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Microsoft Hit With 280m Euro Fine
Posted by
CmdrTaco
on Wed Jul 12, 2006 07:37 AM
from the thats-a-lotta-bread dept.
from the thats-a-lotta-bread dept.
Craig Mason writes "The BBC Reports that "Microsoft has been fined 280.5m euros ($357m; £194m) by the European Commission for failing to comply with an anti-competition ruling.
The software giant was hit by the fine following a long-running dispute between the US firm and EU regulators.
The move follows a landmark EU ruling in 2004, which ordered Microsoft to provide rivals with information about its Windows operating system.
EU regulators also warned Microsoft it could face new fines of 3m euros a day.""
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Politics: 'No Alternative' To Microsoft Fine 394 comments
An anonymous reader writes "News.com is running an interview with Neelie Kroes, the competition commissioner for the EU. She confirms that the massive fines to Microsoft are absolutely necessary, and goes into some of the commissions reasons for slapping the giant down." From the article: "Microsoft has claimed that its obligations in the decision are not clear, or that the obligations have changed. I cannot accept this characterization--Microsoft's obligations are clearly outlined in the 2004 decision and have remained constant since then. Indeed, the monitoring trustee appointed in October 2005, from a shortlist put forward by Microsoft, believes that the decision clearly outlines what Microsoft is required to do. I must say that I find it difficult to imagine that a company like Microsoft does not understand the principles of how to document protocols in order to achieve interoperability. "
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WOW! but.... (Score:3, Insightful)
Re:WOW! but.... (Score:3, Interesting)
If MS arn't in complience by the end of the month then the fine goes up another
The EU can start bumping up the fine as high as it wants now it has aggrement with the member states.
Re:WOW! but.... (Score:4, Insightful)
And get the attention of every other country that uses their software, making it painfully obvious how stupid they've been by locking up their data in a format they don't have access to?
I don't think so...
You think ODF has a little momentum right now? This would litterally trigger warp speed!!
Re:WOW! but.... (Score:4, Insightful)
No, they couldn't (Score:4, Informative)
The parent isn't insightful, it's simply wrong. Under WIPO treaties, to which pretty much every major economic power in Europe is a signatory, the EU can do no such thing. All the posts about cancelling Microsoft's copyrights are fantasy. Then again, pretty much every other post in this discussion seems to think this is just an ineffective slap on the wrist, without considering the likely consequences [slashdot.org].
Re:No, they couldn't (Score:4, Insightful)
"The company
You know, when you play these silly games you make reasonable people look at you like a fool. Microsofts communication policy and corporate affairs policy is asperger. You can play these games for a while but a hard landing and declining support is what you have to expect.
Re:WOW! but.... (Score:5, Interesting)
Now the question is will Microsoft comply?
Re:WOW! but.... (Score:5, Informative)
For the FY ending 6/30/05, MSFT had a net income of US$ 12.2 billion. So, a fine of US $357 million IS significant -- it's roughly 3% of their net income.
Re:WOW! but.... (Score:5, Insightful)
Re:WOW! but.... (Score:4, Informative)
What you really want to do is look at the balance sheet and in particular at cash and cash equivalents, which are assets that can readily converted into cash on short notice. Also the cash flow statement. Cash is what determines whether you can meet your short term obligations, such as paying employees and vendors. Cash equals flexiblity and security. If you have cash on hand, you can weather a loss on your income statement. Likewise if you have healthy income, but it's in assets that cannot be liquidated, you can end up with a healthy income yet not be able to pay bills. Income is like food; if you don't have it, you're going to have to curtail your activities soon. Cash is like air: if you don't have it, you're dead right now.
I once worked for a company that lost money for seven years straight. But it paradoxically grew all those years, in fact it continually lost money because it was plowing all its income into producing growth. The key was that the business genreated cash, and they could always pay last quarter's creditors out of this quarter's cash flow. The trick is to engineer a soft landing, because soon or later cash flow growth is going to falter, and the income statement buzzards will be roosting on your dying cash carcass.
I haven't followed Microsoft closely in recent years, but historically MS is a business that generates loads of cash. Last time I looked, they had something like a billion and a half of cash equivalents on hand, and $350 million would represent something like 5% of their annual operational cash flow (not counting investments). It's enough on the income and cash side to make you sit up and take notice, but not a fatal blow. If they thought they could outmaneuver the EU regulators, they might well tighten their belts for a couple of quarters to end up in a stronger position later.
