EU fines Microsoft $ 731 m for broken promise

Friday, 8 March 2013 00:01 -     - {{hitsCtrl.values.hits}}

Reuters: The European Union fined Microsoft Corp 561 million euros on Wednesday for failing to offer users a choice of Web browser, an unprecedented sanction that will act as a warning to other firms involved in EU antitrust disputes.

It said the US software company had broken a legally binding commitment made in 2009 to ensure that consumers had a choice of how they access the internet, rather than defaulting to Microsoft’s Explorer browser.

An investigation found that Microsoft had failed to honour that obligation in software issued between May 2011 and July 2012, meaning 15 million users were not given a choice.

It is the first time the European Commission, the EU’s anti-trust authority, has handed down a fine to a company for failing to meet its obligations.

While the sanction is sizeable, representing more than 11% of Microsoft’s expected net profit this quarter and 1% of annual sales, the Commission could have charged the company up to 10 percent of annual global revenue.

The world’s largest software company can easily pay the fine out of its $68 billion in cash reserves. It holds $61 billion of that outside the United States, much of it in Europe, to take advantage of low tax rates.

“If companies agree to offer commitments which then become legally binding, they must do what they have committed to do or face the consequences,” Joaquin Almunia, the EU’s competition commissioner, told a news conference.

“I hope this decision will make companies think twice before they even think of intentionally breaching their obligations or even of neglecting their duty to ensure strict compliance.”

Microsoft said it took full responsibility for the incident, which it has blamed on a technical error. The board cut chief executive Steve Ballmer’s bonus last year partly as a result, and also faulted former Windows head Steven Sinofsky who left the company last year for unrelated reasons.

The company did not say whether it would challenge the ruling, but it is not expected to do so, largely so as not to antagonise regulators.

“We have apologised for it,” Microsoft said in a statement.

“We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake – or anything similar – in the future.”

Almunia said regulators may have made a mistake by allowing Microsoft to police its own behaviour instead of appointing an external trustee to ensure compliance with the commitments. “In 2009, we were even more naive than today,” he said.

Microsoft’s fine is a good example of the Commission’s hard line approach toward companies which disregard rules whether deliberately or not, said Charles Whiddington, a partner at London-based law firm Field Fisher Waterhouse.

“The implications for companies going forward is that they must be more rigorous in complying with any agreement with the Commission, which does not take prisoners for infractions,” he said. “Companies face severe sanctions for flouting EU rules, even accidentally.”

Wednesday’s fine brings the total of EU fines issued against Microsoft over the past decade to more than 2.2 billion euros, making it the world’s worst offender of EU rules.