TELECOM Digest OnLine - Sorted: Microsoft Gets Last Chance to Avoid Daily Fines From EU

Microsoft Gets Last Chance to Avoid Daily Fines From EU

David Lawsky (
Tue, 28 Mar 2006 10:34:37 -0600

By David Lawsky

Microsoft has a last chance to convince EU regulators this week that
the software giant should not be fined up to 2 million euros ($2.4
million) daily for failing to carry out antitrust sanctions.

A European Commission hearing officer will listen to the company's
defense on Thursday and Friday -- behind closed doors -- against
charges Microsoft has dragged its feet in the two years since a
landmark antitrust decision found it used the dominance of its Windows
operating system to damage competitors.

Microsoft general counsel Brad Smith said the decision was sparse on
specifics, making the Commission's demands for information anything
but obvious.

"We know that the specifications need to be complete and accurate, but
there's nothing that defines what complete means," he said in a
telephone interview.

The Commission found in March 2004 that Microsoft leveraged a
quasi-monopoly position on PC desktops to boost its share of the
market for "workgroup server software," used to run printers, password
s and file access in offices.

The Commission, the executive arm of the European Union, said
Microsoft made its server software work more smoothly than others by
telling rivals only some of what they needed to hook up with Microsoft

"Microsoft's behavior ... witholding interoperability information
... builds an artificial barrier to entry," the Commission said in its

The Commission imposed a seemingly simple remedy: Microsoft must
supply interoperability information that works.

However, Microsoft has since failed to provide adequate documentation
so other firms can make their software function properly with its
products, the Commission alleges.


Enforcers say daily fines are their only weapon left to combat the
software firm, which has tens of billions of dollars in cash on hand
and net income of about $40 million daily.

But Smith said Microsoft was working with the Commission to deduce
what was wanted, adding, "there are only about five words that
describe the technical specifications" in the decision.

The company and a monitoring trustee, appointed by the Commission from
nominees put forward by Microsoft, are discussing how to improve the
documentation. The company says 18 projects are under way.

"Our estimate is that the 18 projects we identified will take 3,500 to
4,000 engineering hours," Smith said.

For the Commission, it all seems a bit late. After all, the company
had two years.

"We are thinking of fining them because our view is that they have not
complied with the requirements of the decision to make available this
interoperability information," spokesman Jonathan Todd said.

The daily fines would be in addition to one of 497 million euros that
the Commission slapped Microsoft with in 2004, when it also ordered
the company to sell a version of Windows without audiovisual
software. Microsoft complied, but the version has had little impact in
the marketplace.

At the time, Microsoft had 120 days to carry out the sanctions -- a
deadline of around July 22, 2004.

Microsoft responded by asking the European Union's Court of First
Instance to annul the decision and sought to suspend the remedies
until a final court ruling. But a judge decided in December 2004 that
the remedies must take effect immediately.

In November 2005, the Commission gave Microsoft a deadline of December
15 to comply with its ruling or face fines of up to 2 million euros
daily on two grounds.

First, the Commission said Microsoft had proposed excessive royalties
for the interconnections. It is still considering Microsoft's

Second, the Commission said Microsoft's documentation was found
unusable by the monitoring trustee and four well-known software

The Commission on December 21, 2005, started wheels rolling to fine
Microsoft, issuing a formal statement of objections.

Smith said Microsoft had never been asked to provide so much
documentation before and that the more usual approach was for
engineers to talk to each other.

Microsoft has also argued that the Commission violated its rights by
failing to give it access to documents needed for its defense. The
Commission said the documents were internal.

In addition to working with the trustee, it announced this year plans
to make portions of its source code -- a blueprint -- for work group
servers available to licensees. But the trustee had said this was
"never asked for nor indeed welcomed."

If the Commission decides against Microsoft, it will face fines dating
back to December 15.

($1=.8314 euro)

But some observors noted that "Microsoft could simply continue to do
as it always has and budget the amount of the ongoing fines it would
have to pay each day. A couple million in fines each day would simply
be an additional operating expense for Microsoft, if it came to
that. I doubt Microsoft would miss the money all that much as they eval-
uated whether to continue as they were going or make some changes to
acomodate EU or not. "

Copyright 2006 Reuters Limited.

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