Microsoft’s Fight Nears End With European Antitrust Ruling

Microsoft Corp. (MSFT)’s decade-long struggle against a European Union antitrust probe that led to more than 1.68 billion euros ($2.1 billion) in fines will enter its final phase tomorrow when an EU court rules on the company’s challenge.

The world’s largest software company asked the EU General Court to void an 899 million-euro fine imposed after Microsoft failed to comply with a 2004 antitrust order to provide rivals with data to help them work with the company’s operating-system software. The fine was on top of Microsoft’s earlier penalties of 497 million euros and 280.5 million euros and surpassed only by a 1.06 billion-euro levy against Intel Corp.

“The two fines for Microsoft and Intel certainly sent a message,” said Ted Henneberry, a lawyer at Bingham McCutchen LLP in Washington who has previously worked for Microsoft on matters not related to the EU case. “This thing is history now. Today companies realize that you’re better served trying to work things out with the” European Commission.

Microsoft’s Windows software powered 95 percent of personal-computers in 2004, when EU regulators fined the company a record 497 million euros and ordered it to offer a version of the software without a music and video player. Now, amid a global slump in PC sales, Microsoft is preparing to manufacture its first tablet to challenge Apple’s Inc.’s iPad.

Microsoft is the only company in more than 50 years of EU competition policy penalized for failing to comply with an order. The Redmond, Washington-based company agreed to a settlement in 2009 in a bid to repair the company’s relationship with the European Commission. Microsoft is now on the other side of the fence, filing complaints against Google Inc. (GOOG) and what is now its Motorola Mobility unit.

‘Other Foot’

Brad Smith, Microsoft’s general counsel, last year wrote of the irony of complaining to EU regulators about Google after “more than a decade wearing the shoe on the other foot with the European Commission.” Microsoft alleged that Google’s “pattern of actions” entrenches the search engine operator’s control over online search and related advertising.

Google, based in Mountain View, California, was told by the EU last month it could avoid an antitrust complaint over allegations that it discriminates against rivals if it offered to settle a probe by early July.

Regarding Microsoft chances of success tomorrow in its case, Robin Koch, a spokesman for the software maker in Brussels, and Antoine Colombani, a spokesman for the commission, declined to comment ahead of the ruling. Microsoft may make one final appeal of the ruling to the EU’s highest court, the European Court of Justice.

License Guidance

Microsoft argued at a hearing last year that regulators should have given it more guidance to avoid the fine. Under the initial decision, Microsoft was ordered to provide data to competitors to allow servers to connect to computers using the Windows operating system. It was also required to limit to a “reasonable” amount the royalties it charged.

The fine was a so-called periodic penalty calculated because Microsoft was in breach of the EU order for 488 days, regulators said in 2008. The EU assessed Microsoft’s proposals for 306 days of that period, the company told judges at the hearing.

Microsoft also questioned EU reports prepared by a trustee responsible for monitoring the company’s compliance with the 2004 decision. Although Microsoft lost a 2007 appeal of the initial fine, the court ruled regulators were wrong to force the company to give powers to the independent trustee who had access to its documents, premises and software source code.

Bright Line

“The big issue is whether it was reasonable for the commission to fine an enormous amount of money for non- compliance with what was not a bright-line issue,” said Becket McGrath, a lawyer at Edwards Wildman Palmer UK LLP in London. “The issue of whether or not there was compliance is a very technical one” and depends on the price Microsoft charged for the interoperability information and what it had to disclose.

The tribunal “might give guidance” on whether Microsoft’s proposed royalty rates for the interoperability information were excessive, said Thomas Vinje, a lawyer at Clifford Chance LLP who represented International Business Machines Corp. (IBM) and Oracle Corp. (ORCL), which opposed Microsoft in the case.

Fair and reasonable licensing terms, or FRAND, form “the core” of three investigations regulators opened this year into whether Samsung Electronics Co. (005930) and Google’s Motorola Mobility used their control of standard technology patents to block competitors’ devices, the EU’s antitrust chief Joaquin Almunia said this month. He said there was a need “to clarify what are the implications of FRAND and how FRAND negotiations should be conducted.”

Microsoft filed a complaint with EU regulators earlier this year, alleging that Motorola Mobility was “attempting to block sales” of Windows computers and the Xbox game console by overcharging for key technology patents. Motorola Mobility, which Google bought last month, offered to settle the dispute. Google also complained to the EU that Microsoft and Nokia Oyj unfairly colluded to use patents to block rivals.

“The court could opine on what constitutes fair, reasonable and non-discriminatory licensing terms in this case, and some in the antitrust community rightly or wrongly would be likely to interpret any such decision as a precedent for other pending FRAND cases,” Vinje said.

The case is T-167/08, Microsoft v. European Commission.

To contact the reporter on this story: Aoife White in Brussels at Awhite62@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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