Microsoft Protests Potential EU Fine

The penalties being considered by European regulators against Microsoft for antitrust violations are too severe, the Redmond, Wash., software giant said Tuesday.

The European Union’s regulatory board is scheduled to announce its final decision in its action against the company tomorrow. Published reports suggest the Commission will: fine Microsoft more than $600 million; require it to sever Windows Media Player from the operating system; and force it to open its APIs to rival server software makers.

While the Commission’s fine (if the figure is correct) is far below the fine of 10 percent of annual revenues it could impose, Microsoft says it’s still too high.

“Given the lack of clear legal standard on these issues, it’s hard to see how a fine of this magnitude could be warranted under these circumstances,” said Microsoft spokesperson Jim Desler.

Desler told Microsoft’s position is that the EU is in essence putting the company in double jeopardy.

“We feel that if there are U.S. regulatory authorities that have already addressed these issues, it’s inappropriate for the commission to impose a fine based on the U.S. operations,” he said.

In 2000, the European Commission’s competition division brought charges against Microsoft in response to a 1998 complaint by Sun Microsystems . EU Competition Commissioner Mario Monti said the commission wanted “undistorted competition” in the media player market.

The Microsoft antitrust case is part of a broader initiative within the EU to ensure that technology can advance unfettered. The Commission also alleged that Microsoft might have acted illegally by incorporating its new Media Player product into its Windows PC operating system. Later, they added the question of whether Microsoft used illegal tactics in order to extend its dominant market share for the Windows OS to game the market for server software.

“Clearly it’s the unbundling that breaks new ground in antitrust,” said Directions on Microsoft analyst Rob Helm.

In the U.S. case, the Department of Justice told Microsoft to share its server protocols and ease up on competitors, but it stopped short of ordering the company to split up or stop integrating software with its OS. The difference in resolution shows the gulf between antitrust jurisprudence in the States and Europe — differences that analysts say must be resolved so corporations can operate globally without falling into a thicket of legal contradictions.

Desler confirmed that the company’s European counsel has protested the reported size of the fine, which evidently takes into consideration Microsoft’s global revenues, not just those in Europe.

“Our counsel said it was unprecedented and inappropriate for the commission to impose a fine on the company’s U.S. operations when those are already regulated by the U.S. government, and the conduct at issue has been permitted by both the Department of Justice and the U.S. courts,” Desler said.

Meanwhile, some industry watchers scoffed at Microsoft’s protestations about the size of the fine.

“The worst possible judgment against Microsoft would still be a rounding error,” said antitrust attorney Mark Ostrau, co-chair of the antitrust group with the technology law firm Fenwick & West.

Melanie Hollands, president of Koala Capital, a hedge fund that focuses on technology stocks, said she doesn’t see a major impact of the ruling on Microsoft’s stock. She does think the price will weaken over time, but due to conditions in the IT market, not the EU’s strictures.

“The basic problem I see is that IT budgets are not going to grow very fast over the next several years, and the company already owns large chunks of the market,” she said. “So there is limited ability to increase revenues from the Office business, because Microsoft risks ticking people off and driving more people off-license.”

Microsoft is expected to appeal the EC’s fines and other penalties shortly after the official decision is rendered.

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