Microsoft Faces More Fines From EU

Reports say the EC will raise the cap on daily fines to the equivalent of US$3.8 million, more than $1 million more than the previous cap. European regulators have repeatedly warned Microsoft that it is not fulfilling its obligations under the 2004 decision that found it abused its market strength to keep competitors at bay.

The higher fine limit means Microsoft cold be facing hundreds of millions more in penalties in addition to the record-setting $600 million fine imposed when the decision was handed down in March of 2004. In fact, some estimate that over time, the additional daily fines could match the original penalty, bringing to more than $1 billion Microsoft's exposure in the case.

Just the fact that the commission discussed raising the fine limit is a way of pressuring Microsoft to comply with one of the more contentious elements of the ruling: That Microsoft share the source code for its Windows server software with competitors to make it easier for them to produce compatible products.

The EC is expected to make an announcement on Wednesday as to its specific decisions regarding fines and daily fine limits.

Pressure Points

Microsoft has argued that a licensing program it put in place satisfies the code-sharing requirement, but reviews commissioned by the EC have found the program getting little adoption among server makers, who complain the program offers too little code access to make it worthwhile and at too high a financial price.

Microsoft has also filed several appeals of the ruling, including contesting the overall decision, which could lead to a legal battle as long and difficult as the one that culminated in Microsoft's settlement with U.S. antitrust regulators.

Meanwhile, regulators in the EU have already warned Microsoft that its next-generation version of Windows -- Windows Vista -- will be closely scrutinized for antitrust compliance when it is released within a year.

Although the new fines could represent enough of a financial hit to slow earnings even at a company as large as Microsoft, the software giant's shares moved higher Monday on word of the new fines, rising less than a percentage point to $23.48.

Fork in the Road

Microsoft is still dealing with antitrust regulators in South Korea as well. There, Microsoft's recent request to strike a requirement that it ship a Windows product without the Media Player and messaging software was denied by a court.

The possibility of additional financial hits are likely not being taken lightly by Microsoft, which has hoped to close many of the outstanding regulatory and legal issues facing it as a way of better preparing itself for competitive battle with open source software and Web services providers such as Google (Nasdaq: GOOG) .

Specifically at issue now is documentation that antitrust regulators asked for in their 2004 ruling and say Microsoft is tardy in delivering. Microsoft has said it has an extensive team of some 300 employees dedicated to the task of creating the documentation.

Earlier versions produced by Microsoft have been deemed insufficient by regulators and third party mediators and Microsoft has argued that the EC bears some of the burden for not being clearer about what it wanted the software maker to provide from the outset.

Microsoft has long viewed the compatibility requirement as the most onerous of the sanctions it faced, Yankee Group analyst Laura DiDio told the E-Commerce Times. Microsoft appeared to be making efforts to comply as a way of helping to get beyond the issues, she added.

"Microsoft's code and how its products work aren't the same state secrets they once were," DiDio noted, "but they are still the core of what the company considers some very important and valuable intellectual property."

It's possible Microsoft may have underestimated how aggressive European regulators would be in enforcing the sanctions, particularly since Microsoft has since made nice with several of the companies and groups that originally filed complaints about it with the EC, including RealNetworks (Nasdaq: RNWK) , Sun Microsystems (Nasdaq: JAVA) and some industry associations.