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Microsoft v EU: Living proof that big fines don’t work

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Eight years ago, Europe slapped Microsoft (s MSFT) with a huge fine — a then-record of €497 million ($621.1 million)– after an antitrust investigation found that the company had been unfairly using its market dominance and locking out competitors. Two years later, it added another €280.5 million because even though Microsoft had paid the first fine, it hadn’t changed its behavior. Then, in 2008 it cranked things up again: this time, with an €899 million fine — the largest ever at the time — for non-compliance.

Today, finally, it looks like the story might have come to an end: Microsoft’s appeal to have that fine overturned was rejected. The amount was discounted a little by a European judge, to €860 million, but still the company said it was “disappointed” by the decision and left the door open to a further appeal.

The European Commission was obviously pleased with the decision. Here’s E.U. Competition Commissioner Joaquin Almunia:

“Today’s judgment fully vindicates the enforcement action that the Commission took to ensure Microsoft’s compliance with its obligations… The judgment confirms that the imposition of such penalty payments remains an important tool at the Commission’s disposal.

There you go: a clear victory for the European regulators.

Or is it?

Here are three graphs that suggest to me that not only is it easy for Microsoft to suck up even huge fines like this — but by dragging the process out it has made it significantly less painful.

The first is Microsoft’s share price over the period since 2008, when the €899 million fine was levied. The fine doesn’t seem to have made much difference to its fortunes.

The second is Microsoft’s earnings between 2008 and 2011. On the left is €899 million for comparison. You can see it’s small fry compared to the overall picture.

And the third is the value of the Euro against the U.S. Dollar over the same period. The fluctuating exchange rate means that in 2008, it was worth $1.35 billion but today it’s $1.12 billion: Microsoft has effectively saved $230 million just by waiting — let alone the 4 percent discount included by the judge, which dropped it even further (to $1.07 billion).

Obviously, take this with a pinch of salt: you can make data say a lot of things. But it’s worth thinking about: while the European Commission may think that “the imposition of such penalty payments remains an important tool at the Commission’s disposal” it looks a lot to me like they are, in fact, pretty ineffective.

5 Responses to “Microsoft v EU: Living proof that big fines don’t work”

  1. factchecker

    Perhaps companies should pull out of many eu countries, or have all of them increase their products to higher prices aka 20-30%.

    Sure, microsoft is no angel, but many anti-competitive practices are either political, overstated, or by losers
    who find ways to score points with sympathetic claims to it.

    Microsoft also faces a lot of competition with google and the like. Also I can imagine, folks would love the eu to ban its products also competitors, I mean can you imagine folks either downloading legally or illegaly or buying ms overseas
    given that corporations have to buy legally generally.

  2. Saratoga Sam

    Seems like the fine is more important for the European regulators’ treasury (given their state of economy) than bringing Microsoft into compliance.

  3. Sam Mellon

    Sorry Bobbie, it is hard to see how any exec team can say loosing more than $1Billion in litigation is an easy task. Imagine explaining that to the board and employees. Especially in this economic climate.

    • Bobbie Johnson

      I’m sure nobody *wants* to spend a billion dollars on fines. But looking at Microsoft’s actions after the 2004 ruling you have to assume they did a cost/benefit breakdown and realised the fine was smaller than the profit available if they continued to be non-compliant.

  4. Marty Buchaus

    the EU will fix this easily when they ban Microsoft products until compliance. As well as make the use of any MS product Illegal until compliance.. and enforce it, Simple , that would hit MS for way more than 1 Billion.