EU Fines Microsoft $357M, Threatens More

The European Union levied a second massive fine on Microsoft and threatened greater penalties in the future unless the world's largest software company obeys a 2004 antitrust order to share technical details of its Windows operating system with rivals.

Microsoft Corp. was fined 280.5 million euros ($357 million) on Wednesday for allegedly flouting the earlier order, on top of the record 497 million euros ($613 million) fine it paid at the time. It also faces new penalties of 3 million euros ($3.82 million) a day beginning July 31.

"Microsoft has still not put an end to its illegal conduct," said EU Competition Commissioner Neelie Kroes. "I have no alternative but to levy penalty payments for this continued compliance. No company is above the law."

Microsoft _ which in comparison earned $2.98 billion in the quarter ended March 31 _ said it would appeal, claiming the "unprecedented" amount was unfair.

Microsoft General Counsel Brad Smith said the company would ask the EU's second-highest court, the Court of First Instance, if its compliance efforts have been sufficient, claiming that the EU had never been clear about what it wanted.

The EU told the company to supply "complete and accurate technical specifications" to developers to help them make software for servers that help computers running Windows, printers and other devices on a network talk to each other. It accused Microsoft of using its monopoly position with Windows to elbow into the new server software market.

But Smith said the EU had not been clear about its demands and how Microsoft should present the information.

"Before one imposes a fine of hundreds of millions of euros, I think that there's a responsibility the government has to be specific and concrete about what it wants someone to do," he told reporters in a conference call. "The decision did not do that."

Kroes said Microsoft's earlier efforts had not come even close to a readable manual developers could use. Her decision is based on reports from an independent monitor _ computer science professor Neil Barrett _ and other technical advisers.

They have had harsh words for Microsoft. In December, Barrett called the documentation "totally unfit" for its intended purpose.

"The documentation appears to be fundamentally flawed in its conception, and in its level of explanation and detail," he wrote in his report. "Overall, the process of using the documentation is an absolutely frustrating, time-consuming and ultimately fruitless task. The documentation needs quite drastic overhaul before it could be considered workable."

In March, information technology consulting group TAEUS looked again at a revised document Microsoft had supplied. They did not change their tune.

TAEUS described the manual as "entirely inadequate," "devoted to obsolete functionality" and "self-contradictory."

However, Kroes praised the company's recent work to improve the documentation, saying it was "extremely good." On June 20, Barrett had told her that just one out of 70 documents was ready for testing. By Wednesday, at least half were in a fit state, he had told her.

This did not keep regulators from fining the company 1.5 million euros ($1.91 million) a day from a Dec. 15 deadline to June 20, when it decided that Microsoft was still violating EU law.

It is the first time the EU has fined a company for not obeying an earlier order. Microsoft has three months to pay Wednesday's fine.

Ronald Cass, consultant and a former Microsoft adviser, said the EU showed an "arrogant certainty" in the correctness of its decision by levying fines without waiting for the company to complete its current project.

Kroes, though, said she had showed restraint on the new fines as the EU can fine a company up to 5 percent of its global revenue. This would mean a fine of 4.3 million euros ($5.5 million) a day out of Microsoft's daily revenue of 85.7 million euros ($109 million) from July 2004 to July 2005, she said.

Any decision on new fines will be made in the fall. Regulators must also decide if the material is being supplied "on reasonable terms."

If they find that Microsoft is charging too much in royalties, they may also file new charges and levy new fines of 500,000 euros ($637,000) a day backdated to Dec. 15.

Rejecting Microsoft's claims that the EU's demands were vague and shifting, the EU said the obligations were specific and have not changed. "I don't buy Microsoft's line that they didn't know what was being asked of them because the March 2004 decision is absolutely crystal clear," Kroes said.

Microsoft said it only fully understood what it needed to do after talks with the monitor in April. The company said it has 300 people working to supply the information. Six of seven installments have already been delivered, it said, and another is due next Tuesday.

Smith said despite the fines, Microsoft "remains totally committed to full compliance" with the 2004 decision and has handed over "thousands of pages" of technical documents to EU experts and would do whatever the Commission asked to comply.

Even after Microsoft has supplied the information, it will take at least a month for it to be revised and around two months for the entire manual to be tested.

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I guess this means that Coca Cola, Bush's Beans and other companies will have to release their secrets, too.