Report: EU May Be Planning Billions in Fines Against Microsoft

• By Becky Nagel
• 02/26/08

The European Union may hit Microsoft with a record $2.2 billion (1.5 billion Euros) fine as early as tomorrow for not complying with parts of the EU's antitrust ruling from 2004, according to a published report.

The news story by Bloomberg cites three anonymous sources familiar with the plan as saying that the EU is imposing the maximum fine because Microsoft has not offered what the EU considers "reasonable" charges when it comes to the patent licenses competitors need to interoperate with Microsoft software.

In addition to levying such stiff penalties, the move would all but confirm that the EU will take a hard line in opposing Microsoft's proposed acquisition of Yahoo, should the two companies reach an agreement.

If the EU follows suit, which Microsoft itself raised as a possibility in its January 24 quarterly 10-Q filing, the fines will come just days after Microsoft announced a historical shift toward opening its software to competitors, including releasing protocol documentation and sharing APIs for all of its significant product lines, plus a promise not to sue open source developers.

"We'll make licenses available at low royalty rates and under reasonable and nondiscriminatory terms," Ray Ozzie, Microsoft's chief software architect, said when announcing the changes.

The EU questioned Microsoft's sincerity, saying in a statement that the announcement "follows at least four similar statements by Microsoft in the past on the importance of interoperability."

Microsoft has battled with the EU since its 2003 antitrust ruling against the company, requiring it to offer a Windows Media Player-free version of Windows plus provide interoperability information to its competitors. It fined Redmond a record $497 million in 2004 for noncompliance with the ruling, plus another $280 million in 2006.

For a time, Microsoft fought the fines in court through a series of appeals but finally decided to end the legal battle with the EU's Court of First Instance (CFI) in October 2007. The same month, Microsoft dropped its royalty rate from 5.95 percent to 0.4 percent.

Microsoft declined to comment on today's report. But in a conference call last Thursday to announce its plans to share its patents, Microsoft insisted it will comply with European laws.

"Microsoft is committed to taking all necessary steps to ensure that we're in full compliance with European law," said Brad Smith, Microsoft's general council and senior VP.

Smith said last week that the four principals promised apply to its high-volume products, as well as to the patent framework developed in October covered by the CFI decisions. That framework, he said, has two components: first is to make all patent licenses for the protocols on "reasonable and nondiscriminatory terms, and at very low royalty rates."

The second was the promise not to sue open source developers for noncommercial implementations.

"This covenant will use the exact same terms created in October for the protocols covered by the CFI decision," Smith said last week "This means that open source developers will be able to use the documentation to develop implementations of these protocols without paying for a patent license. Companies that subsequently engage in commercial distribution of these protocol implementations will be able to obtain a patent license from Microsoft, as will enterprises that obtain these implementations from a distributor that does not have such a patent license." -- Additional Reporting by Jeffrey Schwartz