EU slaps Microsoft with $1.35 billion fine

The European Commission has hit Microsoft with an 899 million euro fine for charging unreasonable prices for access "to interface documentations for work group servers" prior to Oct. 22, 2007 and failure to adhere to a March 2004 antitrust ruling. That fine equates to $1.35 billion or so--a big chunk of change even for Microsoft.

Clearly, the EU isn't buying Microsoft's interoperability pitch and wanted to send a big message. However, I can't go all anti-EC on this one. Microsoft has fumbled its way through this whole process and even its latest explanations to Mary Jo Foley are weak. European Competition Commissioner Neelie Kroes, who has noted that she is a pre-emptive regulator, said in a statement that:

“Microsoft was the first company in fifty 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 non-compliance with the Commission’s March 2004 Decision and that the principles confirmed by the Court of First Instance ruling of September 2007 will govern Microsoft's future conduct."

The commission's March 2004 decision required Microsoft to disclose complete and accurate interoperability information to developers of work group server operating systems on reasonable terms. The big hangup was over "reasonable terms." The EC argued that the best terms were as close to free as possible.

Here's the EC's retelling of the royalty spat:

Initially, Microsoft had demanded a royalty rate of 3.87% of a licensee's product revenues for a patent licence (the "patent licence") and of 2.98% for a licence giving access to the secret interoperability information (the "information licence"). In a statement of objections of 1 March 2007, the Commission set out its concerns regarding Microsoft's unreasonable pricing. On 21 May 2007, Microsoft reduced its royalty rates to 0.7% for a patent licence and 0.5% for an information licence, as regards sales within the EEA, while leaving the worldwide rates unchanged.

Only as from 22 October 2007 did Microsoft provide a licence giving access to the interoperability information for a flat fee of €10 000 and an optional worldwide patent licence for a reduced royalty of 0.4 % of licensees’ product revenues.

Microsoft said in a statement via Reuters that the fine should resolve outstanding issues with the EC. The company added that last week's interoperability announcement shows that it is focusing on steps to improve the future.