European Regulators Hit Microsoft With $731 Million Fine

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Software giant takes full responsibility in case

SEATTLE – The $731 million fine European regulators slapped on Microsoft Wednesday for failing to abide by an antitrust sanction, reinforces the European Union's longstanding insistence on fair competition.

What's more, the huge penalty also signaled that Europe won't easily be swayed by Google and Facebook to back down from expanding online privacy rights for individuals, a policy that the U.S. tech and media companies contend would crimp the global growth of online advertising.

"This puts a spotlight on how important it is for global companies to take into account the laws and customs of the places they do business," says Charles King, principal analyst at tech industry research firm Pund-IT. "If they can't do that, they're almost begging for the sort of spankings the EU has administered to Microsoft."

Citing a technical error, Microsoft took full responsibility for failing to give European consumers a choice of Web browsers in shipping some 15 million copies of the Windows 7 operating system. The company had agreed to do that as part of a 2009 sanction closing out a protracted antitrust investigation conducted by the EU's competition commission.

That antitrust case began in 2004, and Microsoft paid fines of $357 million in 2006 and $1.3 billion in 2008 for being slow to comply with regulations.

The company's board last year reduced CEO Steve Ballmer's bonus in anticipation of some sort of embarrassing sanction. "Microsoft cut a deal with the EU and failed to live up to it," says Randal Picker, law professor at the University of Chicago. "That will get you in trouble in the EU or the U.S."

The company didn't say whether it would challenge this latest fine, but is not expected to do so. "We have apologized for it," Microsoft said in a statement. "We have taken steps to strengthen our software development and other processes to help avoid this mistake — or anything similar — in the future."

The $731 million fine represents about 1% of Microsoft's annual revenue. That's large enough to send a signal that Europe will sink its teeth into promoting fair competition. It also sends the message that Europe is likely to stand firm on consensus support for the hot issue of the moment: reinforcing online privacy.

Google, Yahoo, Facebook, Amazon and eBay, among others, are intensively lobbying EU regulators to back down from a proposal intended to give hundreds of millions of Europeans a stronger legal basis to opt out of online tracking. U.S. tech and media companies argue that any substantive change in the way online ads are delivered to Internet users, based on intensive tracking of individual consumers' preferences and behaviors, would squelch innovation and hamper the global economy.

Google is the subject of an active EU investigation for potentially violating existing privacy rules last year when it consolidated 60 privacy policies into one. In doing so, the search giant combined data collected on individual users across its major services: search, YouTube, Gmail and the social network Google+.

"Today's tough fine imposed on Microsoft shows that European authorities are serious about enforcement," says John Simpson, analyst for the non-profit Consumer Watchdog advocacy group. "The EU antitrust enforcers aren't going to roll over like the U.S. Federal Trade Commission did with its investigation of Google. Similarly, I expect European data protection authorities to take strong stands to enforce online privacy laws."

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