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Last Updated: Wednesday, 27 February 2008, 13:17 GMT
Q&A: Microsoft's EU court battle
Windows XP
Most home computers use Windows software

The European Commission has fined US computer giant Microsoft for defying sanctions imposed on it for anti-competitive behaviour.

Microsoft must now pay 899 million euros ($1.4bn; 680.9m) after it failed to comply with a 2004 ruling that it took part in monopolistic practices.

That comes on top of the 497m euros it was fined in March 2004 and a further 280.5m euro fine imposed in July 2006.

But as both sides know, more than money is involved in this conflict.


What are the main issues at stake here?

Microsoft abused its virtual monopoly in the computer world to muscle out smaller rivals, especially those that make media players and software for servers. At least, that's the finding of the European Commission's competition watchdog.

Back in 2004, the commission fined Microsoft and forced it to offer a version of its Windows operating system without Microsoft's own media player.

The company was also told to give rivals more information about how Windows works, so they can make their own software integrate better with the operating system that runs some 90% of the world's computers.

Microsoft agreed, but imposed a high royalty rate on the information, saying it was charging for the innovation involved.

The Commission decided that the rate - initially set at nearly 3% of the licensee's product revenues - was unjustified.

That wrangle lasted until October 2007, when the company agreed to reduce the royalty rates. This latest fine is intended to punish Microsoft for non-compliance with the EU ruling up to that time.

For the Commission, this has been the granddaddy of all anti-trust cases. The latest fine is a record for a single company, imposed as what EU Competition Commissioner Neelie Kroes calls "a reasonable response to a series of quite unreasonable actions".

Why has the Commission been so determined to pursue this?

Quite simply, both sides have fought this battle tooth and nail.

Microsoft refused to accept the 2004 ruling, taking its case to the European Union's Court of First Instance on appeal. However, the court upheld the original decision in September 2007.

For its part, the Commission was furious at what it took to be foot-dragging by Microsoft.

Ms Kroes said 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 anti-trust decision".

A number of Microsoft rivals - Oracle, Sun Microsystems, Nokia and IBM among them - had complained to the European Commission that Microsoft was reluctant to share its software code.

If they were not told in more detail how Windows worked, they argued, it would be impossible for them to compete with their own software.

Ms Kroes said Microsoft had continued to "abuse its powerful market position" after March 2004 and "continued to stifle innovation by charging other companies prohibitive royalty rates for the essential information they needed".

Why did Microsoft keep on fighting?

The company argued that it was entitled to protect its intellectual property. Just because it was big and successful, that did not mean it should have to share all its secrets and innovations with rivals.

The company said it had followed all the rules, and that the commission had "erred" in applying them.

If the Commission succeeded, said Microsoft, consumers would suffer, because there would be fewer incentives to innovate.

Furthermore, consumers demanded "bundled" solutions - all-inclusive software packages that feature basic things such as media players - and did not want the pain of having to download or buy everything separately.

Microsoft now says it is "reviewing the Commission's action", but appears to consider this to be the end of the matter.

"The Commission announced in October 2007 that Microsoft was in full compliance with the 2004 decision, so these fines are about the past issues that have been resolved," the firm said in a statement.

Is Microsoft right in thinking that all the issues have been resolved?

Not necessarily. Last month, the Commission said it was mounting two new anti-competition investigations into Microsoft's business dealings.

The first will look at whether Microsoft unfairly ties its Explorer internet browser to its Windows operating system.

The other will look at the interoperability of Microsoft software with rival products.

The latest inquiries come after complaints from Norwegian company Opera and a pan-European software makers' group, the European Committee for Interoperable Systems.

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The battle between Microsoft and the European Commission explained



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