Re:WOW! but.... (Score:4, Interesting)
Whether or not MSFT can pay the fine out of cash is moot (though they can), my point was that the significance of the fine is better explained in terms of the income statement than their market cap.
As to your example of a growing company continually operating at a loss in order to self-finance growth capital... being cash positive is important (crucial even). But this business model is fatally flawed... the question is not if that company will go bust, it is when. It's like a Ponzi scheme -- you're dependent on growth to meet your cash requirements. 'Engineering a soft landing' -- do you mean changing allocation of cash from growth investment to paying down debt?
Market cap means little (Score:5, Informative)
In fact, as with any situation where supply is (actually) relatively inelastic, if the supply side suddenly increased the price would drop dramatically. If Bill wanted to sell all his shares on Monday, how much do you think he would get for them? A lot, but nothing like the current price. The shares would be suspended as they started to go into freefall. Goes for houses, goes for Rembrandts, goes for shares. At one time during the Tokyo land price boom, Tokyo was capitalised at more, I believe, than the entire real estate of the US. Would you have swapped the US for metropolitan Tokyo?
Microsoft's market capitalisation is unimportant and meaningless; what matters is the effect of ongoing fines on their day to day operations, the market perception, and the buying decisions made by large institutions who will be reading all about it in the FT, Handelsblatt etc.
Re:The Trial of Bill Gates (Score:5, Informative)
Re:The Trial of Bill Gates (Score:4, Funny)
"NEXT!"
2 days (Score:3, Interesting)
Re:2 days (Score:3, Insightful)
Mud sticks. The EU has declared that MS should be punished for breaking the law. This does also negatively affect the MS brand by reducing consumer confidence and encouraging corporations to think
Re:2 days (Score:5, Insightful)
I presume you're refering to figures on this page [wikipedia.org] that puts MS's net income at US$12.25 billion (EU 9.63 billion) - Around 26m euros/day.
So, it would take them a little over 10 days to recover it, furthermore, you're comparing the fine for a single region to their world wide profits.
Its a pretty big deal, not just the cash, but the possibilities for further fines (or harsher penalties).
Re:2 days (Score:4, Insightful)
Re:2 days (Score:5, Insightful)
Worrying thought... (Score:5, Interesting)
Easy (Score:3, Insightful)
Since you cant put a corporate entity in jail, and current structures are such that shareholders and executives face few legal penalties for the actions of the corpor
Re:Easy (Score:5, Interesting)
The only way the EU could actually enforce this would be to threaten, essentially, trade sanctions. But how heavily is the government, industrial and home market of every EU country saturated with M$ products? So they can't even impose anything worth a damn without incurring massively detrimental consequences themselves.
Think this through, seriously. It's frightening.
Re:Easy (Score:4, Funny)
I think it'd be more poetic if they just revoked MS's copyrights and declared Windows "freeware", tho - chairs would wind up hurled into orbit when that one got announced
Re:Easy (Score:5, Interesting)
Of course they can. Assign a value of $X to the copyright of a single product, then the EU just assumes the copyright for it in lieu of the debt, and releases it at no charge. Seizure of assets happens all the time with real property - why is it so hard to think that it could happen with virtual property?
What happens when Microsoft did comply, how can you just take that back.
If MS paid the fine, do you think that the EU will be giving the money back if/when they comply?
It's a punishment, they're not supposed to get it back.
Re:Easy (Score:5, Informative)
In the EU you can, sort of. Certainly in the UK, the board of directors are held directly responsible for the actions of the company. For example, there is a charge of "corporate manslaughter" here where the directors of a company can be put into prison for manslaughter if it can be shown that any deaths were caused by the actions of the company.
Put simply, if MS do not pay the fine, then the minute Bill Gates, Steve Ballmer, or any of the top brass set foot in the UK (and most likely other parts of Europe too), they would be immediately arrested for non-payment of fines.
Bob
Re:Worrying thought... (Score:5, Informative)
What happens when anybody doesn't pay an outstanding court-ordered fine? Likely they'd just freeze their assets in Europe until it's paid. In extremis they'd sell off assets to cover the amount.
