anchor link to jump to start of content

The Seattle Times Company NWclassifieds NWsource Business and Technology Home delivery Contact us Search archives
Your account  Today's news index  Weather  Traffic  Movies  Restaurants  Today's events

Tuesday, March 23, 2004 - Page updated at 12:00 A.M.
Weekly interest and loan rates | Home values

Northwest stock contest 2004 | Consumer affairs

Microsoft faces EU antitrust fine but 'bundling' issue is bigger concern

By Brier Dudley
Seattle Times technology reporter

E-mail E-mail this article
Print Print this article
Print Search archive
Microsoft will be fined about $612 million for antitrust violations in Europe, the largest penalty ever imposed by the region's regulatory authority, according to several news organizations quoting unidentified sources.

But the fine is the least of Microsoft's troubles in Europe. One analyst said it's merely a "rounding error" for a company with more than $53 billion in cash.

Of greater concern to the company and investors are restrictions that the European Commission is set to disclose tomorrow, when it formally announces penalties in the 5-year-old case.

The commission is expected to dictate for the first time which components Microsoft may bundle with its Windows operating system, but the company is almost sure to appeal.

A fine of that size sends a message to other U.S. companies doing business in Europe, warning them to abide by the region's stricter antitrust rules, said Tom Fischer, a Seattle University law professor with expertise in European law.

"It's obviously intended as a pretty significant bow shot not only to Microsoft but U.S. corporations across the board," he said.

A Microsoft spokesman said the reported fine amount is excessive.

"Given the lack of a clear legal standard on these issues, it's hard to see how a fine of this magnitude could be warranted under these circumstances," said spokesman Jim Desler.

But Desler said the company is more concerned about the nonmonetary penalties.

"The fine has never been the key issue in the case for Microsoft," Desler said. "Really the key issue is ensuring that we have the opportunity to continue to innovate to provide benefits for consumers and developers. It's really the principle we've been trying to protect in our discussion with the commission."

The fine is also a secondary concern to Sun Microsystems, the Santa Clara, Calif.-based company that initiated the case with a complaint to the commission in December 1998. Its goal was to get Microsoft to share engineering specifications so other companies can make their products work better with Windows, said Lee Patch, Sun's vice president of legal affairs.
"We went after something that would change the competitive landscape and make competition for workgroup servers fair and even, as opposed to being deeply biased in favor of Microsoft because they have a desktop monopoly" and a productivity application monopoly, he said.

"Microsoft, as a matter of European law, had a special responsibility because it has a dominant position in two markets — desktop operating systems and personal productivity applications," he said. "A component of that special responsibility is to enable full interoperability for products in adjacent markets which need to interoperate with their products, so they can be viable in the marketplace."

The European Commission is also expected to order Microsoft to change the way it bundles its digital media player with Windows. In response to a complaint from Seattle-based RealNetworks, the commission may order Microsoft to either bundle competing media players such as RealNetworks' or to sell a version of Windows that does not include Microsoft's player.

Microsoft fought hard in its U.S. antitrust case to avoid being told what it could or could not bundle into Windows. It settled that case in 2001 by agreeing to disclose details of Windows to competitors, and to equitably license its software to computer makers. There was no fine levied in the U.S. case.

Attempts to settle the Europe case failed Thursday. Afterward Microsoft Chief Counsel Brad Smith said it will have to be resolved in court, a process that could take four or five years.

Some investors hailed news of the fine yesterday, briefly driving up the stock. It closed at $24.50, down 13 cents.

The commission could have fined Microsoft up to $3.2 billion, or 10 percent of its global sales last year. It has a complicated formula for calculating fines, but $612 million is roughly 10 percent of the company's sales in Europe last year.

Details of the fine were reported by Reuters and Dow Jones news services yesterday, after European government representatives met Monday in Brussels to discuss the penalties. Both quoted unnamed sources saying the fine would be 497 million euros.

The previous record fine was 462 million euros levied against Hoffman-LaRoche pharmaceuticals in 2001 for participating in a cartel that drove up vitamin prices. The previous record fine for abusing a monopoly was 75 million euros against the Tetra Pak container company in 1991.

Several analysts said they expect Microsoft stock will not be affected much by the penalties this week.

"It's been pretty well discussed and hashed out — I just don't see it having that big of an impact," said Jonathan Geurkink at Ragen MacKenzie in Seattle.

The fine itself "is not that material for Microsoft's balance sheet — when you have over $53 billion in cash, that's 1 percent of your cash," said Rick Sherlund at Goldman Sachs in New York.

"That can be regenerated in about three weeks," Sherlund said. "The issue that's of greatest concern to investors is what kind of restrictions the European Commission might put on Microsoft's ability to enhance the operating system going forward."

Brier Dudley: 206-515-5687 or

Copyright © 2004 The Seattle Times Company

More business & technology headlines


Today Archive

Advanced search

advertising home
Home delivery | Contact us | Search archive | Site map | Low-graphic
NWclassifieds | NWsource | Advertising info | The Seattle Times Company


Back to topBack to top