EC threatens to fine Microsoft

The European Commission (EC) could fine Microsoft up to 10 percent of its global annual sales for monopoly offenses, it said Wednesday.

Microsoft is still committing the monopoly abuses it was first accused of in 1998, the EC said in a preliminary ruling in its long-running antitrust case against the company.

The Commission has sent an updated statement of objections to Microsoft, reiterating previous accusations that the software giant has leveraged its dominance in the market for computer operating systems into the markets for server systems and media-player software.

The latest statement also outlines the remedies the Commission wants to impose on Microsoft to ensure that competition in these markets is freed up. It comes after extensive research was conducted by the European competition regulator earlier this year to strengthen its legal arguments, Commission spokesman Tilman Luder said.

"We now have a very strong case. The issue as it stands now is too strong to ignore for the company at issue," Luder said.

Commissioner for competition issues Mario Monti said in a statement that the Commission is giving Microsoft "a last opportunity to comment before the Commission concludes the case."

In addition to forcing changes in the way Microsoft does business, a fine of up to 10 percent of Microsoft's annual global sales may be levied, but the size of the fine won't be decided until the weeks before a final ruling. Luder said that may come in the next few months. "The final decision is months rather than years away now," he said.

The fact that the Commission believes the monopoly abuse is still ongoing makes a large fine likely. Under European Union law the gravity of an antitrust offense is determined partly by how long it lasted. However, it has never fined a company the maximum 10 percent of sales.

Microsoft was not immediately available to comment on the latest statement from the Commission.

The Commission wants Microsoft to reveal all the software code that competitors would need in order to make their server systems as compatible with Windows as Microsoft's own server software.

In order to restore competition in the market for audio and video playing software the European regulator has proposed two solutions: Either Microsoft must stop selling its Media Player as a package with its ubiquitous Windows OS, or Windows should be forced to carry a competing product as well.

"It's an extremely positive outcome," said Thomas Vinje, a lawyer in the Brussels office of Morrison & Foerster which represents several Microsoft competitors.

"It indicates that the Commission is serious about pursuing the company," Vinje said, adding that only a few months ago many people feared the Commission "might let the case fade away."

The remedies the Commission is proposing go a long way to helping restore competition in the two specific markets concerned, Vinje said. However, he expressed doubt about the must-carry solution for media software.

"If Microsoft is allowed to keep bundling Media Player into Windows with another rival product it will find ways of giving an advantage to Media Player," he said.

He added that it will be hard to choose the rival that will benefit from having must-carry status on Windows, and that it would be complicated to enforce the rule.

The Commission's action to restore competition in the media playing software may be too late.

"The game is up," said one content provider who asked not to be named. "It's expensive to tailor content for different media players. If we know that Microsoft's Media Player is in Windows then there isn't much incentive to adapt our products for other players," he said.

The two best-known rivals to Media Player are RealNetworks Inc.'s Real Player and Quicktime, a system designed to run on Apple Computer Inc.'s computers.

Meanwhile, under pressure from the U.S. government, Microsoft is changing the terms under which companies can license protocols that allow third-party software to interoperate with Windows. At a recent hearing with U.S. District Judge Colleen Kollar-Kotelly, who is overseeing the U.S. antitrust case against the software giant, U.S. Department of Justice officials said that changes that Microsoft is making to the licensing terms of the protocols are making progress toward satisfying the concerns the government has about Microsoft's compliance with the November 2002 antitrust settlement.

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