The EU Strikes: Hands Down Record Fine To Microsoft

The EU's antitrust authority said that "because the illegal behavior is still ongoing," it was also demanding changes in the way Microsoft operates.

It gave Microsoft 90 days to offer computer manufacturers a version of Windows without the company's digital media player, which lets computer users watch video and listen to music and is expected to be an important market as such Internet content becomes even more pervasive in coming years.

Microsoft also has 120 days to release programming code to rivals in the server market so their products can work with desktop computers running Windows.

"Dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition ... and does not harm consumers and innovation," EU Competition Commissioner Mario Monti said.

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"Today's decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a strong dominant position."

Settlement talks with Microsoft broke down last week over the EU's insistence that a deal include ground rules that would apply to future versions of Windows. The Commission is already investigating a complaint filed by competitors against the latest version, Windows XP.

"Microsoft believes a settlement would have been better for European consumers," Microsoft spokesman Tom Brookes said in Brussels. Microsoft's general counsel, Brad Smith, planned to comment later Wednesday.

The company has said it would appeal and has just over two months to do so. It is also expected to ask the EU's Court of First Instance to suspend the order during the appeal, which could take years.

The order goes beyond the 2001 U.S. settlement on similar antitrust charges and aims at the heart of Microsoft's business strategy of regularly adding new features to Windows to help sell upgrades.

The Redmond, Wash.-based company argues such "bundling" benefits consumers. But rivals call it unfair competition, given that Windows runs 90 percent of personal computers worldwide.

The EU regulators were concerned that such bundling "deters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take an interest in and tie with Windows in the future."

Microsoft was found guilty of similar monopolistic behavior in the U.S. case, but the settlement reached with the Bush administration allowed it to continue adding to Windows. A U.S. appeals court is considering whether that landmark deal was adequate to restore competition.

Under the EU order, Microsoft would be allowed to continue selling a version of Windows with its media player software installed, but it must refrain from "any commercial, technological or contractual terms" that would make the stripped-down version of Windows "less attractive or performing."

Fearing that attempts to set prices would be overturned in court, the Commission did not order Microsoft to make the stripped-down version available at a discount. But it said Microsoft could not offer computer manufacturers a better deal for buying the version of Windows with Microsoft's media player included.

The other half of the case involved low-end servers, which tie desktop computers together in offices.

Santa Clara, Calif.-based Sun Microsystems filed a complaint in Brussels in 1998 charging that Microsoft refused to provide proper details needed for Sun products to "talk" to desktop computers running Windows as efficiently as Microsoft's own server software could.

The Commission said its investigation revealed Microsoft's refusals to disclose server software code "were part of a broader strategy designed to shut competitors out of the market." The risk, the Commission said, was that Microsoft's dominant position would end up "eliminating competition altogether."

The ruling said Microsoft could get "reasonable remuneration" for disclosing its proprietary software code, and added that the Windows source code itself would remain untouched.

The EU also said it would appoint a trustee to monitor Microsoft's compliance and to make sure the two versions of Windows are "equivalent in terms of performance."

Money from the fine would be redistributed to the EU member states.

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