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Thursday, February 28, 2008 - Page updated at 12:00 AM

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Costly slap not end to troubles with EU

Los Angeles Times

WASHINGTON — The record $1.35 billion fine Microsoft must pay the European Union will not buy the software company much peace.

Wednesday's penalty, which amounts to almost one-third of Microsoft's last quarterly profit, officially closes a nine-year antitrust battle with European regulators that has cost the company about $2.5 billion in fines.

But those regulators are still pursuing two new investigations into the software giant's business practices. They also loom as an obstacle to Microsoft's proposed takeover of Yahoo, which would need approval in Brussels, Belgium, and Washington.

"Antitrust is a chronic condition of doing business for Microsoft," said Matt Rosoff, an analyst at Kirkland-based research company Directions on Microsoft. "I don't think that's going away."

In 2004, the European Union found Microsoft had abused its dominance in desktop operating systems to limit competition. It ordered the software maker to make technical information available to companies so that their software would work with Windows and other Microsoft products.

European regulators levied Wednesday's fine after determining that, for three years after the ruling, Microsoft had charged "unreasonable prices" for that information.

Neelie Kroes, European commissioner for competition policy, sharply criticized Microsoft on Wednesday for not living up to its promises to regulators.

"Talk is cheap. Flouting the rules is expensive," she said at a Brussels news conference. "We don't want talk and promises. We want compliance."

Kroes' tough stance shows that the European Commission, the EU's antitrust regulator, remains unhappy with Microsoft and will aggressively pursue the two new investigations it launched in January, said Harry First, a New York University law professor writing a book about the company's antitrust litigation.

"It's a lot of zeros on that fine," he said.

Microsoft said it was reviewing the commission's action.

"The commission announced in October 2007 that Microsoft was in full compliance with the 2004 decision, so these fines are about past issues that have been resolved," the company said in a statement.

Microsoft has spent about $10 billion in fines and settlements with competitors over antitrust issues in Europe and the United States, Rosoff said.

It is right to try to put the 2004 case behind it, said analyst Charles DiBona of Sanford C. Bernstein. "It's obviously not a great use of cash, but it doesn't impair them financially," he said.

The fine tops the commission's previous record of $613 million, also against Microsoft, for the original 2004 antitrust abuses. Microsoft was also fined $357 million for failure to comply with other aspects of the decision.

The $357 million and $1.35 billion penalties are the only times in the European Commission's 50 years of existence that it had to fine a company for failing to comply with an antitrust ruling, Kroes said.

The fines demonstrate the tougher stance European regulators have taken on antitrust in recent years compared with the Bush administration.

Microsoft Chief Executive Steve Ballmer and Kroes met last fall at a restaurant near her Dutch hometown of Rotterdam and began the process of settling the 2004 antitrust case.

Ballmer agreed to drop Microsoft's appeal and lowered the prices for access to the technical data needed to make products work with Windows.

Kroes said that until that decision, Microsoft had overcharged for the information.

"Microsoft's behavior did not just harm a few individuals or a handful of big companies," she said. "Directly and indirectly, this had negative effects on millions of offices in companies and governments around the world."

In January, European regulators started two new antitrust inquiries to determine whether Microsoft had used its dominance in word-processing and spreadsheet programs to stifle competition.

Last week, Microsoft announced it would make tens of thousands of pages of technical documentation available for free in hopes of heading off new antitrust lawsuits.

Kroes said the investigations launched in January were not completed.

"As always, we will take into account any changes that Microsoft makes to its business practices that are relevant to those investigations," she said. "But again, I stress that a news release ... does not necessarily equal a change in business practice."

Analysts said concerns about Microsoft's abuse of its dominance in operating systems and office software don't necessarily mean it won't gain European approval of a takeover of Yahoo. That's because Google, not Microsoft, is the dominant player in online advertising.

"This is such a different issue, it's hard to predict," Rosoff said. "But if Microsoft had never been in court in Europe on antitrust in the first place, they'd have a better chance of getting it approved."

Copyright © 2008 The Seattle Times Company

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