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The European Union gave its official blessing to the union of Acer and Packard Bell on Wednesday.

After reviewing the $48.5 million acquisition of Packard Bell by Taiwan-based Acer, the European Commission (the executive branch of the EU) ruled that the two companies as a combined entity would pose no threat to fair competition in the European PC market.

"The Commission's examination showed that the proposed merger would entail horizontal overlaps for desktops and laptops, both for professionals and consumers, at the EEA (European Economic Area) and national levels," the ruling read. "However, the market would remain competitive post-merger in all segments of the PC sector with established alternative suppliers such as Hewlett-Packard, Dell, Fujitsu-Siemens, Toshiba, Sony, and Lenovo."

With that settled, Acer now finally has what it was looking for--a legitimate foothold in the European PC market. The Taiwanese PC maker's decision to bid for Packard Bell last fall was twofold: to instantly find currency with European PC buyers using Packard Bell's established branding, as well as block rival Lenovo's similar ambitions in Europe.

With Packard Bell and Gateway under its umbrella, Acer is now the third-largest supplier of PCs in the world, according to data collected by IDC.

This post was updated several times, most recently at 7:40 a.m. PST, with additional reporting provided by CNET News.com's Dawn Kawamoto.

European Union regulators on Wednesday fined Microsoft a record 899 million euros, or $1.35 billion, for failing to comply with sanctions.

The fine specifically addresses sanctions over the pricing structure Microsoft had set for licensing of its interoperability protocols and patents.

The pricing issue is the last of three parts of the European Commission's historic March 2004 antitrust order, which called for the software giant to provide complete and accurate interoperability information to rivals so their software could work with the Windows operating system, as well as to license the information "under reasonable and nondiscriminatory" terms.

"We always knew the possibility of a fine (over the licensing fee structure) was...there, but no one knew when it would come or how big it would be," said a source familiar with Microsoft's thinking. "Now the other boot has dropped."

In July 2006, the Commission fined Microsoft 280.5 million euros, or $424 million, for failing to comply with the other two parts of its sanctions related to providing complete and accurate interoperability protocol information to rivals. The original decision from 2004 was upheld by the European Court of First Instance last fall.

In addition to the two fines for failure to comply, Microsoft was originally hit with a 497 million euro levy by the Commission for having abused its dominant market position at the time of that order. (The 497 million euros originally was worth $613 million. Today it converts to $752 million.)

The newest fine, announced Wednesday, is the largest ever imposed by the EU upon a single company. In total, the European regulators have fined Microsoft roughly $2.5 billion in the long-running antitrust dispute.

Neelie Kroes

(Credit: European Community)

"Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision. I hope that today's decision closes a dark chapter in Microsoft's record of noncompliance with the Commission's March 2004 decision," EU Competition Commissioner Neelie Kroes said in a statement.

The ruling comes just one week after Microsoft announced a broad interoperability strategy, which included a pledge to not sue open-source developers.

"As we demonstrated last week with our new interoperability principles and specific actions to increase the openness of our products, we are focusing on steps that will improve things for the future," Microsoft said in a statement.

Although Microsoft's announcement and the Commission's fine come within days of each other, one source said the two were not related. Microsoft's announcement last week addressed how the software maker would apply the Court of First Instance's ruling to the rest of its business, according to the source.

In its new order, the Commission specifically said that Microsoft had charged "unreasonable prices for access to interface documentation for work group servers."

According to the EU's ruling, Microsoft initially had demanded a royalty rate of 3.87 percent of a licensee's product revenues for a patent license and a rate of 2.98 percent for a license giving access to the secret interoperability information. In May 2007, following complaints by the Commission, Microsoft reduced its royalty rates to 0.7 percent for a patent license and 0.5 percent for an information license within the EU. Worldwide rates remained unchanged.

On October 22, 2007, Microsoft began providing a license that gives access to the interoperability information for a flat fee of 10,000 euros and an optional worldwide patent license for a reduced royalty of 0.4 percent of licensees' product revenues, the Commission said.

The view from the competition
Microsoft's competitors and adversaries wasted no time in weighing in.

The European Committee for Interoperable Systems applauded the Commission's move.

"Commissioner Kroes is to be commended for her perseverance over the last three years in the face of Microsoft's foot dragging and appeals to the Court of First Instance," Thomas Vinje, ECIS legal counsel, said in a statement.

ECIS, which comprises Microsoft rivals Oracle, RealNetworks, Sun Microsystems, IBM, and others, further characterized Redmond as preferring to pay antitrust fines rather than allowing "merit-based competition" to occur in the marketplace.

Last month, the Commission announced it was initiating a formal investigation into Microsoft, focusing on potential antitrust violations regarding bundling of its products with its dominant operating system.

Browser maker Opera Software had initiated a complaint to the Commission, alleging that Microsoft was violating antitrust laws by tying its Internet Explorer browser to its Windows operating system. Opera highlighted concerns that Microsoft was adding new proprietary technologies into its browser that diminished interoperability with open Internet standards.

As part of its investigation, the Commission said it would also look into a complaint by ECIS. That complaint alleges that Microsoft refused to disclose interoperability information for a broad range of its products, including its Office suite, server-related products, and .Net framework.

