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Belgium: European Union Fines Microsoft $613m

by Paul GeitnerAssociated Press
March 24th, 2004

The European Union slapped Microsoft Corp. with a $613 million fine Wednesday for abusively wielding its Windows software monopoly and ordered sanctions that go well beyond the U.S. antitrust settlement -- setting up what could be another lengthy court battle.

Microsoft called the EU's decision "unwarranted and ill-considered," and said it expected to ask a judge to suspend the order pending appeal.

The EU antitrust office said it sought to alter Microsoft's behavior because its five-year investigation found that the software giant tried to squeeze competitors out of Windows-related markets and "the illegal behavior is still ongoing."

It gave the company 90 days to offer European computer manufacturers a version of Windows stripped of the company's digital media player, software for viewing video and listening to music that is expected to become pivotal in the industry as multimedia content becomes more pervasive.

The EU also gave Microsoft 120 days to release "complete and accurate" information to rivals in the office server market so their products can work more smoothly with desktop computers running Windows.

"Microsoft has abused its virtual monopoly power over the PC desktop in Europe," EU antitrust chief Mario Monti said. "We are simply ensuring that anyone who develops new software has a fair opportunity to compete in the marketplace."

Monti said he limited the order to Europe in deference to regulators in the United States and other countries, but that doing so "will not unduly undermine the effectiveness," given the size of the European market. Microsoft, which had $32 billion in revenue last year, does about 20 percent of its business in Europe, the Middle East and Africa.

Microsoft's general counsel, Brad Smith, said he would most likely ask the presiding judge at the European Court of First Instance to stay the order pending appeal -- a process that can take years.

"The European Commission has the first word, but the European courts have the final word," he said.

Microsoft Chairman Bill Gates, announcing a new speech server product in San Francisco on Wednesday, did not mention the EU case.

The U.S. Justice Department said the decision could hamper innovation and harm consumers.

The fine would automatically be suspended upon appeal, but antitrust experts were divided on the company's chances for winning emergency relief from the rest of the order.

"It will be up to Microsoft to show that this prohibition causes irreparable harm, which is not an easy thing to do," said Jacques Bourgeois, a former commission legal adviser now in private practice.

Others noted, however, that the commission would have to show that further delay could result in irreparable harm to competitors, such as the danger they could go out of business. And the court has shown sympathy to arguments about threats to intellectual property rights.

"If it's later ruled that the commission was wrong" to make Microsoft disclose information to rivals, "how do they put the genie back into the bottle?" said Stephen Kinsella, an international business expert with the Herbert Smith law firm in Brussels.

Monti called the ruling "proportionate" and "balanced," noting that "dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition."

He said the decision should set a "framework" for resolving similar complaints already pending against Microsoft's latest operating system, Windows XP.

"Maybe fewer cases will materialize because of the clarity which we hope to bring forward with this decision," he said.

Settlement talks broke down last week over the EU's insistence on just such a precedent-setting element: preventing Microsoft from adding features such as Google-like search to future versions of Windows.

Smith argued that Microsoft's settlement proposal, which he said included an offer to release a worldwide Windows version that included three competing media players besides its own, would have been more useful to consumers than the penalties.

He called the order to produce a version of Windows without media software an "unwarranted and ill-considered" violation of intellectual property rights under World Trade Organization rules.

Doing so, he said, would be difficult and make other features and even some Web sites work less effectively.

The company made similar claims in the U.S. case, which surrounded Microsoft's inclusion of its Internet Explorer Web browser in Windows.

Microsoft was also found guilty of monopolistic behavior in the U.S. case, but the EU order strikes deeper, at the heart of Microsoft's business strategy -- regularly adding new features to Windows to help sell upgrades.

The Redmond, Wash.-based company argues that such "bundling" benefits consumers. Rivals call it unfair competition, given that Windows runs more than 90 percent of personal computers worldwide.

The EU said it was concerned that a stranglehold on media players could let Microsoft dictate future standards for how digital music and video files are encoded, distributed and played.

Under the EU order, Microsoft can continue selling a version of Windows with its media player software installed but must not make the stripped-down version less attractive or a poorer performer.

The ruling could boost other makers of media software, led by RealNetworks Inc. and Apple Computer Inc. Bob Kimball, RealNetworks' general counsel, said the EU decision "confirms the merit" of his company's private antitrust lawsuit against Microsoft.

The EU case also involved low-end servers that tie desktop computers together in offices. Sun Microsystems Inc. complained to the EU in 1998 that Microsoft refused to provide details needed for Sun programs to "talk" to Windows computers as efficiently as Microsoft's own server software could.

The Commission called Microsoft's refusal to disclose interface information "part of a broader strategy designed to shut competitors out of the market."

Microsoft could get "reasonable remuneration" for disclosing its proprietary code, the ruling said, adding that the Windows source code itself would remain untouched.

The EU said it would appoint a trustee to monitor Microsoft's compliance with the ruling. The expert is to be selected from at least three names submitted by Microsoft, but the company would have to demonstrate the independence of its nominees. The trustee would have access to Microsoft sites, employees and documents.

The EU described the decision in a three-page statement. The ruling itself may not be released for weeks, as Microsoft may ask that business secrets be redacted.

Microsoft's shares rose 26 cents to close at $24.41 on the Nasdaq Stock Market.



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