EU Sanction Could Hurt Microsoft Efforts to Acquire Yahoo

LONDON — The European Commission threw a painful punch at Microsoft Corp. on Wednesday, fining the software giant a record $1.35 billion for failing to comply with sanctions imposed for antitrust violations.

European Union regulators said the company charged "unreasonable prices" until last October to software developers who wanted to make products compatible with the Windows desktop operating system.

Analysts said the fine was a "huge deal" that could even affect Microsoft's effort to acquire Yahoo Inc.

"This comes at a very, very difficult time for Microsoft as it is trying to move ahead with the Yahoo acquisition — a deal that Europe will have to approve as well," said Michael Gartenberg, an analyst at Jupiter Research in New York.

Microsoft, the world's biggest maker of software, began a hard-nosed campaign to acquire the Internet company about three weeks ago. Many analysts believe the combined company would create a stronger competitor that's better equipped to rival Google.

Gartenberg said Microsoft doesn't need the distraction of a protracted battle with Europe as it seeks to gain Yahoo.

"I can't see how Microsoft can fight this fine, as they lost their appeal last year," he said. "I think we're going to see a strong effort on Microsoft's part to figure out how they are still not in compliance with the law.

"I think Microsoft will do all it can do make this finally go away," he said.

Europe's Competition Commissioner Neelie Kroes said in a statement that Microsoft was the first company in 50 years of EU competition policy to be penalized for failing to obey an antitrust order.

"I hope that today's decision closes a dark chapter in Microsoft's record of noncompliance with the commission's March 2004 decision," she said.

The European Commission, which enforces EU laws on competition, ruled in 2004 that Microsoft must share technical information with rivals so they can more easily make products that work with Windows, the dominant operating system for personal computers. The commission also fined Microsoft $613 million.

In July 2006, the commission added a $357 million fine for failing to obey that order. Wednesday's fine brings the total it has levied against Microsoft to more than $2.3 billion — and the company remains under EU investigation in two additional cases.

The European Commission ruling had ordered Microsoft to provide the technical information and it agreed to do so, but charged royalties on grounds of innovation.

The EU complained that Microsoft's original royalty rates were too high and threatened fines, and the company then reduced them in Europe, although it left the rates unchanged elsewhere.

After the original ruling and fine were upheld by an EU appeals court in September, the company shifted again, offering a new license for interoperability information for a flat fee of $14,000 and an optional worldwide patent license for a reduced royalty of 0.4 percent.

Some experts on European law said that the commission had put Microsoft in a nearly impossible position.

"They were told to make their information available at reasonable prices, but what is a reasonable price when there isn't any market?" said Valentine Korah, an antitrust professor at University College London. "The commission's basic decision in 2004 was controversial but supportable.

Microsoft's immediate reaction to Wednesday's decision was that the fines were related to past issues that have since been resolved.

Seeking to thwart new antitrust probes in Europe, Microsoft last week published 30,000 pages of previously secret software code for Windows on its Web site.

But it's clear the move hasn't scored Microsoft a lot of points with the commission.

"Talk is cheap," Kroes said Wednesday. "Flouting the rules is expensive.''

"Microsoft tried hard last week to push back a little bit, but clearly it didn't do enough to impress the EU," Gartenberg said. "I think we're going to see Microsoft try harder."

Meanwhile, at least some were left wondering what the high fine was designed to accomplished.

"The European Commission said that Microsoft is currently in compliance on all of the issues in question and so, therefore, this is a punitive measure for what the commission believes was bad behavior in the past," said Jonathan Zuck, president of the Association for Competitive Technology in Washington. "Given that this fine is not meant to compel Microsoft into changing its behavior on these issues, the record-setting amount is curious."

The Associated Press contributed to this report.