European Union states have backed a proposal to fine Microsoft a record 497 million euros (269 million pounds) for abusing its dominance of PC operating systems, an EU member state source has said. If the full European Commission backs the fine as expected on Wednesday it would exceed the 462 million euro penalty imposed on Hoffman-La Roche AG in 2001 for being ringleader of a vitamin cartel.

The European Commission got solid backing for its plans to fine Microsoft Corp. from national competition regulators around the European Union Monday, said a person close to the Commission.

National regulators held a brief meeting early Monday to discuss the fine. The meeting came exactly a week after a gathering of the same national regulators, at which they unanimously backed the Commission’s plan to rule against Microsoft in an antitrust case.

Agreeing to the fine is always left until a few days before the final Commission ruling, in order to minimize the chance of the amount being leaked to the press.

On Tuesday the fine, expected to total hundreds of millions of euros, will be discussed by senior aides to all 20 commissioners, before being brought to the commissioners’ meeting on Wednesday morning. Microsoft will then be informed of the fine and sent a summary of the ruling by fax, shortly before competition commissioner Mario Monti holds a press conference to announce the decision.

“We have already told Microsoft many times that a negative ruling will incur a fine,” said Amelia Torres, Monti’s spokeswoman. People close to Microsoft were speculating over the weekend that the Commission may not issue any fine at all.

“In previous antitrust cases the Commission has waived a fine in cases where the company involved didn’t know it was breaking European antitrust law,” the source close to the commission said, adding: “Microsoft could argue that it didn’t know until now that its behavior broke the rules.”

Although she wouldn’t divulge the amount, Torres said a fine is definitely on the cards. “A small company could claim it didn’t know the rules but not one the size of Microsoft,” she said.

The Commission is expected to rule on Wednesday that Microsoft abused the monopoly position of its Windows operating system twice. By withholding vital information about Windows from makers of software for servers, the firm gained an unfair advantage over them in the market for server software; it also competed unfairly by bundling its Media Player software into Windows, the ruling is expected to find.

The Commission is expected to announce remedies to restore competition in these markets. Microsoft will likely be ordered to sell two versions of Windows to PC makers in Europe: one with Media Player stripped out.

It is also likely to have to share more secret Windows code to allow rival server software makers to compete with Microsoft server software more fairly, according to people close to the case. Computer servers drive networks of PCs.

These remedies are much more important than the fine in terms of making an impact on Microsoft, analysts said.

Wednesday’s ruling will set a precedent which could strengthen any legal challenge of alleged monopoly abuse by Microsoft. Development of the next generation of Windows, which is codenamed Longhorn, could be affected, some analysts said.

“The ruling may have a significant impact on the planning for Longhorn,” said Dan Kusnetzky, an analyst with International Data Corp.

Even if the Commission imposed the maximum fine — 10 percent of the company’s global sales of around US$36 billion — this would still be a small part of Microsoft’s huge cash reserves of around $52 billion.

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