Microsoft fined €280.5 million (NZ$577 million) by EU

This is in addition to a NZ$1 billion fine that Microsoft has already paid

The European Commission has fined Microsoft €280.5 million (NZ$577 million) for failing to comply with the terms of a March 2004 antitrust judgment against it, says the Commission.

Microsoft has already paid a €497 million (NZ$1 billion) fine as a result of the judgment, in which the Commission found that Microsoft had used its near-monopoly in the PC operating systems market to gain advantage in the markets for work group server operating systems and media players.

At the time, the Commission also ordered the company to release a version of Windows XP without a built-in media player, and to provide its competitors with technical details of communication protocols used by its server products.

The €280.5 million fine announced Wednesday is to punish the company for failing to provide those technical details in a timely manner. If Microsoft continues to fail to comply, the Commission will increase the amount of the daily fine to €3 million (NZ$6.2 million) per day, it says.

"Microsoft says it's committing huge resources to tackling this problem. It's a shame they didn't do so two years ago," says Neelie Kroes, the European Union's competition commissioner.

Microsoft immediately dismissed the decision as inappropriate given what it called its "good-faith efforts" to comply with the judgment. General Counsel Brad Smith calls the level of the fine unjustified and says Microsoft will appeal to the European courts to determine whether its compliance efforts have been sufficient and if the fine is justified.

"The fine is larger than the fines the Commission has imposed for even the most severe competition law infringements, such as price-fixing cartels," says Smith. "When you consider Microsoft’s massive efforts to comply with this ruling, and the fact that more than a dozen companies are already using similar documentation provided in the US to ship actual products, we do not believe this fine is justified."

He reiterates Microsoft's position that the Commission's original decision lacked clarity.

The Commission clearly has not accepted that argument, however.

"I don't buy Microsoft's line that they didn't know what the Commission wanted. It was clear. Microsoft's documentation fell significantly short of the requirements," Kroes says.

Asked how the decision affects Windows Vista, Kroes says the forthcoming OS must "avoid the problems highlighted in the 2004 decision."

"Hopefully when Vista launches next year, all the issues of the 2004 ruling will have been taken into account," she says.

The Commission initially gave Microsoft 120 days to disclose details of the software interfaces used by its server products to communicate with the desktop versions of Windows, so that competing vendors could build compatible systems. Progress was slow, and in March last year, and then again in June, the Commission threatened the company with additional fines if it didn't fully comply with the ruling.

Microsoft succeeded in pushing back the deadline numerous times as negotiations continued, but the Commission remained unsatisfied with Microsoft's progress, notably in documenting its software interfaces.

Microsoft is due to submit the final batch of technical documentation required by the Commission by July 18, according to a timetable the two parties agreed with the independent monitoring trustee appointed to oversee matters.

"Nearly 50% of the documentation is there. Now we must check if the specifications are correct," Kroes says. She says she feels sure that the company would not ignore the daily fines, and says it has been making "constructive efforts" to comply since June 20.

The Commission had earlier threatened fines of up to €2 million a day until all the required information about the communications protocols had been supplied. The €280.5 million figure is based on a fine of €1.5 million per day, for the period from December 16 to June 20.

On November 10, the Commission warned Microsoft that it had not complied with two elements of the antitrust judgment, and would be fined €2 million a day if it did not comply by December 15.

More recently, the Commission determined that as of June 20, Microsoft had still not complied with one of those obligations, supplying the documentation. This failure eliminated the effectiveness of the remedy, the Commission says, and so it has decided to impose a larger part of the daily penalty payment of €2 million.

If Microsoft has still not complied by July 31, then the Commission could decide to double the fine, to €3 million per day.

In a separate action, Microsoft has also appealed against the antitrust ruling itself. The European Court of First Instance in Luxembourg finally heard that appeal in late April, and is now considering its decision.

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