Correction: this story has been corrected to remove the implication that iTunes sells audio files in formats other than AAC. iTunes did begin selling DRM-free songs earlier this year, but those files are still in the AAC format. Other stores are selling DRM-less MP3s, but not iTunes.

In 1998, the European Commission began investigating Microsoft on grounds that it was illegally using its desktop operating system (OS) monopoly to squeeze into new markets. At some point along the way, RealNetworks complained that Microsoft was repeating its kill-Netscape tactic by bundling the Windows Media player into Windows. In 2004, the EC agreed, and (among other things) ordered Microsoft to ship a version of Windows without the Media Player in Europe. Microsoft appealed, but was forced to comply while the appeal wound its way through the system.

So Microsoft shipped versions of Windows XP without the the Media Player. But because it didn't have to offer any discount, almost nobody bought these versions at retail, and hardware makers didn't preinstall them. (Even if the free Media Player version had been a few bucks cheaper, I don't expect there would have been much demand. Especially from PC makers--the more different software alignments they have to install and support, the higher their expenses.) The company followed up with similar versions of Vista in 2007.

As anybody who follows technology news now knows, yesterday a European court denied Microsoft's appeal on almost every count. (The full ruling is available from the first link on this page--it's long. Lawyer and technologist Mary Kirwan, writing for The Globe and Mail, had an excellent write-up of the ruling as it relates to Windows/non-Windows interoperability, which I'm not covering here.)

In the wake of the ruling, EC Commissioner Neelie Kroes spoke at some length about the harm Microsoft has done to the consumers, but one statement made me check my eyesight. As reported by Todd Bishop in the Seattle Post-Intelligencer, Kroes said, "Microsoft's media player format has, as a result of its conduct, come to dominate the market."

Say what? I suppose that's true if you define the relevant market as player installations--Paul Thurott reports Nielsen/NetRatings figures showing the Windows Media Player at 50 percent, with the RealPlayer at 22 percent and iTunes at 19 percent. Or if you measure it in terms of the number of commercial stores selling music in the Windows Media Audio format versus some other format.

But in terms of actual usage? Apple's iTunes Music Store owns about 70 percent of the market for legal downloads and has sold more than 2 billion songs. Those songs are in the AAC format, a variant of MPEG-4. And illegal downloads still far outweigh legal ones, and most of those are in the MP3 format. Microsoft's attempt to dominate the digital media market with the Windows Media format has failed so completely that the company is now mimicking Apple's end-to-end, control-all-parts strategy with Zune (which will be lucky to get 10 percent market share any time soon.) In fact, Microsoft's moved so far away from Windows Media, it's even licensing a new DRM technology to wireless phone carriers and handset makers that doesn't rely on or use Windows Media in any way.

In other words, Microsoft's OS monopoly hasn't helped it dominate the digital media market one bit. Turns out that users don't care so much which digital media player is preinstalled on their PC--if a competitor (Apple) sells a separate set of products (iPod, iTunes) that are good enough, people will use them. In fact, I'd argue that--apart from the profits and cash flow Windows generates, which fund money-losing businesses like the Xbox--the OS monopoly hasn't really helped Microsoft enter or dominate a new market for many years. (RealNetworks might disagree, but I wonder if its own actions did more to help Microsoft than Microsoft's monopoly. No slam on Rhapsody, which is a good service...I'm talking about the old RealPlayer and the way Real promoted it.)

Meanwhile, Microsoft's European competition just got harder--the iPhone launches in the U.K. on November 9.

Yesterday, it seemed like a great thing that Microsoft got swatted by the European Union on antitrust grounds. Today, questions are emerging. The Wall Street Journal has two good articles that deal with the fallout from the ruling. Unfortunately, Microsoft may not be the only one that loses in the judgment.

The first article by Charles Forelle calls out the nebulous standard that may be set by the ruling. Namely, if you win (in the market), you may lose (in court):

The bad legal news continues for the recording industry.

After yesterday's ruling that the RIAA owes an Oklahoma woman nearly $70,000 in attorneys' fees, the European Union's top court today said that European ISPs are not required to disclose the names of subscribers whose IP addresses have allegedly been linked to illegal activity on file-sharing networks.

In the case at issue, a group of Spanish music producers filed a legal complaint about Spanish ISP Telefonica, which refused turn over IP addresses of apparent Kazaa users. Telefonica maintained that Spanish law required it to turn over these addresses only in criminal cases or matters of national security. The Spanish court overseeing the case asked for an opinion from the European Court of Justice, which essentially backed Telefonica, saying that this information did not need to be turned over in civil cases.

This opinion's not a legally binding ruling, but if the Spanish court accepts the opinion and rules accordingly, this could form the basis for similar decisions throughout the EU. This would mean that recording industry representatives would either have to convince criminal investigators--the police--to go after file-traders (unlikely), or would have to come up with some other technical method (possible) without violating the EU's stringent privacy laws (very difficult).

Meanwhile, in the U.S., the RIAA continues to spend a lot of money to get very little in return.