Europe Fines Microsoft $732 Million Over Antitrust Law

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Correction Appended

BRUSSELS -- In a highly unusual mea culpa, the European Union's top antitrust regulator said Wednesday that his department bore some of the responsibility for Microsoft's failure to respect a settlement that landed the company a $732 million fine.

Joaquín Almunia, the E.U. competition commissioner, said the Union had been "naïve" to put Microsoft in charge of monitoring its adherence to the deal it agreed to in 2009, when his predecessor let the company escape a fine in exchange for offering users of its Windows software a wider choice of Internet browsers.

But Mr. Almunia insisted that the enforcement of settlements could be sufficiently strengthened to ensure that companies abide by their pledges, and he signaled that he would not retreat from his goal to use such deals to avoid lengthy legal battles with major companies in swiftly evolving technology markets.

Settlements "allow for rapid solutions to competition problems," Mr. Almunia said. "Of course such decisions require strict compliance" and the "failure to comply is a very serious infringement that must be sanctioned accordingly."

Microsoft agreed to alter Windows for five years to give users of newly purchased computers in Europe a ballot screen that would allow them to easily download other browsers from the Internet and to turn off Microsoft's own browser, Internet Explorer.

Microsoft told the commission at the end of 2011 that it had been abiding by the deal. "We trusted the reports about the compliance," Mr. Almunia said Wednesday.

In fact, the company had failed to include the ballot system in certain products starting in May 2011, affecting more than 15 million European users. The lapse came to light in July 2012, after rival companies reported its absence.

"We take full responsibility for the technical error that caused this problem and have apologized," Microsoft said Wednesday. "We have taken steps to strengthen our software development and other processes to help avoid this mistake -- or anything similar -- in the future."

A Microsoft spokesman declined to comment on whether the company would appeal, but it seemed unlikely, as the company prefers to focus on its rivalry with Google. Microsoft is among the companies that have complained about Google's business practices to Mr. Almunia

The fine comes as Mr. Almunia's office is negotiating with Google to try to resolve the commission's concerns about the way it runs its Internet search service and its advertising business.

Mr. Almunia said Wednesday that attempts to reach a deal with Google were continuing and were unrelated to the decision taken against Microsoft. But he made it clear that the substantial fine was meant to serve as a warning to others.

If Google eventually settles, it "will have to exert extra care to not give the impression that it is deviating from the commitments that such a settlement will entail" to avoid a similarly high fine, Mario Mariniello, a research fellow at Bruegel in Brussels and a former antitrust official, wrote in a blog post.

But Mr. Almunia said some of the blame rested with regulators and indicated that the commission might never again, in effect, put the fox in charge of the henhouse.

"Maybe we should have tried to complement the responsibilities of the reports about the implementation, but we only reacted when we received the first complaint," Mr. Almunia said. "Maybe in 2009 we were even more naïve than today."

He said the commission would be more inclined to use trustees to police future settlements, would be more precise in defining their responsibilities and would "pay even more attention to the reports that the monitoring trustees will send to us."

Companies that agree to settlements usually pay for trustees, but the choices are vetted for conflicts of interest, according to E.U. officials.

Since 2003, when the current settlement rule was introduced, the commission has taken 29 such decisions. But there were no appointments of independent monitoring trustees in the majority of those cases, including in a settlement with I.B.M. in late 2011.

Mr. Almunia said he had not yet decided whether to appoint a trustee to oversee whether Microsoft was adhering to the rest of its compliance period in the browser case, which runs to 2014.

Microsoft has been a special case in the history of E.U. antitrust enforcement, racking up a total of €2.26 billion, or $3.4 billion, in fines over about a decade.

Microsoft was the first company to pay so-called periodic penalties for failing to follow an order to make it easier for rival products to communicate with powerful server computers running Windows. That amount, nearly €900 million, was subsequently reduced to €860 million after the company appealed to the General Court of the European Union.

The decision against Microsoft was another milestone for E.U. antitrust law, and for Microsoft, which became the first company to be punished for failing to adhere to a settlement.

Although the commission can levy fines of up 10 percent of a company's most recent global annual sales, the penalty on Wednesday represented 1 percent of Microsoft's annual sales, partly because the company cooperated with the commission after the issue came to light.

Mr. Almunia said there had been no indication that Microsoft intentionally broke the settlement agreement.

The fact that nobody -- apart, apparently, from rival companies -- noticed the absence of the browser choice screen for more than a year has prompted critics of the European antitrust enforcement to question the effectiveness of the measure.

But Mr. Almunia insisted Wednesday that the remedy had been effective, saying that, "our decision was very relevant in opening the market and broadening the choice for users, for what kind of browsers they want to use."

Microsoft, which currently offers a browser choice in its latest Windows 8 operating systems in Europe, said last year that it was prepared to extend the system beyond 2014 by an additional 15 months, partly to atone for its error. But it remained unclear on Wednesday whether that plan would go forward.

Correction: March 6, 2013, Wednesday

This article has been revised to reflect the following correction: An earlier version of this article misstated the 14-month period in which, according to European officials, Microsoft failed to offer a choice of browsers to more than 15 million European users of the Windows 7 SP1 version. It was in 2011 and 2012, not from 2011 to 2014.

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This article originally appeared in The New York Times.


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