Wednesday, February 27, 2008

Microsoft Fined €899 Million for Failing to Comply with EC Interoperability Order

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) imposed a record € 899 million (approximately $1.3 billion) fine on Microsoft Corporation for failing to comply with its obligations under a March 2004 EC decision, according to a February 27 press release.

The 2004 decision, which was upheld by the European Court of First Instance in September 2007, found that the computer software company had abused its dominant position by deliberately restricting interoperability between Microsoft Windows PCs and non-Microsoft work group servers.

Microsoft was ordered to disclose to competitors, within 120 days, the interfaces required for their products to be able to “talk” with the Windows OS on reasonable terms. At that time, Microsoft was also ordered to pay a €497 million (approximately $600 million) fine.

According to the EC’s February 27 announcement, the royalties that Microsoft charged for access to the interoperability information prior to October 22, 2007, were unreasonable. Therefore, Microsoft failed to comply with the March 2004 Decision for three years.

On October 22, 2007, Microsoft began providing a license that gave access to the interoperability information for a flat fee of €10,000 and an optional worldwide patent license for a reduced royalty of 0.4 % of licensees’ product revenues. Prior to that date, Microsoft had demanded much higher royalty rates for a patent license or for a license giving access to the secret interoperability information.

The EC issued a statement of objections on March 1, 2007, setting out its concerns regarding Microsoft's unreasonable pricing. Soon thereafter, Microsoft reduced its royalty rates with regards to sales in Europe. It was not until October, that Microsoft changed worldwide rates.

The current penalty does not cover a period of non-compliance addressed by a penalty payment decision in July 2006. At that time, the EC fined Microsoft €280.5 million for its failure to comply with the 2004 decision through June 20, 2006. Thus, the current decision covers a period from June 21, 2006, through October 21, 2007.

A Microsoft spokesperson has been reported as saying that the fines represent past issues and the computer software company is now is now in full compliance. In addition, Microsoft announced just last week that a change to its “technology and business practices to increase the openness of its products and drive greater interoperability, opportunity and choice for developers, partners, customers and competitors.” At that time, the European Commission (EC) issued a statement that it would continue its ongoing interoperability investigation into the computer software company. The EC said in a February 21 announcement that it “would welcome any move towards genuine interoperability.”

A release on the March 2004 EC decision appears here on Europa, the portal site of the European Union.

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