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€497m misdemeanor

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Microsoft faces a fine of €497m, around $600m, according to leaks from the European Commission. That's equivalent to 48 days of net income (profit) at Microsoft's current run rate, but less than one per cent of the company's $51 billion cash chest. In theory the EC can impose a fine of up to ten per cent of gross income, which if annualized at last quarter's rate would top $42 billion.

(Why is Microsoft's net income so low when the margins on its products are so high, you ask? We don't know - but a lot of people have a lot of meetings.)

The EC will not announce the details of the order until Wednesday. Microsoft confirmed that it couldn't agree on a settlement with the Commission's Antitrust division on just one issue: the bundling of Media Player with Windows. The Commission investigators clearly think that unchecked bundling of WMP will have an immediate negative impact on Microsoft's' competitors.

Most specifically, Real Networks, which in hearings last Fall not only demonstrated that its RealOne Player worked fine on the Embedded version of Windows, but delivered its entire presentation on the embedded OS. Facing stiff competition from Linux and mature rivals, Embedded XP sells for a fraction of the Home or Professional versions of Windows. In January Hewlett Packard announced its intention to bundle Apple's iTunes with Windows on its PCs, indicating OEMs are more prepared to take their chances.

But a bundling decision itself is unlikely to have an impact on the most lucrative area of digital content. Microsoft has been signing studios and distributors to up for Windows Media 9, which includes its DRM, snagging Walt Disney and the Landmark Theater chain.

Commissioner Monti may yet spring a surprise this week: no other details of the penalty have emerged. Microsoft said it will appeal the fine. ®

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MS exec lists joys of high prices, vast margins to top investor
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