Microsoft Fined, Restricted in Europe
WASHINGTON — European regulators on Wednesday fined Microsoft Corp. a record $613 million and imposed broad restrictions on the way it develops and sells software -- a stinging defeat for a company that has spent nearly two decades battling accusations of anti-competitive behavior.
If it survives Microsoft’s promised appeal, the unanimous ruling by the European Commission would mete out significantly harsher penalties than the 2002 settlement the company reached with the Justice Department to end similar antitrust litigation in the United States.
Wednesday’s fine was the highest levied against a company by the commission, but the practical implications of the ruling could take years to sort out as the case moves through the European court system.
Many experts expressed doubt that the ruling would do much to restrain Microsoft’s aggressive business practices.
Indeed, Microsoft’s chief executive, Steve Ballmer, said in the wake of the decision that “we’re not doing anything different than we were doing yesterday in terms of how we think about new design.”
What’s more, the commission’s fine amounts to less than an average week’s worth of sales for Redmond, Wash.-based Microsoft.
Still, the ruling opens the door for private antitrust lawsuits that could cost the company additional hundreds of millions of dollars. Even more damaging to the company could be the restrictions announced in Brussels by European Competition Commissioner Mario Monti.
Monti gave Microsoft 90 days to offer a version of its Windows operating system without multimedia software for playing digital video and music. And he told Microsoft that it had 120 days to share “complete and accurate” details about the inner workings of Windows so competitors could make products more compatible with the operating system that powers 95% of the world’s personal computers.
Rivals have long complained that Microsoft uses Windows’ dominance to take over lucrative new applications such as Web browsers and media players.
“Microsoft has abused its virtual monopoly over the PC desktop in Europe,” Monti said.
Competitors in Silicon Valley and elsewhere said the ruling could help invigorate competition in the computer industry. But some voiced concern that the decision might suffer the same crucial defect as the 2002 U.S. settlement -- by the time the case is concluded, it may be too late to make a practical difference.
The U.S. case focused on Microsoft’s practice of bundling its Internet Explorer Web browser into Windows at a time when Netscape Communications Corp.’s Navigator was the leading browser. By the time the case was settled, Netscape no longer existed as a separate firm and Explorer was ubiquitous.
In the five years since the 15-nation European Union launched its case, Microsoft’s share of the European market for media software has grown to about 35% and its share of the software that powers the servers behind small and mid-size computer networks has risen to about 70%.
Microsoft general counsel Brad Smith said the company would appeal Wednesday’s ruling to the Court of First Instance in Luxembourg, a process that could take two to three years. Barring a stay, the sanctions would take effect this year.
“The EC has had the first word, but the European courts will have the final word,” Smith said.
Smith said the sanctions would be less effective at promoting competition than a settlement the company proposed last week. In a sign of the importance of the case, Microsoft Chief Executive Steve Ballmer flew to Brussels for face-to-face negotiations with Monti.
Several analysts said Microsoft was eager to settle the case before Monti’s ruling because the legal precedents it sets could outlast the immediate disputes over media players and server software.
“Mr. Monti is looking at the longer term; he is setting a framework in which the future conduct of Microsoft can be regulated,” said Jaap Favier, a technology analyst at Forester Research in Amsterdam. “But Microsoft is hoping to buy time, like it did in the
The case stems from a complaint filed by Sun Microsystems Inc., a Microsoft rival based in Santa Clara, Calif. Sun alleged that Microsoft used Windows to muscle rivals in the market for computer servers that manage PC networks.
Later, other software companies such as Seattle-based RealNetworks Inc. provided European investigators with evidence that Microsoft unfairly withheld technical information that made it difficult for Real to compete with Microsoft. Real popularized streaming audio and video over the Internet.
Unlike the Web browser market, the markets for media players and server software are still expanding rapidly worldwide. Companies like Sony Corp., Eastman Kodak Co. and Intel Corp. vie with Microsoft to control the technology that consumers use to manage everything from Hollywood DVDs and family photos to online music.
“While we have not yet seen the complete decision, we support the European Commission’s efforts to provide European consumers with all the benefits of a competitive marketplace, including choice in digital media products,” said Bob Kimball, Real’s vice president and general counsel.
Lee Patch, vice president of legal affairs at Sun Microsystems, said the ruling would help create a more “vibrant and vital” computer industry and benefit customers by making computer software more compatible.
The decision did not immediately draw a public response from President Bush, who in 2001 harshly criticized the commission for opposing General Electric Co.’s merger with Honeywell International Inc. months after U.S. antitrust authorities gave a green light to the deal.
Others in Washington blasted the ruling. Senate Majority Leader Bill Frist (R-Tenn.) expressed fear of a transatlantic trade war. And R. Hewitt Pate, the Justice Department’s antitrust division chief overseeing enforcement of the 2002 settlement, called the ruling “unfortunate” and said “sound antitrust policy must avoid chilling innovation and competition even by ‘dominant’ companies.”
Some experts on European law said Microsoft faced an uphill battle in its appeal. They said European law was more explicit than U.S. laws in prohibiting the bundling of products such as Media Player.
“We automatically say bundling is bad because article 82 of the EC treaty actually mentions ‘tying’ as an example of an abuse” in talking about unfair competition, said Valentine Korah, an antitrust professor at University College London in Britain.
Korah also said the commission, which has been criticized for conducting sloppy antitrust investigations, was more diligent this time, hiring an economist and a panel of independent experts to vet the case.
“I think they really tried to do their homework” this time, Korah said.
