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EC Fines Microsoft $1.33 Billion

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EC Fines Microsoft $1.33 Billion

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The European Commission this morning slapped Microsoft with a massive $1.33 billion fine (899 million euros) for charging too much for the communications protocols it was ordered to share with competitors in March of 2004.

It is the largest single fine ever levied by the EC and the second time that it has dunned Microsoft for not complying with its original antitrust order.

The first time was in July of 2006 when Microsoft had to fork over $357 million for not providing useable documentation for the protocols.

The original fine that Microsoft paid in 2004, itself record setting, was for $613 million, a mere half of today’s penalty.

So far then Microsoft’s European adventure has cost it $2.3 billion but it’s likely to have to open its checkbook again after the EC finishes the two new investigations into the company’s business practices that it opened last month.

One of those probes is into claims that its browser is tied to its operating system and the other into the interoperability of Office, the .NET Framework and the Office Open XML (OOXML) file format.

In making the announcement this morning EC antitrust chief Neelie Kroes called Microsoft “the first company in the 50 years of EU competition policy that the Commission has have to fine for failure to comply with an antitrust decision.”

She also said the fine could have been higher. It could have been $2.23 billion (1.5 billion euros).

To be fair, the original order told Microsoft it could charge a “reasonable” royalty for its IP. The order did not define what “reasonable” was so “reasonable” is a matter of opinion.

Kroes said this morning that the Commission based its conclusion that Microsoft’s royalty demands were  “unreasonable” “on the lack of innovation in a very large proportion of the unpatented interoperability information and a comparison with the pricing of similar interoperability technology.”

That "lack of innovation," of course, was the opinion of Microsoft’s competitors especially the open source Samba Project that complained to the EC about the royalties.

Naturally Microsoft could  appeal the fine and it did say this morning that it would review the EC’s decision.

But more pressing is containing the fallout of the two ongoing investigations and getting regulatory approval if and when it acquires Yahoo.

So it also said, “These fines are about past issues that have been resolved” and that it is “focusing on steps that will improve things in the future.”

It pointed to its promise last week to open the APIs and communications protocols in its biggest money-makers – namely Vista, Windows Server 2008, SQL Server 2008, Office 2007, Exchange Server 2007, Office SharePoint Server 2007 and the .NET Framework.

Microsoft is being fined something like 1.84 million euros a day for the 488 days before last October 22 that it was out of compliance. As far as the EC is concerned the clock started ticking in July of 2006 when it hit Microsoft with its first non-compliance fine.

The EC recounted this morning that Microsoft originally demanded a royalty rate of 3.87% of a licensee’s product revenues for a patent license and 2.98% for a license to the “secret interoperability information.”

The Commission sent Microsoft a Statement of Objections on March 1, 2007 regarding the pricing and Microsoft dropped the royalty rates to 0.7% for a patent license and 0.5% for an information license on May 21, 2007.

On October 22, 2007, when the EC figures Microsoft finally became compliant, the company dropped the price again to a flat fee of 10,000 euros and an optional worldwide patent license for 0.4% of a licensee’s product revenues.

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