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E.U. Slaps Third Fine on Microsoft

By Kevin Sullivan
Washington Post Foreign Service
Thursday, February 28, 2008

LONDON, Feb. 27 -- European Union antitrust regulators fined Microsoft $1.3 billion on Wednesday, the largest fine they have ever imposed on a company, in the latest round of a nearly decade-long dispute in which the U.S. software giant was accused of abusing its global market dominance.

"Microsoft's behavior did not just harm a few individuals or a handful of big companies," said Neelie Kroes, the E.U.'s competition commissioner, announcing the decision in Brussels. "Directly and indirectly this had negative effects on millions of offices in companies and governments around the world."

The fine was the third the E.U. has levied against Microsoft in the same dispute -- once after being found to have violated antitrust law, and twice, including this latest, for what officials called a refusal to comply with orders to change its practices.

In a statement, Microsoft said that it was reviewing the decision but that "these fines are about past issues that have been resolved." The company pointed to its announcement last week that it would make technical data on its products more accessible to competitors, a key aspect of the European complaints. "We are focusing on steps that will improve things for the future," Microsoft said.

Roger Kay, president of research and consultancy firm Endpoint Technologies Associates, said the ruling showed differing approaches to antitrust in the United States and Europe. "In the U.S., the electorate has decided to leave big business alone to figure out how things should be done best. In Europe, it's the other way around."

European regulators have now fined Microsoft a total of about $2.5 billion (at current exchange rates). Kroes said it is the first company ever to refuse to comply with a European Commission antitrust ruling.

"That the commission has been forced to levy these three fines reflects a clear disregard by Microsoft of its legal obligations," Kroes said. "The commission's fine is a reasonable response to a series of quite unreasonable actions."

She said her message to Microsoft and other companies was: "Talk is cheap; flouting the rules is expensive. We don't want talk and promises -- we want compliance."

Analysts said that even though the fine was exceptionally large, it was more of a warning to other companies than a financial burden on the world's leading computer software maker.

"Financially it's not significant; it is much more of a scary number to everybody else than it is to Microsoft," said David B. Yoffie, a professor at Harvard Business School.

Yoffie said E.U. regulators were using Microsoft to send a strong warning to other companies to heed European regulations. He said E.U. regulators are currently probing U.S. technology companies such as Google, Qualcomm, Intel and Rambus. Microsoft itself is facing two new E.U. antitrust investigations that began in January.

Iain Begg, a professor at the European Institute of the London School of Economics, said the fine may not hurt Microsoft, "but it's still enough to say to other companies, 'Don't mess with us, and if you do we'll hit you with fines that your shareholders will squeal about.' "

Begg called the resolution of the long-running dispute, "a knockout victory for the European Commission -- even more than the U.S. Department of Justice managed." The company was the target of a major U.S. antitrust case in the 1990s.

Microsoft's troubles with E.U. regulators began in December 1998 with a complaint by Sun Microsystems, one of the company's chief U.S. rivals. Sun complained that Microsoft was abusing a virtual monopoly and stifling competition.

E.U. investigators sided with Sun in 2004, concluding that Microsoft was unfairly withholding information from rivals that would allow them to make media players and other software usable with Microsoft's Windows operating system.

Microsoft was fined $613 million and ordered to provide rivals with more information about how Windows works so they could design compatible products. The company was also ordered to offer a version of Windows without Microsoft's media player.

Microsoft agreed, but it initially charged a nearly 3 percent royalty for that information, saying it should be paid for the technology it invented. E.U. officials said the fee was excessive and in July 2006 fined Microsoft $357 million more for failing to comply with the earlier order.

The company appealed, but a European court rejected the appeal in September 2007. The following month, Microsoft lowered its fees to a level that satisfied the E.U. regulators. The fine imposed Wednesday covered the period from the original March 2004 decree until October 2007, when officials said Microsoft finally complied.

Matt Rosoff, an analyst with Directions on Microsoft, an independent organization that tracks the company, said Microsoft's problems with European regulators are not over.

"I don't think the E.U. is going away," he said. "I think Microsoft is going to be dealing with regulators for a long time. They have made it clear that they are going to take a close look whenever Microsoft enters a market."

Staff writer Mike Musgrove in Washington contributed to this report.

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