Microsoft shares Wednesday rose 26 cents to $24.41 on Nasdaq.
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Antitrust timeline
Key dates in Microsoft Corp.’s relationship with European Union and U.S. regulators:
July 1994: The EU and U.S. Justice Department settle allegations about Microsoft’s software licensing and marketing behavior. Microsoft agrees to stop making computer makers pay a fee for every unit sold, regardless of whether it contained Microsoft software.
Nov. 1997: The EU forces Microsoft to release Santa Cruz Operation Inc. from a contract that requires it to include Microsoft code in its UNIX operating system and pay royalties whether it used the code or not.
March 1998: EU makes Microsoft alter licensing agreements with Internet providers that allegedly violate anti-competitive rules.
May 1998: Justice Department and 20 states sue Microsoft, alleging it thwarted competition to extend a monopoly.
Oct. 1998: Justice Department sues Microsoft, alleging it violated a 1994 consent decree by forcing computer makers to sell its Internet browser as a condition of selling Windows.
Dec. 1998: EU begins investigating a complaint from Sun Microsystems Inc. that Microsoft withheld software code that rivals needed for their server software to interface as well as Microsoft’s own.
Feb. 2000: EU begins investigating complaints that Windows 2000 would give Microsoft a dominant position in e-commerce.
April 2000: U.S. District Judge Thomas Penfield Jackson finds Microsoft violated U.S. antitrust law and attempted to monopolize the Web browser market.
June 2000: Jackson orders the breakup of Microsoft into two companies.
Aug. 2000: EU sends a formal charge sheet accusing Microsoft of abusing its Windows monopoly to dominate the market for server software.
April 2001: EU closes an investigation into Microsoft’s investments in European digital cable TV. The company agrees to modify agreements.
June 2001: U.S. appeals court throws out Jackson’s breakup order.
Aug. 2001: EU sends a new charge sheet to Microsoft stemming from its Windows 2000 case, accusing it of violating antitrust law by tying its media player into Windows. It also merges the case with allegations related to the server market.
Oct. 2001: Microsoft and Justice Department tentatively agree to settle the U.S. antitrust case.
March 2002: Microsoft proposes concessions to the EU that it says go beyond those agreed to in the United States to help rivals’ equipment operate with Windows.
Nov. 2002: U.S. District Judge Colleen Kollar-Kotelly approves most provisions of Microsoft’s settlement with the U.S. government. The accord prohibits Microsoft from retaliating against PC makers, lets customers remove icons for Microsoft features and requires that Microsoft disclose more technical data to software developers.
Jan. 2003: Computer, phone and Internet companies file an EU complaint alleging Windows XP is designed to extend Microsoft’s dominance into new markets such as instant messaging and mobile phones.
Aug. 2003: Backed by new evidence it says shows ongoing abuses, the EU sends a third charge sheet to Microsoft and gives it a “last chance” to defend itself before demanding changes in Windows.
Jan. 2004: European Competition Commissioner Mario Monti prepares a draft ruling against Microsoft.
February: Monti rejects Microsoft’s offer to include rival digital media software on CD-ROMs sold with Windows. A draft ruling, calling for Microsoft to offer computer makers discounted Windows minus its media player, is sent to national regulators for review.
March 15: Advisory committee of EU national regulators backs Monti’s draft decision.
March 16: Microsoft CEO Steve Ballmer holds face-to-face talks with Monti.
March 18: EU says talks failed; a decision will be adopted against Microsoft on March 24.
March 22: Representatives from each EU country agree to seek a $613-million fine against Microsoft.
Source: Associated Press
Los Angeles Times
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Recent payouts
May 29, 2003: Microsoft agrees to pay AOL Time Warner Inc. $750 million to settle a lawsuit alleging that it unfairly crushed AOL’s Netscape Web browser.
June 16, 2003: West Virginia settles its antitrust claims against the company for $19.7 million in vouchers for computer products and more than $300,000 in attorney fees.
Sept. 5, 2003: Microsoft agrees to pay about $23.3 million to Be Inc. to settle a suit alleging that it negotiated deals that cut out Be’s competing operating system.
Sept. 30, 2003: Microsoft agrees to pay about $10.5 million to settle consumer claims that it overcharged for Windows.
Oct. 28, 2003: Microsoft says it will pay about $200 million to settle antitrust lawsuits over alleged overcharging of customers in Kansas, North Carolina, North Dakota, South Dakota, Tennessee and the District of Columbia.
Oct. 31, 2003: Microsoft settles a consumer suit filed under North Carolina’s antitrust laws for as much as $89 million in vouchers.
Sources: Associated Press, Bloomberg News, Times research. Compiled by Times librarian John Jackson
Los Angeles Times
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Biggest fines
The European Commission has issued a number of fines over companies’ business practices. A sampling of the largest:
Amount of fine Company Year Reason (millions)
Microsoft 2004 Antitrust abuses, software $613 Hoffmann- La Roche 2001 Price fixing, vitamins 406 BASF 2001 Price fixing, vitamins 260 Lafarge 2002 Price fixing,building materials 248 Arjo Wiggins 2001 Price fixing,copy paper 165 Nintendo 2002 Price fixing,games and consoles 146 BPB 2002 Price fixing,building materials 138 Degussa 2002 Price fixing, chemicals 116 Hoechst 2003 Price fixing, chemicals 115 Volkswagen 1998 Antitrust abuses, autos 111* *Later reduced to $86 million
Sources: European Commission, Times research
