EU fines Microsoft $733M for breaking browser pact

AMSTERDAM (AP) — The Euro­pean Union has fined Microsoft €561 mil­lion ($733 mil­lion) for break­ing a pledge to offer per­sonal com­puter users a choice of Inter­net browsers when they install the company’s flag­ship Win­dows oper­at­ing system.

The penalty imposed by the EU’s exec­u­tive arm, the Com­mis­sion, is a first for Brus­sels: no com­pany has ever failed to keep its end of a bar­gain with EU author­i­ties before.

In 2009, Microsoft Corp. struck a broad set­tle­ment with the Com­mis­sion to resolve dis­putes over the company’s abuse of the dom­i­nance of Win­dows, which had spanned more than a decade.

Back then, the com­pany agreed to pay €860 mil­lion and promised to give Win­dows users the option of choos­ing another browser rather than hav­ing Microsoft’s Inter­net Explorer auto­mat­i­cally installed on their machines.

But Microsoft failed to stick to the deal for some 15 mil­lion instal­la­tions of Win­dows 7 soft­ware in Europe from May 2011 until July 2012. The com­pany admit­ted the fail­ure last year, adding that it was a mistake.

The Commission’s top com­pe­ti­tion reg­u­la­tor, Joaquin Almu­nia, said at a press con­fer­ence in Brus­sels, Bel­gium, Wednes­day that the fine reflected the size of the vio­la­tion and the length of time it went on for. It was also intended to make an exam­ple of Microsoft and deter other com­pa­nies from doing same thing. In the­ory, the com­mis­sion could have fined Microsoft up to 10 per­cent of its global annual sales dur­ing the period the vio­la­tion took place.

“A fail­ure to com­ply is a very seri­ous infringe­ment that must be sanc­tioned accord­ingly,” Almu­nia said.

Keith Hyl­ton, a pro­fes­sor of law and antitrust spe­cial­ist at Boston Uni­ver­sity said the fine was “far in excess of any ben­e­fit Microsoft could have got­ten from the error, and vastly in excess of any harm to EU con­sumers, who are all aware of alter­na­tives to Inter­net Explorer.”

In all, Microsoft has now paid €2.2 bil­lion in fines to the Com­mis­sion since 1998, when reg­u­la­tors opened their first inves­ti­ga­tions into the com­pany after Sun Microsys­tems com­plained it had been denied access to tech­ni­cal doc­u­ments. Over the years, the EU has broad­ened its inves­ti­ga­tion to include whether Microsoft had abused Window’s near-monopoly over the mar­ket for com­puter oper­at­ing sys­tems to cor­ner other mar­kets, includ­ing server soft­ware, stream­ing media soft­ware, and Inter­net browsers.

Anthony Sabino, an antitrust lawyer and pro­fes­sor at St. John’s Uni­ver­sity, said the Com­mis­sion was right to fine Microsoft for the lat­est lapse, but the size of the penalty seemed “disproportionate…perhaps even petty, given that Microsoft has paid its fines and yielded to all the demands of the EU.”

“They have been slow to acknowl­edge that, while pow­er­ful, Microsoft is not invin­ci­ble,” he said.

Sabino added that Microsoft may be pay­ing the price in part for its aggres­sive­ness in the past in test­ing the lim­its of what reg­u­la­tors will tolerate.

Given the length of time the lat­est vio­la­tion went on, and the num­ber of users affected, “it does strain cred­i­bil­ity” that Microsoft wouldn’t have known it had failed to keep its part of the agree­ment, Sabino added.

For its part, Microsoft was apologetic.

“We take full respon­si­bil­ity for the tech­ni­cal error that caused this prob­lem and have apol­o­gized for it,” the com­pany said in a state­ment. “We pro­vided the Com­mis­sion with a com­plete and can­did assess­ment of the sit­u­a­tion, and we have taken steps … to help avoid this mis­take — or any­thing sim­i­lar — in the future.”

Microsoft’s Inter­net Explorer still has a 56 per­cent mar­ket share for Inter­net browsers on per­sonal com­put­ers, accord­ing to sta­tis­tics by Net Appli­ca­tions. Mozilla’s Fire­fox has 20 per­cent while Google’s Chrome has a 17 per­cent share. Microsoft is required to con­tinue to offer con­sumers a choice of browsers through 2014.

But the wider com­pet­i­tive land­scape has changed greatly since the Com­mis­sion started its action against Microsoft. Soft­ware appli­ca­tions on mobile phones usu­ally bypass browsers entirely. Tech com­pa­nies are now often less con­cerned with Inter­net browsers and more con­cerned about Google Inc.‘s dom­i­nance in Inter­net search tech­nol­ogy, Facebook’s dom­i­nance in social net­work­ing, and Apple’s dom­i­nance on mobile devices.

“For tech­nol­ogy com­pa­nies, often the best police­man is tech­no­log­i­cal progress itself,” Sabino said.

Rather than impos­ing uni­lat­eral fines, Almu­nia has advo­cated nego­ti­ated set­tle­ments since he took over as com­mis­sioner in 2010. He believes that com­pe­ti­tion issues are best resolved quickly and that slap­ping big fines on com­pa­nies years after the fact does lit­tle to help consumers.

But he said the whole point of a set­tle­ment is under­mined when com­pa­nies then don’t abide by its terms.

“They must do what they com­mit­ted to do, or face the con­se­quences,” he said.

Almu­nia con­ceded that the Com­mis­sion had been “naive” in appoint­ing Microsoft itself to over­see com­pli­ance with the agree­ment, and said the Com­mis­sion won’t allow that in the future.

Posted by Matt Echelberry on Mar 6 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.