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Microsoft Faces Last chance to Dodge Daily EU Fine

March 28, 2006

BRUSSELS — Microsoft has a last chance to convince EU regulators this week that the software giant should not be fined up to 2 million euros ($2.4 million) daily for failing to carry out antitrust sanctions.

A European Commission hearing officer will listen to the company’s defense on Thursday and Friday — behind closed doors — against charges Microsoft has dragged its feet in the two years since a landmark antitrust decision found it used the dominance of its Windows operating system to damage competitors.

Microsoft general counsel Brad Smith said the decision was sparse on specifics, making the Commission’s demands for information anything but obvious.

“We know that the specifications need to be complete and accurate, but there’s nothing that defines what complete means,” he said in a telephone interview.

The Commission found in March 2004 that Microsoft leveraged a quasi-monopoly position on PC desktops to boost its share of the market for “workgroup server software,” used to run printers, password sign-ins and file access in offices.

The Commission, the executive arm of the European Union, said Microsoft made its server software work more smoothly than others by telling rivals only some of what they needed to hook up with Microsoft Windows.

“Microsoft’s behavior … witholding interoperability information … builds an artificial barrier to entry,” the Commission said in its decision.

The Commission imposed a seemingly simple remedy: Microsoft must supply interoperability information that works.

However, Microsoft has since failed to provide adequate documentation so other firms can make their software function properly with its products, the Commission alleges.

FINES ONLY WEAPON LEFT?

Enforcers say daily fines are their only weapon left to combat the software firm, which has tens of billions of dollars in cash on hand and net income of about $40 million daily.

But Smith said Microsoft was working with the Commission to deduce what was wanted, adding, “there are only about five words that describe the technical specifications” in the decision.

The company and a monitoring trustee, appointed by the Commission from nominees put forward by Microsoft, are discussing how to improve the documentation. The company says 18 projects are under way.

“Our estimate is that the 18 projects we identified will take 3,500 to 4,000 engineering hours,” Smith said.

For the Commission, it all seems a bit late. After all, the company had two years.

“We are thinking of fining them because our view is that they have not complied with the requirements of the decision to make available this interoperability information,” spokesman Jonathan Todd said.

The daily fines would be in addition to one of 497 million euros that the Commission slapped Microsoft with in 2004, when it also ordered the company to sell a version of Windows without audiovisual software. Microsoft complied, but the version has had little impact in the marketplace.

At the time, Microsoft had 120 days to carry out the sanctions — a deadline of around July 22, 2004.

Microsoft responded by asking the European Union’s Court of First Instance to annul the decision and sought to suspend the remedies until a final court ruling. But a judge decided in December 2004 that the remedies must take effect immediately.

In November 2005, the Commission gave Microsoft a deadline of December 15 to comply with its ruling or face fines of up to 2 million euros daily on two grounds.

First, the Commission said Microsoft had proposed excessive royalties for the interconnections. It is still considering Microsoft’s response.

Second, the Commission said Microsoft’s documentation was found unusable by the monitoring trustee and four well-known software companies.

The Commission on December 21, 2005, started wheels rolling to fine Microsoft, issuing a formal statement of objections.

Smith said Microsoft had never been asked to provide so much documentation before and that the more usual approach was for engineers to talk to each other.

Microsoft has also argued that the Commission violated its rights by failing to give it access to documents needed for its defense. The Commission said the documents were internal.

In addition to working with the trustee, it announced this year plans to make portions of its source code — a blueprint — for work group servers available to licensees. But the trustee had said this was “never asked for nor indeed welcomed.”

If the Commission decides against Microsoft, it will face fines dating back to December 15.

($1=.8314 euro)




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