said yesterday in a statement to reporters.

Some analysts said the ruling may force companies to tread carefully when considering how they sell their products, or the extent to which they cooperate with rivals when selling their products overseas.

Under the agreement, Microsoft will charge software developers a one-time fee of $14,300 to access its technology. Competitors that use Microsoft's protocols in their products will pay 0.4 percent of their revenue to Microsoft, rather than the 5.95 percent Microsoft had originally demanded.

Microsoft had been a fierce fighter. Shortly after the 2004 decision, the company denounced the ruling. "The commission is seeking to make new law that will have an adverse impact on intellectual property rights and the ability of dominant firms to innovate," Microsoft said at the time. "This adverse impact will not be confined to the software industry or to Europe."

But yesterday's concession indicates how the company's approach has changed.

"The perception had been that several years ago they would fight these things to the death, when now they're clearly being more judicious in making those decisions," said Charles Di Bona, an analyst at Sanford C. Bernstein. "The company is now fairly forward-looking . . . and they want to get this behind them and go forward."

Bernstein's parent company owns Microsoft shares.

Microsoft's concession comes after a series of smaller settlements with other sovereign and private interests. Last week, Microsoft dropped its appeal against South Korea's antitrust regulator.

Analysts say Microsoft's conciliatory approach is also aimed at improving its public image.

"Compared to a decade ago, there's more public interest in the outcome of these suits because people are realizing the connections between antitrust behavior and what kind of prices and capabilities they can have," said Brent Williams, an analyst at the Benchmark investment firm.

Still, many analysts were surprised that Microsoft allowed the European court's ruling to stand because, they say, the decision is likely to force the U.S. high-tech industry to permanently change the way it operates abroad.

"The European court took a more aggressive stance on tying provisions," or the practice of selling products bundled together, said Brendan Barnicle, analyst at Pacific Crest Securities. He said companies might now be hesitant to sell multiple software products as a package, for example.

The ruling also sets a precedent for how consistent companies must be in sharing proprietary technical information, according to Bill Page, a professor at the University of Florida Levin College of Law.

Page said Microsoft had shared its technical information with other technology companies when it had less market share, because that enabled it to grow. But eventually the company tried to protect its dominance by clamping down on how much information it shared, a move that undermined Microsoft's case, he said.

"One concern that firms might have now is . . . 'Should we ever share compatibility information with other services? Because once we do, that may be held against us in the future.' "

Special correspondent John Ward Anderson in Paris contributed to this report.

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