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EU threatens Microsoft with daily fines

Posted by iMark - 2005-12-25

Europe's competition regulator threatened U.S. software giant Microsoft with daily fines on Thursday for failing to comply with antitrust sanctions a year after a top European Union court ruled it must obey.
 
The European Commission said it may fine Microsoft up to 2 million euros ($2.37 million) a day unless it complies with an order to provide key information to allow rivals' group servers to work with its ubiquitous Windows operating system.

"I have given Microsoft every opportunity to comply with its obligations. However, I have been left with no alternative other than to proceed via the formal route to ensure Microsoft's compliance," EU Competition Commissioner Neelie Kroes said in a statement.

Shares in Microsoft closed down 14 cents, or 0.52 percent, at $26.59 on the Nasdaq while the Nasdaq Composite index was up 0.6 percent.

The Brussels EU executive said Microsoft had five weeks, until January 25, to reply and show it was in compliance with the EU demands. Any fines would be retroactive to December 15, it said.

Microsoft called the move unjustified and said it was doing its best to obey the European antitrust watchdog's landmark March 2004 ruling, but that Brussels kept piling on new demands.

The company vowed to contest the latest decision to the full extent allowed by EU law including by demanding an oral hearing, which can take months to organize, stringing out the procedure.

Alan Davis, a technology analyst with brokers McAdams Wright Ragen in New York, said the threatened fine could come to about $600 million a year after taxes and would cut his full-year earnings forecast of $1.33 by 5.5 cents a share or 4 percent.

"It would be significant, but not devastating," Davis told Reuters. But he added that he expected Microsoft to act at the last minute to avoid having to pay the fine.

"They've tended to do things at the 11th hour," he said. "It's a cat and mouse game with Microsoft. I doubt that it will happen."

Officials at Oracle Corp., one of Microsoft's biggest competitors, declined comment on the situation.

The Commission ruled in 2004 that Microsoft had abused its global dominance by leveraging its near monopoly in the market for PC operating systems and for media players to squelch rivals.

It imposed a record 497 million euro fine and forced Microsoft to sell a version of Windows without the Windows Media Player software used to watch films and listen to music, giving rivals a fairer chance to compete.

At stake now is a part of that decision requiring Microsoft "to disclose complete and accurate interface documentation which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers."

GOAL POSTS

Microsoft said in a statement the Commission's latest demand "can open the door to the production of clones of parts of the Windows operating system" and went beyond the scope of the original EU decision.

"We have now responded to more than 100 requests from the Commission. We continue working quickly to meet the Commission's new and changing demands. Yet every time we make a change, we find that the Commission moves the goal post and demands another change," said Microsoft General Counsel Brad Smith.

The Commission said that in its view, supported by two reports from a Monitoring Trustee appointed by mutual agreement, Microsoft had not yet provided full specifications.

The Court of First Instance, the EU's second-highest court, rejected Microsoft's appeal to suspend the measures last December and warned it would face a daily fine if it did not comply with its obligation by December 15, 2005.

The software giant's appeal against the substance of the EU antitrust case is still pending and the Court of First Instance hopes to hold a hearing by early spring.

EU Competition spokesman Jonathan Todd said Microsoft would also have a right to appeal any fines to the EU courts.

It was the first time the EU executive had made use of new powers enacted last year to impose daily penalties for noncompliance in antitrust cases, he told a news conference.

"ABSOLUTELY FRUSTRATING ... FRUITLESS"

The Commission said that Microsoft had indeed revised the interoperability information it was obliged to disclose, but the data was incomplete and inaccurate.

The Monitoring Trustee had found that "any programmer or programming team seeking to use the Technical Documentation for a real development exercise would be wholly and completely unable to proceed on the basis of the documentation."

"Overall, the process of using the documentation is an absolutely frustrating, time-consuming and ultimately fruitless task," the Commission quoted the trustee, British Professor Neil Barrett, as saying.

Todd said the company could ask for an extension of the deadline as well as an oral hearing, which would be open to member states and all interested parties.

Asked whether an oral hearing would delay the imposition of fines, Todd told reporters: "The deadline is five weeks. ... If they don't comply, they'll have to pay the fine every day."

He said other issues remained open in its appraisal of the Microsoft case, including the royalties charged by Microsoft for interoperability information.



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