EU Fines Microsoft US$1.3 Billion

By David Worthington

February 27, 2008 —

Today was supposed to be a triumphant day for Microsoft. Its “Heroes Happen Here” gala kicks off tonight in Los Angeles to celebrate the arrival of a wave of key products, including Visual Studio and Windows Server. But the main topic at the party is more likely to be the way the European Union put a damper on the festivities by levying a record-setting €899 million (US$1.3 billion) fine against Microsoft.

EU regulators are penalizing Microsoft for charging what it called “unreasonable prices” to software developers for access to information about Windows client and server protocols, prior to Oct. 22, 2007.

The sanctions stem from the EU’s 2004 antitrust ruling against the company, which was upheld in September 2007 by the European Court of First Instance in Luxembourg, the EU’s second-highest court. Microsoft was found to have abused its dominant market position as set forth in Article 82 of the Treaty establishing the European Community.

Microsoft was initially fined €497 million ($613 million) in 2004, followed by an additional €280.5 million ($357 million) in July 2006. The cumulative fines amount to nearly $2.3 billion.

A Microsoft spokesperson said that the company was reviewing the European Commission’s actions and maintained that it was in full compliance with the 2004 issues, adding that the fines are about past issues that it believes have been resolved.

“As we demonstrated last week with our new interoperability principles and specific actions to increase the openness of our products, we are trying to focus on steps that will improve things for the future,” the spokesperson added.

Yankee Group analyst Laura DiDio was critical of the fines. “The penalties they are imposing on Microsoft make no sense,” she said. “If the EC and EU are so interested in relief for supposedly downtrodden users, where are all of the millions going they want to collect from Microsoft going? Let the punishment fit the crime. They are being spiteful.”

The court had ordered the company to supply its competitors with the interoperability information, but now says that the royalty rates Microsoft charged were unjustifiably high. The initial rates Microsoft demanded were 3.87 percent of a licensee’s product revenues for a patent license, and 2.98 percent for access to interoperability information.

Last May, those rates were lowered to 0.7 percent and 0.5 percent respectively for European customers; worldwide rates remained unchanged. Microsoft later made interoperability information available for a flat fee on Oct. 22, and began publishing some of it outright last week.

“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 in a prepared statement. "I hope that today's decision closes a dark chapter in Microsoft's record of non-compliance with the Commission’s March 2004 decision and that the principles confirmed by the Court of First Instance ruling of September 2007 will govern Microsoft's future conduct.”

In what could be perceived as last-minute bid for clemency, Microsoft announced a major interoperability initiative last Thursday. It declared that it would publish the documentation for the APIs of its high-volume products, including Exchange Server 2007, Office 2007, Office SharePoint Server 2007, SQL Server 2008, Windows Server 2008, Windows Vista (including the .NET Framework) and all future editions of those products.

The official launch event for three of those products—SQL Server 2008, Visual Studio 2008 and Windows Server 2008—is tonight. Windows Server and Visual Studio were already available through MSDN; SQL Server will not be generally available until later this year due to delays.

Access to the interoperability information is free, but implementing the protocols is another matter, since they remain Microsoft’s intellectual property. Microsoft also claims that it will now grant licenses to all relevant patents at “fair” and “non-discriminatory” rates.

The company pledged as part of its newfound religion to adhere to four principles of interoperability: to ensure open connections, to promote data portability, to enhance support for industry standards, and to more openly engage its customers and the industry at large, including open-source communities.

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