UPDATE 5-EU fines Microsoft $731 mln for broken promise, warns others

Wed Mar 6, 2013 7:44pm EST

* European Commission says company did not respect antitrust
deal
    * U.S. company failed to offer users a choice of Web
browsers
    * Fine raises total EU penalties against Microsoft to 2.2
bln euros
    * Microsoft says takes full responsibility for lapse
    * EU decision is warning shot to other firms on its radar
screen


    By Foo Yun Chee
    BRUSSELS, March 6 (Reuters) - The European Union fined
Microsoft Corp 561 million euros ($731 million) on Wednesday for
failing to offer users a choice of Web browser, an unprecedented
sanction that will act as a warning to other firms involved in
EU antitrust disputes.
    It said the U.S. software company had broken a legally
binding commitment made in 2009 to ensure that consumers had a
choice of how they access the internet, rather than defaulting
to Microsoft's Explorer browser.
    An investigation found that Microsoft had failed to honour
that obligation in software issued between May 2011 and July
2012, meaning 15 million users were not given a choice.
    It is the first time the European Commission, the EU's
anti-trust authority, has handed down a fine to a company for
failing to meet its obligations. 
    While the sanction is sizeable, representing more than 11
percent of Microsoft's expected net profit this quarter and 1
percent of annual sales, the Commission could have charged the
company up to 10 percent of annual global revenue. 
    The world's largest software company can easily pay the fine
out of its $68 billion in cash reserves. It holds $61 billion of
that outside the United States, much of it in Europe, to take
advantage of low tax rates.
    Microsoft shares fell 0.9 percent to $28.09 on Nasdaq. 
    "If companies agree to offer commitments which then become
legally binding, they must do what they have committed to do or
face the consequences," Joaquin Almunia, the EU's competition
commissioner, told a news conference.
    "I hope this decision will make companies think twice before
they even think of intentionally breaching their obligations or
even of neglecting their duty to ensure strict compliance."
    Microsoft said it took full responsibility for the incident,
which it has blamed on a technical error. The board cut chief
executive Steve Ballmer's bonus last year partly as a result,
and also faulted former Windows head Steven Sinofsky who left
the company last year for unrelated reasons.
    The company did not say whether it would challenge the
ruling, but it is not expected to do so, largely so as not to
antagonise regulators.
    "We have apologized for it," Microsoft said in a statement.
    "We provided the Commission with a complete and candid
assessment of the situation, and we have taken steps to
strengthen our software development and other processes to help
avoid this mistake - or anything similar - in the future."
    Almunia said regulators may have made a mistake by allowing
Microsoft to police its own behaviour instead of appointing an
external trustee to ensure compliance with the commitments.
    "In 2009, we were even more naive than today," he said.
    
    
    WARNING SHOT TO GOOGLE, OTHERS
    Microsoft's fine is a good example of the Commission's hard
line approach toward companies which disregard rules whether
deliberately or not, said Charles Whiddington, a partner at
London-based law firm Field Fisher Waterhouse.
    "The implications for companies going forward is that they
must be more rigorous in complying with any agreement with
the Commission, which does not take prisoners for infractions,"
he said.
    "Companies face severe sanctions for flouting EU rules, even
accidentally."
    Wednesday's fine brings the total of EU fines issued against
Microsoft over the past decade to more than 2.2 billion euros,
making it the world's worst offender of EU rules.
    While the charge could have been higher, it still marks a
firm sanction and will be noted by the likes of Google,
which is involved in a dispute with the Commission over how it
ranks search engine results.
    Google is under pressure to offer concessions to prevent the
Commission moving to the next stage in the case, which could
involve fines. Other major technology companies such as Samsung
Electronics are also under investigation.
    Wednesday's decision is expected to help Microsoft draw a
line under its troubles in Europe as it gears up for an
intensified battle against Google. Microsoft is one of the
complainants in the EU's investigation into the search giant.
    Almunia has also signaled EU regulators' concern over
antitrust issues in the links between technology platform owners
and application developers, in a move that could spell trouble
for Apple Inc and Google, whose iPads and
Android tablets are leading the growth of the computer market.
 
    Relations between the EU's antitrust body and Microsoft have
frequently been tense. In 2004, the Commission found that the
company had abused its dominant market position by tying Windows
Media Player to the Windows software package.
    In 2009, in order to resolve other competition concerns,
Microsoft undertook to offer users a browser choice screen
allowing them to download a browser other than Explorer.
    The Commission made that obligation legally binding for five
years, until 2014, and initially the company complied. From
March 2010 until November 2010, 84 million browsers were
downloaded via the screen, the Commission said. 
    But the Windows 7 service pack 1 rolled out between mid-2011
and mid-2012 failed to offer the choice, leading to the
investigation that resulted in Wednesday's fine.
    In calculating the fine, the Commission said it had taken
into account that Microsoft had cooperated by providing
information that had helped speed up the investigation.
    Analysts always found it odd that Microsoft would have
purposefully failed to offer a choice of browsers via its
software given that the potential fine for such a failure would
far exceed any potential income from not offering it.
    Microsoft's share of the European browser market has more
than halved since 2008 to 24 percent. Google's Chrome has a 35
percent share, followed by Mozilla's Firefox with 29 percent,
according to Web traffic analysis company StatCounter. 
    Given Microsoft's fading power in the browser market, some
questioned the size and point of the fine.
    "As always, the regulators are late to the party," said Kim
Forrest, senior equity research analyst at Fort Pitt Capital
Group in Pittsburgh. "How did the EU come up with that figure in
damages? There are no restrictions as to being able to place a
new browser on the PC and it's really kind of clear that
Microsoft isn't benefiting monetarily from the browser at this
point."