03/24 - EU hits Microsoft with record $613 million fine - East Valley Tribune: Business

03/24 - EU hits Microsoft with record $613 million fine

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Posted: Wednesday, March 24, 2004 9:09 am | Updated: 6:21 pm, Thu Oct 6, 2011.

BRUSSELS, Belgium - The European Union declared Microsoft Corp. guilty of abusing its "near monopoly" with Windows to foil competitors in other markets and hit the software giant with a record $613 million fine Wednesday.

The EU's antitrust authority said that "because the illegal behavior is still ongoing," it was also demanding changes in the way Microsoft operates in Europe, with the aim of improving competition globally. The sanctions go well beyond the 2001 U.S. antitrust settlement, but Microsoft promises to appeal.

The regulators gave Microsoft 90 days to offer European computer manufacturers a version of Windows without the company's digital media player, which lets computer users watch video and listen to music and is expected to gain importance as multimedia content becomes more pervasive.

The European Commission also chastised Microsoft for trying to "shut competitors out of the market" in software for office servers, by hoarding code that would help competing programs work smoothly with Windows computers. Microsoft now has 120 days to provide rivals in the server market with such code.

EU Competition Commissioner Mario Monti said the ruling was "proportionate," noting that "dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition."

"We are simply ensuring that anyone who develops new software has a fair opportunity to compete in the marketplace," he told a news conference.

Monti said he could have imposed worldwide restrictions on Microsoft but limited the order to Europe in deference to regulators in the United States and other countries.

He said doing so "will not unduly undermine the effectiveness of the remedies," given the size of the European market. Microsoft, which had $32 billion in revenue last year, did about 20 percent of its business in Europe, the Middle East and Africa. More precise regional breakdowns weren't released.

Microsoft shares rose 14 cents to $24.29 in morning trading on the Nasdaq Stock Market.

Microsoft executives said that while the decision is appealed to Europe's Court of First Instance, the company most likely will ask that much of the ruling - though not the fine - be stayed. Microsoft's general counsel, Brad Smith, said he expected the case to take four or five years to be resolved.

Settlement talks with Microsoft broke down last week over the EU's insistence that a deal also restrict which features could be added to future versions of Windows, such as an embedded search engine. The Commission is already investigating a complaint filed by competitors against the latest version, Windows XP.

Smith argued that the company's settlement proposal would have been more useful to consumers than Wednesday's ruling. He said Microsoft offered to immediately release worldwide a version of Windows that included three competing media players besides Microsoft's.

The company argued that extracting the media player from Windows will be difficult and will make other features work less effectively. What the EU is asking Microsoft to create "is not Windows," Smith said.

The company made similar claims in the U.S. case, which surrounded Microsoft's inclusion of its Internet Explorer Web browser in Windows.

Noting that the U.S. case was settled after an appeals court ruling, Smith said a similar scenario could happen in Europe, although no discussions are underway.

Microsoft was also found guilty of monopolistic behavior in the U.S. case, but the EU order strikes deeper, at the heart of Microsoft's business strategy - regularly adding new features to Windows to help sell upgrades.

The Redmond, Wash.-based company argues such "bundling" benefits consumers. But rivals call it unfair competition, given that Windows runs more than 90 percent of personal computers worldwide.

The EU regulators were concerned that bundling "deters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take an interest in and tie with Windows in the future."

The EU said it was concerned that a stranglehold on media players could let Microsoft dictate future standards for how digital music and video files are encoded, distributed and played.

Under the EU order, Microsoft can continue selling a version of Windows with its media player software installed, but it must refrain from making the stripped-down version less attractive or a poorer performer.

The ruling could boost rival makers of media software, led by RealNetworks Inc. and Apple Computer Inc.

Bob Kimball, RealNetworks' general counsel, said the EU decision "confirms the merit" of his company's private antitrust lawsuit against Microsoft.

The other half of the EU case involved low-end servers that tie desktop computers together in offices.

Silicon Valley-based Sun Microsystems Inc. complained to the EU in 1998 that Microsoft refused to provide details needed for Sun programs to "talk" to Windows computers as efficiently as Microsoft's own server software could.

The Commission said Microsoft's refusals to disclose server software code "were part of a broader strategy designed to shut competitors out of the market."

The ruling said Microsoft could get "reasonable remuneration" for disclosing its proprietary code, and added that the Windows source code itself would remain untouched.

The EU also said it would appoint a trustee to monitor Microsoft's compliance with the ruling, which might not be publicly released for weeks, as Microsoft has an opportunity to ask that business secrets be redacted. The EU described the decision in a three-page news release.

The fine, 497 million euros, surpassed the EU's 2001 penalty of 462 million euros against Hoffman-La Roche AG for acting in a cartel. The money would be redistributed to the EU member states.

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