Microsoft handed record fine of €497m

MICROSOFT was fined a record €497 million by the European Commission yesterday – a financial flea bite for the computer giant but a big political and legal headache for chairman Bill Gates.

The cash penalty was accompanied by orders to dismantle Microsoft's sales monopoly by no longer making purchase of its Windows operating system conditional on buying the firm's Media Player program.

The company was accused of breaching EU competition rules by "bundling" its own software and other services with its Windows system.

This made it difficult for other software makers to compete particularly as Microsoft withheld the technical codes which allowed Windows-based personal computers to work better with servers.

Microsoft said the information was its own intellectual property and that offering a complete package was part of its commercial strategy.

The strategy worked well more than 90% of personal computers worldwide run on Microsoft software.

Today's ruling in Brussels followed a four-year investigation led by Competition Commissioner Mario Monti, who said: "It is essential to have a precedent which will establish clear principles for the future conduct of a company with such a strong, dominant position."

But the real battle has only just begun: Microsoft is appealing against the fine to the European Court of Justice and a final verdict could take five years.

Meanwhile, Microsoft will be seeking suspension of the Commission's order to start selling within 90 days a version of Windows without Media Player and to make available within 120 days the information other companies need to produce compatible rival server products.

Mr Gates is furious the EU is interfering at all when Microsoft is already subject to anti-trust laws in America.

But Mr Monti said the company's commercial methods affect millions of European customers and must comply with European Union laws.

The Commission, he argued, has a duty to offer monopoly protection to Microsoft's commercial rivals, and its retail customers, in Europe.

With a healthy bank balance estimated at nearly €60 billion, Microsoft will not be troubled by the size of the fine, even if it is the biggest ever sought by the Commission against any company.

But the knock-on effect of changing the way Microsoft markets its products in Europe could be huge.

Mr Gates is now determined to challenge the Commission's contention that the company which made him the world's richest man is an "abusive monopolist" which has manipulated the market at the expense of others.

Mr Monti said his "exhaustive and extensive" investigation into Microsoft has lasted a total of more than five years, and the conclusion was that the company had violated EU competition rules by abusing its "near-monopoly".

The illegal behaviour was still going on, said Mr Monti, adding: "Dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition on the merits and does not harm consumers and innovation."

He added: "Today's decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a strong dominant position."

He said Microsoft's "abuses" of its position had acted as "a brake on innovation", harming competition.

The Commission could have imposed a much bigger fine it has power to demand financial penalties of up to 10 per cent of the annual turnover of the company concerned.