May 8, 2007 / 10:09 AM / 13 years ago

EU warned to be careful on any Microsoft break-up

By David Lawsky

BRUSSELS, May 8 (Reuters) - A former U.S. justice official who tried to break up Microsoft (MSFT.O) seven years ago has urged the European Commission to tread cautiously if it tries to do the same.

European Competition Commissioner Neelie Kroes, frustrated by what she sees as its defiance of the law, recently raised the question of whether the U.S. software giant should be broken up.

But one of the American architects of a previous break-up bid says Europeans should proceed cautiously, if at all. So far there are no indications that could happen, and experts consider it unlikely.

The European Commission, Europe’s top antitrust regulator, has never broken up a company for abusing its market dominance, although it has required major divestments by firms seeking permission to merge.

The former U.S. official and other legal experts say the EU executive could theoretically impose such a solution on Microsoft as the price of doing business in Europe.

But that does not necessarily make it the right move to address Europe’s antitrust concerns, he said.

“At some point piling on and bringing redundant proceedings is not in the interest of sound law enforcement,” said the former official, who asked not to be identified.

In addition, the remedy must be tailored to the problem. The former official, who served under President Bill Clinton before 2001, said the Justice Department’s approach “wasn’t designed to diminish market power” but to restructure the company.

In other words, the aim was not to punish Microsoft but to fix the problem of lack of competition. Microsoft, of course, did not see it that way and opposed a break-up, which was abandoned under President George W. Bush in 2001.

Justice Department consultants who backed a break-up argued that shareholder value would remain stable but Microsoft would be unlikely to act in an anti-competitive manner again.

Their analyses are still available on the Justice Department Website, at and

The problem of changing Microsoft’s behaviour is at the heart of Kroes’s concerns. Unlike the United States, which fined Microsoft nothing, the EU has fined the company 781 million euros ($1.063 billion) with the prospect of more to come. But it has not helped.

“We have never before encountered a company that has refused to comply with a Commission decision”, she said on April 20.

For that reason, Kroes raised the possibility of a “structural remedy” — antitrust jargon for a break-up.

Microsoft says it has “done everything humanly possible to comply” with the Commission’s decision.

Kroes said that she had the authority to act, but has given no indication she will do so.

The Commission’s authority over Microsoft is under challenge in the European Union courts.

Microsoft has appealed against the European Commission’s 2004 decision to fine it and make it change its business practices, and the EU Court of First Instance in Luxembourg is due to rule on the case later this year.

In the United States, a lower court judge ordered the Microsoft split in 2000 but this was overturned on appeal the following year, partly because he failed to conduct hearings.

The U.S. Supreme Court ultimately allowed the most serious charges in America to stick, even if the remedy did not.

((Editing by Paul Bolding; Reuters messaging; e-mail; +322-287-6811. Brussels newsroom))

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