Microsoft Hit with Record EU Fine

European Commission finds the world's largest software company guilty of breaking antitrust law by abusing its 'virtual monopoly' with its Windows operating system.

The European Commission has fined Microsoft a record US $613 million (497.2 million euro) after it found the company abused its "virtual monopoly" with its Windows operating system and broke European antitrust law governing competition.

EU Competition Commissioner Mario Monti said the EU found that Microsoft "has abused its virtual monopoly power over the PC desktop in Europe. This is not a decision we have taken easily or hastily."

Monti said the EU's decision "is about protecting consumer choice and stimulating innovation."

The fine tops the $563 million, or 462 euro, penalty the EU levied against vitamin cartel Hoffman-La Roche in 2001.

As part of the remedies it ordered Wednesday in addition to the fines, the EU said Microsoft has 90 days to unbundle its Windows Media Player software from its operating system for PC makers. It also ruled that the company has 120 days in which to release server system code to other companies so that other software providers can interoperate with computers that run the Windows operating system.

During a news conference Wednesday, EU Competition Commissioner Mario Monti said "we believe undistorted competition for consumers will bring about the best results."

The EU said the final decision in the case, which ran over five years, requires the company to restore competition in the marketplace. "We are asking Microsoft to disclose the information necessary to make sure competitors' products can fully and properly talk to Microsoft's dominant operating systems," Monti said.

"We are also asking Microsoft to offer a version of its ubiquitous Windows operating system without Windows Media Player."

In addition, Monti said the EU is "not expropriating Microsoft's intellectual property. We are also not breaking new legal ground, neither for the Europe nor indeed the United States. We are ensuring that anyone who develops new software has a fair opportunity to compete in the marketplace. We are saying that consumers and pc hardware manufacturers ought to be able to decide which media player software they want to pre install in their computers. They ought to choose, not Microsoft."

In a statement, Microsoft said its proposed settlement (which the EU rejected) would have been better for European consumers.

Microsoft plans to discuss the decision and its expected appeal during a conference call later Wednesday morning. Brad Smith, senior vice president and general counsel of Microsoft, is slated to discuss the decision and Microsoft's response.

A ruling that Microsoft must produce a version of player-free version of Windows would make it a lot easier for other media player providers to get their software on the desktop. But requiring an EU-specific version of Windows could hurt not only Microsoft but also computer makers, according to Herbert Hovenkamp, a professor of law at the University of Iowa and the author of numerous books on antitrust law.

"Traditionally, OEMs have been reluctant to support two or more competing versions of the same software," Hovenkamp told "They have the expense and headache of supporting two applications instead of one."

The EU's antitrust investigation of Microsoft officially began in 2000, after a complaint from Sun Microsystems pushed the European Commission to survey a wide variety of businesses. The overwhelming majority complained that Microsoft would not disclose interface information that was necessary for competing servers to communicate with Windows PCs and servers.

The same industry survey led the Commission to conclude that the inclusion of Media Player with the Windows OS stifled competition and product innovation. In February 2000, the Competition Directorate General of the European Commission asked Microsoft to provide technical information that would allow it to determine the truth of allegations that Microsoft bundled its PC operating system, server software and middleware so that, "in order to ensure full exploitation of functionalities embedded in Windows 2000 for PCs, customers would de facto be obliged to purchase Windows 2000 for servers."

The appeal process, which Microsoft is expected to pursue, would likely take years. Industry observers have said the company could try to get the remedies delayed until it exhausts the appeals process. If it does lose on appeal, however, the company would be facing interest payments with the fines.

Susan Kuchinskas contributed to this story.

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