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Microsoft faces $7bn fine for violating EU deal

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Microsoft (s MSFT) has confessed to violating its browser choice agreement with European antitrust regulators, after they opened up a fresh investigation into the company’s behavior.

Microsoft CEO Steve Ballmer
This is a big deal, not least because it means that the company could now face a fine of up to 10 percent of its annual turnover — $7 billion at last count.

The quick admission and apology is likely to be an attempt to make that fine as small as possible.

As you may recall, Microsoft reached an agreement with the European Commission at the end of 2009 over the automatic bundling of Internet Explorer with Windows. To satisfy the regulators, it promised to make sure Windows users got a clear choice of default browsers at the point of installation — allowing people to easily avoid IE if they wished. This was done through a so-called ‘browser choice screen’, or BCS, and Microsoft also agreed to submit a compliance report to the regulators every year.

The last of those reports was submitted in December, and in it Microsoft assured the EC that every Windows user was getting the BCS when they set up the operating system, so they could easily install browsers such as Chrome and Firefox, rather than Internet Explorer.

Except, it turns out, that assurance was not true.

On Tuesday, the EC revealed that it was launching fresh proceedings against Microsoft “in order to investigate whether the company has failed to comply with its 2009 commitments” – specifically, whether it was the case that Windows 7 Service Pack 1 did not bring the BCS with it. Not long after, Microsoft apologetically fessed up:

Due to a technical error, we missed delivering the BCS software to PCs that came with the service pack 1 update to Windows 7. The BCS software has been delivered as it should have been to PCs running the original version of Windows 7, as well as the relevant versions of Windows XP and Windows Vista. However, while we believed when we filed our most recent compliance report in December 2011 that we were distributing the BCS software to all relevant PCs as required, we learned recently that we’ve missed serving the BCS software to the roughly 28 million PCs running Windows 7 SP1.”

Microsoft says it started distributing the BCS software to Windows 7 SP1 machines on 3 July, a couple of business days after “discovering the problem”. It also claims the software is now available for all new PCs bearing that OS and service pack.

The company has retained external lawyers to conduct a formal investigation into the “technical error”, and these lawyers will provide their report to the EC when it is ready. Microsoft has also promised the EC that it will extend the compliance period – the five-year period during which the company has to submit those annual reports – by 15 months.

“We understand that the Commission will review this matter and determine whether this is an appropriate step for Microsoft to take. We understand that the Commission may decide to impose other sanctions,” the software giant added in a quote that must send shivers down the spines of its shareholders.

Meanwhile, the EC – which was fully aware by today that Microsoft really had breached its agreement – used its statement to roll out an excellent impression of a ticked-off teacher.

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

Microsoft and the European Commission have had a stormy relationship over the years, to put it mildly. The browser case was arguably the smaller of two antitrust investigations into the company, the other being the server software case that saw Microsoft hit with a $600m fine eight years ago, only to have much more added on top because it still refused to live up to its agreements.

Plus ça change…

7 Responses to “Microsoft faces $7bn fine for violating EU deal”

  1. Jack N Fran Farrell

    Balmer was probably to busy chuckling his way through PR prepared by his old-boy PR team to maintain control of a minor $7B accident. Maybe he could retroactively establish a management system with controls over $B decisions.

  2. It was a big mistake by Microsoft not to follow through with the BCS after an agreement was made with regulators. BUT, it is beyond my comprehension that packaging Windows and IE can violate antitrust laws when any consumer can obtain a secondary browser in mere minutes if they choose to do so.

    • that’s because you’re technically aware, one of computing’s “intelligentsia”. Most people are not as educated as you are and are ignorant of the fact that there are lots of other, better, browsers. These are the people who call the big blue E icon “the internet” rather than Internet Explorer, these are the people who end up with a hundred toolbars and popups on their systems too.

      So for MS to have the dominant OS, that comes with IE installed and very prominent by default, means that people will use it to get at facebook without knowing there are better options, and we’d end up with a non-standards compliant mess that we had with IE6.

      Besides, there was some issues with how MS used its monopoly to unfairly compete with other software manufacturers.

      • There were other issues, but bundling IE is not anti-competitive, it’s just not “pro-competitive”. Why is it Microsoft’s responsibility to educate consumers about the marketplace?

    • Robert

      Not to mention that the primary way of obtaining a different browser is with the one you already have. I haven’t seen a disk with a browser in a store in over a decade.

    • Davehead

      The issue is the Opera browser sued Microsoft under the EU’s antitrust/antimonopoly laws. The judges have already ruled in Opera’s favor & agreed they were being harmed by Microsoft’s default serving of Explorer. Therefore they forced MS to let the user *choose* their preferred browser, thus restoring an essential component of a free, competitive market.