Posted on 25-3-2004

EU Fines Microsoft
24.03.2004, By David Usborne

NEW YORK - Tensions between the United States and the European Union are
set to be inflamed as the European Commission prepares to release details
today of a record £497m fine to be imposed on American software giant
Microsoft for allegedly impeding free competition.

Pressure will rise on the White House to challenge the decision, which,
after a five-year probe, will be approved at a full meeting of the
European Commission today on recommendations from the EU competition
chief, Mario Monti. It will be the highest fine ever imposed by Brussels
on a foreign company.

"This ruling is yet another example of the EU assaulting a successful
American industry and policies that support our economic growth," said US
Senator Patty Murray, a Democrat from Microsoft's home state of
Washington. She called on President George Bush to "engage" with Brussels
on the case.

More important may be the reaction of the US Justice Department, which
negotiated a settlement with Microsoft in 2001 after a similar
investigation into claims that its Windows software was unfair to
competitors in the industry. As details of the impending EU decisions have
leaked out, officials in Washington have maintained a more or less tactful
silence.

Last week, an official at the Justice Department said it believed its
settlement "provides the appropriate framework for marketplace competition
in this important sector". But Senator Murray insisted the EU "has now
directly attacked the authority of the United States and our economy in
general. American jobs and economic interests are threatened".

There was similar controversy three years ago when the EU took the unusual
step of overriding regulators in Washington and blocking a proposed merger
between General Electric and Honeywell. Although both were American
companies, the EU is entitled to intervene in cases where the companies in
question do substantial business in Europe. In the latest case, Europe
accounts for 30 per cent of Microsoft's revenues.

Microsoft's chief lawyer in Europe, Horacio Gutierrez, signalled its
intent to appeal against today's ruling, which also includes provisions
requiring the company to offer stripped-down versions of Windows without
its media player software. "We believe it's unprecedented and
inappropriate for the Commission to impose a fine on a company's US
operations when those operations are already regulated by the US
Government," Mr Gutierrez said, referring to the 2001 Justice Department
accord. "The conduct at issue has been permitted by both the US Department
of Justice and a US court."

The fine, though very large by European standards, would barely dent
Microsoft, which reportedly has more than $50b cash in hand. The
restrictions on its ability to bundle extra features with Windows is a far
more threatening prospect. Yet the effect of the EU decision could be
delayed by months or even years if the company pushes ahead with an
appeal.