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Microsoft Fights Possible EU Fine

Microsoft headed into two days of closed-door hearings with European regulators, facing $2.4 million in daily fines over what the EU feel is noncompliance with a 2004 antitrust ruling.

This is a case the software giant just can't win, according to analysts.

In late 2005, European regulators warned Microsoft it could be fined for every day of noncompliance, retroactive to Dec. 15.

At the crux of the EU's decision is whether Microsoft permitted rivals access to technical information needed for third-party applications to work with Windows.

Neil Barrett, a UK professor serving as an independent trustee in the case, has called Microsoft documentation unusable.

To refute that, Microsoft submitted statements from EMC, StarBak Communications, Tandberg Television and Network Appliance, referring to the Microsoft Communications Protocol Program documentation licensing as "useful and helpful," according to a statement.

Microsoft contends it is willing to improve the documentation, but needs "clear, concise and consistent information from the commission" about what changes it wants made, according to a statement.

Beyond the prepared statement, Microsoft has been mum, reminded by Karen Williams, the hearing officer, that the process was confidential. Prior to the hearing, Brad Smith, Microsoft's lawyer, told reporters fines were "not the answer," according to the AP.

"Fines are not the ideal outcome," Jonathan Todd, a European Commission spokesperson, told internetnews.com. Todd said Microsoft needs to comply with the earlier decision requiring the company to provide rivals the technical information needed to interact with Windows software.

"Where there is a will there is a way," according to Todd.

Today's hearings come on the heels of another warning by the EU, this time threatening to bar the upcoming Vista OS from Europe.

Because of Vista's delay, the "EU can play hard-ball without an immediate risk," Joe Wilcox, a Jupiter Research analyst, told internetnews.com.

Microsoft is also appealing a South Korean Federal Trade Commission decision requiring two versions of Windows: one without Windows Media Player and Microsoft Messenger and one containing links to third-party media and IM applications.

In April, Microsoft again goes before the EU to appeal the 2004 antitrust decision.

What will be the outcome be of these EU deliberations? "Right now, this is about a monopoly against the European people and they [Microsoft] can't win that," Rob Enderle, principle analyst with the Enderle Group, told internetnews.com.

He believes Microsoft will offer a separate version of Windows similar to Windows XP N, a version released last year to placate EU concerns over bundling Windows Media Player with the operating system.

But any EU version will become a collector's item, according to Peter O'Kelly of the Burton Group.

"I can't imagine why anyone would purchase it when given the option of buying a more functionally complete version of Windows," said O'Kelly. The analyst believes both Microsoft and the EU "have stretched the limits of ambiguity in their interpretations" of the procedures.

"The rules are different for Microsoft than other companies," said Wilcox. Microsoft competes as if there were a level playing field. The software giant is like the older child in a family angry his little brother is treated differently, according to Wilcox.

Calling Microsoft's handling of the EU case "ham-handed," Enderle said the company made the problems worse. "Microsoft actually manufactured this problem," he said, noting Microsoft's charge that Barrett colluded with rivals as just one misstep.

What can Microsoft do to improve its fate? It needs to get the independent trustee on its side.

Secondly, Microsoft needs to change the case from Microsoft versus the European people to Europe versus the U.S. For this Microsoft needs to enlist the help of the American government.

For Microsoft, is there anything to learn from this week's hearing and next month's antitrust appeal?

Not much, say the analysts. Microsoft has begun unbundling some features, said Wilcox, but the latest version of Office sports a new user interface, not to highlight new features, but to help users find features buried for years.

No pain, no gain is Enderle's take on Microsoft's battles with the EU. While fines and sharing technology may be painful, the penalties could result in a more competitive Microsoft.

Competition could help right Microsoft, a giant company that otherwise might be headed for the same future as others, like troubled auto giant General Motors, the analyst said.

David Miller contributing reporting for this story.