Microsoft faces first European Union antitrust fines

Microsoft Corp. looks more than likely to earn a place in history by becoming the first company to be hit with daily fines by the European Union for failing to respect an antitrust ruling.The E.U.’s highest antitrust official, Competition Commissioner Neelie Kroes, has given the company until Feb. 15 to comply with the Commission’s March 2004 ruling or face a fine of up to €2 million (US$2.4 million) a day.

Events of recent weeks indicate that the company will not meet the Commission’s demands by that date, so the procedure will be launched to impose daily penalties. This view is shared not just by Microsoft’s rivals and complainants in the case, but also independent analysts.

“I wouldn’t be at all surprised if the E.U. went ahead and fined Microsoft,” said Gary Barnett, an analyst covering the company at Ovum Ltd. in the U.K.

The key issue is whether Microsoft has done enough to ensure interoperability with its workgroup server software, one of the three elements of the Commission’s 2004 ruling. The company argues it has gone far beyond what the Commission is asking for by offering to open access to the source code for the communications protocols.

“We have done everything we can to respond to the Commission’s changing demands, even going beyond the decision,” a company spokesman said.

Yet, the Commission and Microsoft’s rivals have dismissed the company’s offer, saying that granting access to the source code does not meet the fundamental challenge of enabling other developers to create products that interoperate smoothly with Microsoft’s server software.

“Software companies know how to write interface specifications [to ensure interoperability with other companies’ products]. They do it all the time and so does Microsoft. But they’re not doing it here because they don’t want to,” said Thomas Vinje, a lawyer at Clifford Chance who represents rival software companies supporting the case against Microsoft.

Microsoft also argues that the Commission has not given the company enough time to respond to its complaints and is denying it the information it needs to answer the Commission’s charges in the statement of objections sent on Dec. 22. “It has been six weeks since we received the statement of objections, we have eight days left to respond, and we still do not have access to the case file. This is a basic question of fairness and transparency,” a spokesman said.

But analysts are equally skeptical about Microsoft’s tactics in leaking a letter accusing the Commission of withholding access to key documents. “The letter is part of a strategy to prolong things,” said Ovum’s Barnett.

Judging by recent developments, the company seems to prefer to make its case against the Commission through the media rather than making serious efforts to change Kroes’ mind on the merits of the case. Microsoft faxed the commissioner a two-page fax on the source code offer only 10 minutes before the company’s top lawyer Brad Smith announced the offer to the press. The commissioner says she is still waiting for more details from the company.

In the absence of a sudden U-turn by Microsoft to offer usable documentation that would allow its rivals to develop interoperable products, it seems that the company will be the first to be fined for noncompliance. Sources close to Kroes say she has run out of time and patience with the company after an eight-year investigation and giving the company more than a year to comply.

The fine is likely to be less than the €2 million figure circulating as the Commission will not go for the maximum fine the first time. A figure of €1 million a day or less is seen as more likely. Microsoft is likely to appeal a fine.

Microsoft can afford to pay the fine and would get its money back with interest if it won an appeal to the European Court of Justice regarding the antitrust ruling and any financial penalty that is imposed. It would hurt the company more to be the first to suffer financial penalties for not respecting a Commission decision, but Microsoft may have decided that noncompliance and a fine are a smaller price to pay than allowing competitors to develop rival products.