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Microsoft Threatened With Daily EU Fines At Issue is Whether Company is Obeying '04 Software Order

Posted on: Saturday, 24 December 2005, 09:00 CST

By James Kanter

In a case of unprecedented brinksmanship in a European Union antitrust battle, regulators threatened on Thursday to impose millions of euros in daily fines on Microsoft for defying orders designed to give consumers and businesses broader choice in the market for software that runs office computer networks. The decision, made by the EU antitrust chief, Neelie Kroes, to threaten Microsoft with daily fines a first since new powers introduced last year is focused on whether Microsoft is complying with a March 2004 order about powerful server computers. Kroes's decision to send a fourth set of formal charges is also a record in a single case, although EU officials said the charges were the start of an entirely new case against the company. Attempts to enforce the server- computer order, and other orders, have met with tough resistance from Microsoft, which successfully fought similar efforts to weaken its dominance in America. Microsoft is fighting the European Commission, the EU's executive arm, in court to reach a similar result.

With the commission now threatening new fines, and with Microsoft holding firm, antitrust experts said that EU officials could be coming to the conclusion that it would be impossible to make its orders stick against a company with such wealth and power without imposing the ultimate antitrust sanction: a breakup order. "The question is whether Microsoft has stuck its finger so far in the eye of the commission that it then uses its considerable powers to say 'enough is enough not only are you a violator but you refuse to mend your ways,'" said Scott Megregian, the head of the European antitrust practice for the law firm McDermott Will & Emery. Continued defiance by Microsoft could mean that the EU eventually would tell the company: "Either you, Microsoft, agree to a breakup, or stay out of Europe," he said. Experts like Megregian said the EU would probably wait until a future case to issue any break-up order, a measure that U.S. antitrust officials initially demanded, but later retracted. Even so, said Chris Bright, an antitrust partner in London at the law firm Shearman & Sterling, Thursday's developments showed that Microsoft was fighting every step of the way to avoid setting a precedent for EU regulators that could lead to additional clashes and that could make an eventual break-up order more likely.

"One can only take the view that Microsoft's perception is that the damage must be very significant, or they simply wouldn't be holding out in this way," Bright said.

On Thursday, Kroes accused Microsoft of ignoring orders to cease abusing its dominance of the market for the software that enables personal computers to communicate with each other on a network. Kroes accused the company of providing "incomplete and inaccurate" information in response to the March 2004 findings against the company, and she cited a report by an independent trustee who was proposed by Microsoft and appointed by the EU calling that information "totally unfit" for use by rival software makers seeking to enter the market for office-network software. "I have given Microsoft every opportunity to comply with its obligations," Kroes said in a statement. "However, I have been left with no alternative." Brad Smith, the chief lawyer for Microsoft, reacted angrily to the charges on Thursday, accusing the commission of making it impossible for the company to comply with the March 2004 decision. "We continue working quickly to meet the commission's new and changing demands," Smith said. "Yet every time we make a change, we find that the commission moves the goal post and demands another change."

Kroes gave Microsoft until Jan. 25 to respond to the charges. If Kroes decides that fines are still justified, and if she wins backing from EU member states after a hearing in front of the EU expected next spring, the fines could be backdated to mid-December. At daily rate of 2 million, or $2.37 million, a maximum figure cited by the commission, Microsoft could face fines of nearly 400 million if it failed to satisfy the regulators by mid-2006. Smith said Microsoft would contest the charges of failing to reveal enough technical information in the upcoming hearing. Smith also said Microsoft had submitted revised documents as recently as last week. But the commission dismissed the value of those revisions, saying in a statement that any changes only addressed formatting, like "typos" and "missing hyperlinks" but "not the general concerns about completeness and accuracy."

Kroes's predecessor, Mario Monti, fined Microsoft a record 500 million in March 2004. At the time, Monti also ordered the company to sell a separate version of its Windows operating system stripped of software for playing audio and video files, and to share codes for running powerful server computers used mainly by business the codes that were at issue on Thursday. Software makers seeking to sell products that compete with Microsoft's praised the EU for turning up the pressure on the company, and they blamed Microsoft for using its market power to slow the availability of innovative products. Volker Lendecke, a co-founder of SerNet Services, a German software services company that supports free software products like Samba and Linux, said he wanted to make products that major consumers, including large businesses, could distribute for free. Consumers and businesses are now obliged to buy office networking software from companies that pay license fees to Microsoft, Lendecke said. Microsoft, he said, is stymieing the EU decision not only by releasing flawed documentation but also by insisting that companies could only use its networking information if they signed licenses with Microsoft detailing how many people used their products. That is an impossible demand, Lendecke said. "The EU must force Microsoft to make the licensing conditions useable for free software," he said, noting that other former opponents of Microsoft, like Sun Microsystems and Novell, had settled with the company. "The free software companies are last competitors that have a chance to compete with Microsoft in the workgroup server software market."

Jonathan Todd, a spokesman for Kroes, warned on Thursday that the EU also reserved the right to issue a fifth set of formal charges against Microsoft for demanding overly strict licensing terms representing the second set of new charges and the fifth set of charges in a single case. He also said EU officials were still studying whether their orders concerning media software had been sufficient to introduce greater competition on that market.

Source: International Herald Tribune

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