March 22, 2004 5:14 PM PST

EU planning massive fine against Microsoft

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European regulators plan to levy a record fine of more than $600 million against Microsoft as part of what is expected to be a strongly worded rebuke of the company's business practices.

The ruling, which is set to be announced on Wednesday, is expected to include a fine approaching $617 million (500 million Euros), according to a source. In addition, the commission is expected to endorse its preliminary finding that Microsoft abused its monopoly power and to order the company to offer a version of Windows without Windows Media Player. Microsoft would also be required to make it easier for rivals to interact with its server software.

The European Commission could have fined Microsoft up to 10 percent of its annual revenue, or more than $3 billion. Even the proposed fine, which is said to be $613 million, would be a record penalty for European regulators.

Microsoft, which sought to settle the case, said it feels a fine of that magnitude is unwarranted.

"Microsoft and the commission worked very hard and in good faith to try and resolve the very complex legal issues around this case," said spokesman Jim Desler. "It's hard to see how a fine of this magnitude could be warranted under these circumstances."

Ahead of the ruling, Microsoft indicated it is likely to appeal the commission's decision. The company would first seek a stay of any penalties from the European Court of First Instance and could eventually appeal to the European Court of Justice.

"Obviously we do not agree with the commission in several key areas," Desler said. "It's very likely we will seek review by the courts." Any appeal would also seek a reduction or elimination of the fine.

Even if the appeals were rejected, Microsoft would have no problem paying a fine. The company held $52.8 billion in cash and short-term investments as of Dec. 31.

"It's a dent in quarterly earnings," said Directions on Microsoft analyst Matt Rosoff. "It's not going to significantly affect Microsoft's future business."

The fine, Rosoff noted, is less than the $750 million that Microsoft agreed to pay AOL Time Warner (now renamed Time Warner) last year to settle that company's private antitrust suit.

The real issue, Rosoff said, is whether European regulators should be able to affect Microsoft's future ability to add features into Windows.

Microsoft has indicated it may have agreed to settle the current issues raised by the EU, but was not prepared to agree to similar limits in the future.

"I think the problem here is the EU is determined to restrict Microsoft's future behavior. They want to say what Microsoft can and cannot do when it comes to bundling future features," Rosoff said. "Microsoft's core belief is that they are the only one with a right to determine what goes in Windows."

 

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