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EU hands Microsoft a record fine of $1.3 billion



SEATTLE — Microsoft on Wednesday bore the brunt of Europe's desire to send out a message that it expects big corporations to respond to antitrust sanctions in a timely, contrite manner.

The European Commission fined Microsoft a record $1.3 billion, adding to a $357 million fine handed down in July 2006.

Both fines stem from Microsoft's slow compliance with sanctions in an antitrust case that originated in 2004. Microsoft for years had used delaying tactics and vigorously pursued appeals. But last fall the software giant reversed strategies, saying it wanted to put the case to rest.

It has since taken several steps to address a lingering dispute over an order to make it easier for rival software applications to tie into its Windows operating system, which runs 90% of the world's PCs and many corporate servers.

But the record fine underscores the commission's skepticism. "Talk is cheap," said Competition Commissioner Neelie Kroes. "Flouting the rules is expensive."

Microsoft's actions have stifled innovation and affected millions of people around the world, Kroes said. She called the latest fine "a reasonable response to a series of quite unreasonable actions."

Microsoft issued a statement saying the issues for which it was fined have been resolved. It could appeal the fine. But doing so would mean reverting to the confrontational legal strategy it is trying to make a break from, says Ted Henneberry, a London-based antitrust attorney at Heller Ehrman. "Both parties are trying to put this behind them and move on," he says.

The sticking issue: Regulators say the adjustments the company made in 2006 and 2007 in the royalty rates and terms set forth for tying rival programs into Windows fell short.

Last week, in a move Microsoft says was not related to the antitrust tussle, the company announced another round of adjustments to royalties and usage terms for tying into Windows as well as Office, its suite of clerical software. But the commission followed through and levied the record fine anyway.

Henneberry says the commissioners wished to let it be known that they "take offense because Microsoft didn't come up with these rates soon enough to please us." He called the fine "grossly disproportionate."

Separately, the commission must approve Microsoft's proposed takeover of Yahoo. Henneberry says the merger should be reviewed as a completely separate matter. "The merger does not involve conduct in the marketplace," he says. "The commission will have to look at the merger on the merits. It won't be, 'We don't like what you've done in the past, Microsoft.' "

By Byron Acohido, USA TODAY
Contributing: The Associated Press