EU fines Microsoft $357.3M

— July 12, 2006

The European Commission fined Microsoft $357.3 million on July 12 for its failure to carry out some provisions in its March 2004 decision, in which it accused the Redmond software giant of abusing its dominant market position.

The commission said the penalty is the result of Microsoft's failure to fully comply with the EC's request to provide complete and accurate documentation allowing developers to write software enabling non-Microsoft group servers to be fully interoperable with Windows PCs and servers.

The EC also warned that if Microsoft does not comply with Wednesday's decision, it could be fined a further $3.8 million per day.

"I have no alternative but to levy penalty payments for this continued noncompliance," Competition Commissioner Neelie Kroes said in a statement. "No company is above the law. Any businesses operating in the EU must obey EU law.

"I sincerely hope that the latest technical documentation being delivered by Microsoft will finally bring them into compliance and that further penalty payments will not prove necessary," she added.

The commission said these obligations were "specific and have not changed: it is for Microsoft to produce usable documentation."

Microsoft, however, is going to fight the latest decision. Calling the fine "unprecedented" and "unjustified," the company said it would ask the European courts to determine whether its compliance efforts had been sufficient.

"We do not believe any fine, let alone a fine of this magnitude, is appropriate given the lack of clarity in the commission's original decision and our good-faith efforts over the past two years," Microsoft General Counsel Brad Smith said in a retaliatory statement.

Later, in a conference call, Mr. Smith reiterated that position, but also underplayed any huge rift with the commission. "We care deeply about our relationship with the commission and are committed to doing whatever they ask us to do," he said.

He expressed disappointment, however, that the commission had imposed a fine when Microsoft, he said, had made much progress working with the trustee appointed to oversee the documentation process.  

"It's hard to understand why the commission is rushing to grade our homework before the deadline we've all agreed upon," said Mr. Smith.

It was only in April that the trustee appointed by the commission to clarify what the commission wanted delivered a template for how the documents had to be structured, Mr. Smith noted (see Microsoft's European Watchdog). He pointed out that the wide-ranging effort to develop standards for software documentation was unprecedented and time consuming.

About half of the protocols had been revamped thus far, according to Mr. Smith, and Microsoft has devoted "massive resources" to meeting the milestones set out by the commission and planned to meet the last condition by July 24.

The software giant originally rejected the commission's 2004 order to disclose full documentation, applying to the President of the Court of First Instance in December 2004. That request was denied, however, and in December 2005 the commission warned Microsoft that it could face fines if it continued not to comply.

Microsoft, for its part, said Wednesday that it had only received a clear definition of what the commission required in terms of documentation in April, and that it has met most of those requirements since then.

Gary Barnett, research director with Ovum in London , questioned the commission's approach in this case. "We think that engaging in a proper dialogue is a far more meaningful way to resolve the issue," as opposed to imposing a fine, he said.

Mr. Barnett also criticized the lack of transparency in the case. "Unlike with the U.S. Department of Justice, the commission is under very little obligation to open up its process to public scrutiny, so it's impossible for me to tell whether they have acted competently or incompetently in this matter." 

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