The EU's New Heat on Microsoft

On top of fines and new inquiries, Microsoft is in danger of EU governments effectively banning its software to create documents

by Jennifer L. Schenker

Will Microsoft's struggle with the European Union's antitrust watchdog never end? The announcement Feb. 27 that the European Commission is slapping more than $1.3 billion in new fines on the software maker (MFST) is the clearest signal yet that the battle between Redmond and Brussels is far from over.

This time, the commission is again penalizing the company for failing to comply with a 2004 order to reduce what it charges rivals for access to the information they need to make their products work better with Microsoft's market-dominant software. Combined with earlier fines against the software giant totaling more than $600 million, the EU has now fined Microsoft nearly $2 billion in a clash that began nearly decade ago and culminated with a landmark court case in September.

Microsoft: "About Past Issues"

Microsoft is the first company in a half-century that's been fined by European regulators for failure to comply with an antitrust decision, according to Neelie Kroes, the EU body's tough competition commissioner. "I hope that today's decision closes a dark chapter in Microsoft's record of noncompliance," she said in a statement.

Microsoft, which generates about a billion dollars a month in free cash flow, downplayed the latest slap. "These fines are about past issues that have been resolved," Microsoft said in a statement. Microsoft also noted a conciliatory gesture it made on Feb. 21, when it began sharing some software code. The move is designed to enable rivals to create programs that are more compatible with Microsoft's dominant Windows operating system and Office suite of productivity applications. "As we demonstrated last week with our new interoperability principles and specific actions to increase the openness of our products, we are focusing on steps that will improve things for the future."

The commission, though, swiftly dismissed any suggestion that Microsoft was turning over a new leaf with that announcement, noting that it was at least the fifth time the software maker had made public pledges on the importance of interoperability (BusinessWeek.com, 2/21/08). None has satisfied the commission, which has now opened up two new lines of inquiry. One focuses on the legality of bundling Microsoft's Web browser, Internet Explorer, with Windows. The other revolves around Microsoft's dominance in desktop applications such as Word and Excel.

Compatibility Advantage

The new European investigations come as Microsoft finds itself in danger of seeing EU governments effectively ban its software to create documents. The European Commission and its member states have been mulling a mandate that all government documents be created in the Open Document Format (ODF), an open source competitor to the proprietary format used in Microsoft Word.

The potential switch could put a big dent in Microsoft's market share if it leads European companies to follow suit. Microsoft is fighting back by trying to get a stamp of approval from an international standards body for its own standard, called OOXML (Office Open XML). If it wins that endorsement from the International Standards Organization (ISO), governments would likely have to accept both formats. "This is an important domino for Microsoft that is in danger of falling" says Michael Silver, an industry analyst at technology consultancy Gartner (IT). That is why, he says, Microsoft is making such a great effort to appear more open.

The central issue is document interchange. Microsoft has been able to prolong its desktop dominance because people buying both Windows software and Macintosh-based computers worry that documents created in word-processing programs other than Microsoft's Word won't be compatible with Word, so they buy Word instead. That rationale also has helped Microsoft maintain an iron grip on the spreadsheet software market with its Excel program.