Record £331m Fine for Microsoft

The EU today imposed a record fine of €497.2m (£331.3m) on Microsoft, accusing the software giant of abusing its "near monopoly" to squeeze competitors in other markets.

In a landmark ruling, the European commission ordered the company giant to offer a version of its Windows operating system without Windows Media Player within 90 days.

The commission also told Microsoft to disclose enough information in the server market so their products can have "full interoperability" with desktop computers running Windows, the operating system in over 95% of the world's PCs. Microsoft has 120 days to fulfil this condition.

"Today's decision restores the conditions for fair competition in the market concerned and establishes clear principles for the future conduct of a company with such a strong dominant position," Mario Monti, the competition commissioner, said in a statement.

Microsoft, which had been hoping to avert today's judgment through a settlement, said: "We believe the proposed settlement would have been better for European consumers."

Today's fine exceeds the record €462m penalty imposed on Switzerland's Hoffman-La Roche in 2001 for leading a vitamin cartel. But large as the fine may sound, it will be just a pinprick for Microsoft as it has about $53bn (£28.7bn) cash on hand.

On January 22 the company projected expected revenues of $8.6bn and operating income of $3.1bn for the current quarter.

Still, the ruling marks a serious blow against Microsoft, which has tangled with the anti-trust authorities on both sides of the Atlantic for almost a decade. On top of this legal reverse, Microsoft also faces challenges in the corporate market from the rival Linux operating systems, while at the same time it has been embarrassed by a growing number of successful virus attacks against the company.

But Microsoft's immediate headache is today's ruling, which has been widely trailed. Mr Monti issued a draft ruling last week which found that Microsoft had abused its Windows monopoly, harming consumers and competitors in the markets for digital media and server software.

Settlement talks between Microsoft and the commission broke down last week, despite the personal intervention of Steve Ballmer, Microsoft's chief executive, who flew to Brussels to see Mr Monti.

Microsoft, which has always maintained its right to introduce new features to its Windows operating system, was reluctant to accept a provision that would have limited its margin for manoeuvre.

But critics say Microsoft's effective monopoly on operating systems gives it an unfair advantage over smaller software firms. The two companies most likely to benefit from the ruling are Sun Microsystems, which makes servers, and RealNetworks, which pioneered software to enable audio and video on personal computers.

Microsoft was found to have abused its monopoly by a US court in a landmark ruling in 2000, although the tough remedies the judge originally proposed were substantially watered down on appeal. When the Bush administration came into power, Microsoft reached a settlement with federal and state authorities.

Microsoft faces fresh EU inquiries into allegations that its Windows XP system is allowing it to extend its dominance into other technologies such as mobile phones. It is also under scrutiny because the next version of Windows, in 2006, is expected to include a search engine that would challenge Google, the market leader.

Mr Monti told reporters last week that his decision was based on what was needed for the European marketplace.

"In the end, I had to do what was best for competition and consumers in Europe," he said. "I believe they will be better served with a decision that creates a strong precedent."

Microsoft has said it will appeal against the decision at EU courts in Luxembourg and try to get the remedies delayed until final appeals are over, a process that could take four to seven years or more.