Fees put Microsoft, EC at odds

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Microsoft faces further penalties over the fees it charges rivals, the European Commission said Thursday after sending a statement of objections to the software giant.

The commission — the European Union's antitrust authority — said that Microsoft has failed to change its behavior since it was fined €497 million ($657 million) three years ago for abusing its dominant position in the software market.

In an escalation of its long-running battle with the U.S. firm, the EC said Microsoft imposed "un-reasonable pricing" on certain patent licenses for its Windows operating system software. In response, Microsoft said the threat of further fines was unfair.

EU Competition Commissioner Neelie Kroes said Microsoft is wrong to claim high fees on the basis of innovation. "The commission's current view is that there is no significant innovation in these protocols," she said. "I am, therefore, again obliged to take formal measures to ensure that Microsoft complies with its obligations."

Under the EC's landmark March 2004 ruling, Microsoft was told to provide rival firms with more information about its software in order to help them write programs that could run more smoothly on Microsoft's widely used Windows operating system.

Charges for those licenses must be made on "reasonable and non-discriminatory terms," the commission said. The EC not only fined the firm but also ordered it to make a version of Windows available without the Media Player software for music and movies.

Microsoft is appealing the 2004 ruling and a judgment is expected by September. In July 2006, the EC fined Microsoft a further €280.5 million for continuing to flout the 2004 decision — the EC's first ever penalty for failing to comply with an antitrust ruling.

"We're in somewhat unknown territory," EC spokesman Jonathan Todd said. "It's the first time that we have been confronted with a company that has failed to follow an antitrust decision." Todd said Microsoft's actions constituted the worst breach of an antitrust ruling in 50 years.

In response, the firm said it had already submitted a pricing proposal to the EC last August, and had only recently received any feedback. Microsoft general counsel Brad Smith said an analysis by PricewaterhouseCoopers on the proposed prices found they were at least 30% below the market rate for comparable technology.

Smith added that U.S. and European patent offices already had awarded Microsoft more than 36 patents for the technology in the protocols, with another 37 patents pending. "So it's hard to see how the commission can argue that even patented innovation must be made available for free," he said.

But the EC move was welcomed by the European Committee for Interoperable Systems, which said Microsoft was simply trying to nullify the impact of the 2004 order.
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