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Expert: EU Microsoft competition fine could reach $7bn

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Microsoft could face a fine of up to $7bn (£4.49bn) if EU competition regulators find that the company failed to comply with a "critical remedy" it agreed to implement in 2009 to alleviate concerns that it was acting anti-competitively, an expert has said.

The European Commission has opened an investigation into whether Microsoft failed to adhere to a "legally binding commitment" it gave in 2009 to provide users of its operating system with a screen enabling those users to easily choose between different internet browsers.

The EU's Competition Commissioner, Joaquín Almunia, has said that Microsoft told the Commission in December last year that it was still using the browser-choice screen despite evidence in the hands of the regulator suggesting that the company stopped displaying the screen in February 2011 following the launch of Windows 7 Service Pack 1.

Microsoft has admitted that it had "fallen short" of its "responsibility" and blamed a lack of an update to its Windows 7 package on a "technical error", according to a statement issued by the firm and reported by The Register.

However, competition law specialist Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said that the Commission is unlikely to provide Microsoft with much leniency if it decides that sanctions should be imposed on the company following its investigation.

"Given the strength of Microsoft's dominant position in the PC operating software market at the time, this was a critical remedy to deal with the serious competition concern about Microsoft tying its Internet Explorer web browser product to its PC operating software," Davis said. "Microsoft managed to avoid very significant fines being imposed by entering into this commitment back in 2009. By failing to honour that commitment, the Commission is now able to impose huge fines of up to 10 per cent of Microsoft's turnover, meaning potentially up to $7bn."

"This is the first time that a commitment has been broken by a company in this position. Given the resources available to Microsoft to monitor its compliance with the commitment, the Commission is unlikely to have much sympathy for their arguments that this was a mistake or a technical glitch," he said.

"Microsoft will have an uphill battle to persuade the Commission that fines shouldn't be imposed as the Commission will also want to send out a deterrence message to other companies about how seriously they take compliance with commitments," said Davis. "The Commission has also announced that it is going to strengthen the monitoring and enforcement of commitments in these types of cases in the future including the requirement to have a stronger role for monitoring trustees, something that is already common in merger investigations."

In 2008 the Commission had launched a case which argued that Microsoft's 'tying' of its Internet Explorer web browser to its near-universally used Windows operating system was a breach of its dominant market position, in violation of EU competition rules. However, the Commission dropped its case against Microsoft in December 2009 after the software giant agreed to offer Microsoft Windows users a screen through which they could choose non-Microsoft browsers.

Almunia said that Microsoft would be punished if it is found to have reneged on its promise.

"We take compliance with our decisions very seriously," the Commissioner said. "And I trusted the company's reports were accurate. But it seems that was not the case, so we have immediately taken action. If following our investigation, the infringement is confirmed, Microsoft should expect sanctions."

Earlier this year the EU's General Court ordered Microsoft to pay €860m as a fine for failing to comply with European Commission demands to do more to help rival technologies achieve interoperability with its technology.

The European Commission is responsible for investigating possible abuses of dominant market position under the Treaty on the Functioning of the European Union (TFEU).

Such abuse can include by "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; and applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage" amongst other possible abuses, the TFEU states.

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

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