Microsoft Balks at Planned $615M E.U. Fine

Microsoft Corp. (MSFT) accused the European Union on Tuesday of going too far in seeking a record fine of about $615 million against the software giant for alleged antitrust abuses, saying it was being penalized for behavior permitted in the United States.

With a tough ruling against Microsoft due Wednesday, trans-Atlantic tensions also began to rise as they did the last time the EU took on U.S. corporate giants and blocked the General Electric Co.'s (GE) planned deal for Honeywell International Inc. (HON).

Microsoft's chief European lawyer, Horacio Gutierrez, argued that the EU's reported fine appeared to be twice what it should have been under the European Commission's (search) own guidelines to account for the company's global operations.

Microsoft does about 30 percent of its business in Europe.

"We believe it's unprecedented and inappropriate for the Commission to impose a fine on a company's U.S. operations when those operations are already regulated by the U.S. government," Gutierrez said. "The conduct at issue has been permitted by both the U.S. Department of Justice and a U.S. court."

The company also argued it could not have known its behavior would infringe EU law and thus it should not be fined at all.

EU Competition Commissioner Mario Monti (search) "has said clearly the reason he wants a decision is to get a precedent, so clearly there isn't one currently," said Microsoft spokesman Tom Brookes.

European Commission spokeswoman Amelia Torres declined to comment, saying Monti would address questions Wednesday at a news conference after the Commission adopts the ruling. Sources familiar with the five-year-old case, but speaking on condition of anonymity, say the EU ruling finds Microsoft abused its Windows monopoly, harming consumers and competitors in the markets for digital media and server software.

Microsoft was found guilty of similar monopolistic behavior in the U.S. antitrust case but settled in late 2001 with the Bush administration. A U.S. appeals court is currently considering whether that landmark deal was adequate to restore competition.

U.S. firms that do significant business in Europe also are subject to EU law, which authorizes the Commission to levy fines for antitrust violations of up to 10 percent of a company's global revenue.

Representatives from the 15 EU governments approved the fine Monday. A source familiar with the case, but speaking on condition of not being identified, said Tuesday it was around 500 million euros ($615 million).

That would be a record for the EU in an antitrust case but far below the maximum of around $3.5 billion that could be imposed in Microsoft's case.

Given that the Redmond, Wash.-based company has cash reserves in excess of $50 billion, experts say the fine is less significant than the changes Monti is seeking in how Microsoft sells Windows, which runs most personal computers worldwide.

The EU is expected to order Microsoft to release more of the underlying Windows code to rivals in the server market, and deliver a version of Windows without its Windows Media Player (search) software in Europe to help competing products reach desktops.

Antitrust lawyers call Microsoft's latest arguments unsurprising.

"It's unprecedented but not necessarily wrong," said Martin Baker, chief antitrust partner at Taylor Wessing in London. He noted the U.S. case focused largely on Internet browsers, while the EU case deals with media and server software.

"The absence of a precedent can be a mitigating factor," he added. "But the bundling of Media Player and the leveraging of market power from operating systems into servers, that's not rocket science. Those are well tried and tested principles."

An EU court also recently ruled that the EU could impose fines in a cartel case even though the companies had already been fined in the United States, because the two jurisdictions have different aims and policies.

Microsoft has promised to appeal any negative decision and is likely to seek a suspension of any fine or remedies.

"This ruling is yet another example of the EU assaulting a successful American industry and policies that support our economic growth," said U.S. Sen. Patty Murray, a Democrat from Microsoft's home state of Washington.

Murray called on the Bush administration to "engage" the EU in settling the case.

"The EU has now directly attacked the authority of the United States and our economy in general," she said in a statement late Monday. "American jobs and economic interests are threatened."

The EU weathered similar charges in 2001 when it blocked General Electric's bid for Honeywell, even though the deal had been cleared in Washington. That decision is currently under appeal in EU courts.

The political rhetoric has been generally more restrained in the Microsoft case. The U.S. Justice Department said last week it still believes its settlement "provides the appropriate framework for marketplace competition in this important sector."

Microsoft critics in the United States and elsewhere have blasted that deal as ineffective and urged the EU to go further.

Microsoft's shares have fallen about 3 percent since settlement talks fell apart last week over the company's reluctance to accept provisions that could have prevented it from adding features to future versions of Windows — a key element of its strategy for selling upgrades.

Monti has indicated he wants a legally binding precedent to set ground rules for pending cases.

The EU is already looking into charges from Microsoft competitors that its latest desktop operating system, Windows XP , is designed to help extend Microsoft's dominance into new markets such as instant messaging and mobile phones.

And Microsoft's next version of Windows, due in 2006, is expected to include a Web search engine that would challenge Google and Yahoo.