EU Wallops Microsoft in Antitrust Grudge Match

The European Union has slapped Microsoft with a record US$1.35 billion fine.

“Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision,” said European Competition Commissioner Neelie Kroes.

More Than Pocket Change

$1.35 billion is a lot of money — unless you’re a behemoth like Microsoft, whose net income for 2006 was almost $12.6 billion — which works out to just over $242 million a week. That means the fine represents slightly more than 5 weeks’ income.

“When you talk about billions, everyone thinks it’s a real high number, but, for a really big corporation, so what?” Jim McGregor, research director and principal analyst at In-Stat, told the E-Commerce Times.

Microsoft has the largest installed base for computing platforms worldwide, McGregor said. “With the infrastructure based on Microsoft, people going to upgrade to Microsoft, all PCs and servers being shipped with Microsoft, these fines are doing nothing,” he added.

Still, it’s not Monopoly money: “In the words of the late Senator Everett Dirksen, a billion here, a billion there, and you’re talking about real money,” Michael Gartenberg, vice president and research director at JupiterResearch, told the E-Commerce Times.

Roots of the Dispute

Back in 1998, Sun Microsystems sparked an EC investigation into Microsoft’s business practices by complaining that Microsoft had not provided the technical information needed for servers running Sun’s Solaris operating system to interoperate fully with Windows-based PCs.

After repeated battles, the EU’s executive branch, the European Commission, found Microsoft in breach of European competition law in 2004, fined it $613 million and told it to create a version of Windows without Windows Media Player, and to license Windows Server communications protocols. Microsoft appealed this decision to the European Court of First Instance.

More fines, appeals and releases of technical specs and pricing information followed. Then, in 2006, the EC fined Microsoft about $424 million for non-compliance with the 2004 decision and said fines for any further non-compliance would be about $4.5 million a day. In 2007, the EC again accused Microsoft of not complying with the 2004 decision in terms of pricing, and Tuesday it hammered Microsoft in its latest ruling.

Define ‘Reasonable’

The EC wanted Microsoft to price its licenses reasonably — but that term is ambiguous.

Pressure from the EC forced Microsoft to slash royalties from 3.87 percent of a licensee’s product revenues for a patent license and 2.98 percent for an information license, to 0.7 percent for a patent license and 0.5 percent for an information license, to provide a license giving access to the interoperability information for a flat fee of just over $15,000, and an optional worldwide patent license for a reduced royalty of 0.4 percent of licensees’ product revenues.

The decision leading to the $1.35 billion fine “concludes that the royalties that Microsoft charged for the information license — i.e. access to the interoperability information — prior to 22 October 2007 were unreasonable,” the EC said.

What is reasonable, then? “The EU needs to establish standards on what is and what isn’t acceptable in the future, and not just say ‘This is wrong,'” McGregor said.

Stop the Madness

Microsoft needs to close the books on this issue as soon as possible.

The fine “is a serious amount and it underscores the fact that Microsoft hasn’t found a way to settle the grievances the EU has with them,” Gartenberg said. “They’ve got to find a way to settle this once and for all, because it’s a huge distraction when they have bigger things on their plate — and they don’t need the distraction, especially when they may need the EU’s support as they go after Yahoo.”

The fine will not change Microsoft’s behavior, McGregor said. “It’s just a dance. And by the time they pay up, they’ve dragged things out so long it’s not funny. It’s like this token thing — we’ll give this little piece here to pacify the critics and see if it works.”