EUROPEAN UNION REGULATORS FINE MICROSOFT $1.3 BILLION

The European Commission fined Microsoft $1.3 billion for failing to comply with a 2004 judgment that found the software giant guilty of abusing its market dominance. This fine brings the total Microsoft has paid due to European Commission rulings to $2.5 billion.

From The New York Times:

Microsoft had earlier been fined after the commission determined in 2004 that the company had abused the dominance of its Windows operating system to gain unfair market advantage. The commission imposed the new fine Wednesday, it said, because the company had not met the prescribed remedies after the earlier judgment.

“Microsoft was the first company in 50 years of E.U. competition policy that the commission has had to fine for failure to comply with an antitrust decision,” the European competition commissioner, Neelie Kroes, said in a statement.

Microsoft said it was “reviewing the commission’s action.”

The company, the world’s biggest maker of software, said in a statement that the commission had announced in October 2007 “that Microsoft was in full compliance with the 2004 decision, so these fines are about past issues that have been resolved.”

INTEL IS THE EUROPEAN COMMISSION'S NEXT TARGET

In the wake of the ruling against Microsoft this week, Intel seems to be the next target for the E.U. in terms of anti-competitive behavior. Rival AMD has complained since 2000 that Intel has used questionable practices, seemingly legal in the United States, but perhaps illegal in the E.U. In July of this year the European Commission charged Intel with illegal use of sales tactics such as rebates and incentives to maintain or increase its market share in microprocessors.

From BusinessWeek:

The EC cases against Microsoft and Intel are based on different kinds of alleged market abuse and draw on separate legal precedents. But both reflect a widening gap in how the U.S. and Europe view the legality of hardball business tactics by dominant companies. While regulators in both regions look for signs of harm to consumers from monopoly behavior, Europe gives as much or more weight to the impact on competitors.

That distinction played a critical role in the Microsoft ruling. On the face of it, Microsoft's free inclusion of Media Player in Windows was a boon to consumers. But the EC was able to show that the software bundling harmed rivals such as Real Networks and Apple and reduced competition in the media player market—thus potentially hurting customers in the long run by leading to less choice in digital content formats. A similar argument held that by limiting the information it gave out about Windows networking standards, Microsoft had foreclosed competition in desktop and server operating systems, to the detriment of consumer choice.

The same kind of thinking is at the core of the commission's case against Intel. Prompted by complaints from rival chipmaker AMD dating back to 2000, the EC has charged Intel with illegal use of sales tactics such as rebates and incentives to maintain or increase its market share in microprocessors. Such programs are normally permissible but can cross the line into abuse when practiced by companies with monopoly market share.

Intel strongly denies any wrongdoing and says it has acted within the law with its market incentive programs. It also argues that the programs have led to lower chip prices for consumers.

That may not be enough of a defense in Europe—especially now that the commission's hand has been strengthened in the wake of the Microsoft defeat. "European authorities and courts put a higher duty on dominant firms to deal fairly with their competitors," says Philip Marsden, a senior research fellow at the British Institute of International & Comparative Law. "They want to foster gentlemanly competition, a premise that is foreign to American antitrust thinking."

EUROPEAN COURT DENIES MICROSOFT APPEAL

From the International Herald Tribune:

The second-highest court in Europe on Monday rejected Microsoft's attempt to overturn a landmark European Commission antitrust ruling and record fine, bolstering smaller software makers and putting market leaders on notice that they cannot leverage dominance in one technology niche to squelch broader innovation, industry and legal experts said.

The European Court of First Instance, in a starkly worded summary, ordered Microsoft to obey a 2004 commission order to share confidential computer code with competitors. The court also upheld the record fine of €497.2 million, or $690 million, against the world's largest software maker.

Software and legal experts said the court's decision may signal problems for companies like Apple, Intel and Qualcomm, whose market dominance in online music downloads, computer chips and mobile phone technology is also being scrutinized by the commission. The ruling also could make it harder for Microsoft to continue "bundling" new features into its Windows software.

Microsoft's allies said the court's decision, which expressly forbids the company's policy of bundling new extras into its Windows operating system, will have a chilling effect on the strategies of many global software makers.

"This ruling is certainly going to introduce a lot of uncertainty," said Jonathan Zuck, president of the Association for Competitive Technology, a Washington-based group that supported Microsoft in its legal case in Europe. "What the court is basically saying is that if you develop a successful product and get too big, the European Commission is going to force you to give away your intellectual property."

When Microsoft wants to put handwriting and speech recognition features or stronger anti-virus and other security software into the Windows operating system, competitors can complain to European authorities, even though the European unbundling order in the media player case - compelling Microsoft to offer a version of Windows in Europe without the media player but with no difference in price - was a failure.

Microsoft has already been forced to pay nearly €1 billion in fines in the long-running legal case, which has pitted the software maker against the commission and a host of competitors, including International Business Machines and Novell.

After Sun filed the initial complaint in 1998, the commission later expanded its inquiry to include Microsoft's practice of bundling its Windows Media Player into the Windows operating system. After Microsoft began bundling its media player into Windows, it overtook the market leader, RealNetworks.

Microsoft has been repeatedly fined by the commission since the 2004 antitrust ruling for failing to adequately disclose server software coding.

During the course of the litigation, Kroes said in Brussels that Microsoft's share of the market in workgroup servers had risen to 80 percent from 40 percent and that Windows Media Player had come to dominate the market.

She highlighted the fact that Microsoft had 95 percent of the world market for desktop operating systems and said she would like to see that share decline.

"You can't draw a line and say exactly 50 percent is correct, but a significant drop in market share is what we would like to see," she said. "Microsoft cannot regulate the market by imposing its products and its services on people."