Don't forget, this is a court-ordered fine - a punishment - upheld after an appeal. Nonpayment really is not an option. It will not come to that of course; just imagine what such an action would do to their credit rating and reputation.
Credit rating? (Score:5, Funny)
Ohhh I never thought of that. It will be a really huge problem for Microsoft if they ever need to purchase some new company cars but the bank won't loan them the money...
How will they cope?
Re:Credit rating? (Score:5, Informative)
I don't know Microsoft's offhand, but I'm betting it's pretty good...not that they need to raise capital, with the amount of money they have sitting around.
Re:Credit rating? (Score:5, Informative)
Re:Worrying thought... (Score:5, Interesting)
Microsoft still doesn't pay. The WTO complaint fails. FTC/SEC blow off the EC.
Fine grows larger. EC confiscates Microsoft Europe's assets. Most likely, some nations (like perhaps China/Russia) confiscate some Microsoft assets as well, paying a portion to the EC.
Microsoft still doesn't pay.
EC prohibits Microsoft from doing business in Europe. EC strips Microsoft's European copyright, permitting free distribution of MS products. As you may or may not know, ISPs in Europe are closed related to the government. What would happen next would be nothing other than a full-off declaration of War on Microsoft by the EU, with ISPs blackholing WindowsUpdate in favor of a EuropeanUpdate site (with WGA removed), massive investment of capital by the EU into developing alternative systems, and million upons millions of Linux and/or OS X systems brought online within a year, all bearing the EU's seal of approval.
Don't believe me? Europe's already done something similar with GSM [wikipedia.org]. While that wasn't quite as antagonistic, Europe isn't afraid to build its own analog, at considerable expense (see the Galileo global satellite system). The EU will protect it self, economically, and in terms of security. They'll "steal" Windows if need be, and Europe will happily develop its own OS, most likely, in my estimation, a heavily sponsored version of Linux (SuSE or Mandriva).
wow (Score:4, Interesting)
From the BBC site: (Score:5, Interesting)
Re:From the BBC site: (Score:5, Insightful)
Microsoft fined 280m over EU antitrust ruling
So what? (Score:3, Funny)
1. 280 million Euros is a drop in the bucket for M$.
2. They will delay, stall, and avoid paying for as long as possible.
3. When #2 fails, they will magically announce that they are in compliance.
4. ?????
5. Profit!
2nd world countries? (Score:5, Informative)
Have you ever compared the GDP of the EU with that of USA [wikipedia.org]?
Higher fines possible (Score:5, Interesting)
In Microsoft's case this would be about $5.5m-a-day.'
http://www.ft.com/cms/s/c55bc756-1047-11db-8f6f-00 00779e2340.html [ft.com]
I would imagine that there would be stiffer penalties (i.e., non-financial aimed at curtailing MSFT's ability to trade in the EU) available if MSFT continued to defy the commission. If there were not this would be a de facto admission that companies can break the law in the EU with impunity if they are rich enough. I very much doubt the commission would tolerate that state of affairs.
Erh... something runs wrong here. (Score:3, Interesting)
MS: Ok.
(pause a year)
EU: MS, you didn't pay, you're fined 2.5m a day.
MS: Ok.
(pause a year)
EU: MS, you still didn't pay, you're fined 3.5m a day.
MS: ok.
Is it me or
Reality check (Score:5, Insightful)
1) Yes, the EU can enforce the money. If MS doesn't pay, EU can hit them with sanctions (what do you think, how big is the EU part of MS revenue pool. Right, pretty relevant) and finally seize their physical assets. (Guess what, MS exists outside the US)
2) MS has no threatening potential against the EU. What should they do: Increase prices? --> antitrust case! Threaten to pull out? --> They would cut their own profits significantly. EU could immediately legalize copies from the US (they wouldn't, but let's say Win/Office is declared important for national security or something...)
3) The US government will not put pressure on the EU here. Yes, they may protest, yes, they may have some impact, but come on guys. Where not talking about some small banana republic. Also look at the history of the EU anti-trust comission. Remember the GE/Honeywell-merger?
4) Yes, the fine does matter. 280m is a lot of money also for MS, from end of July on it will be 3m/day=~1b/year=~8% of EBIT (probably increasing over time). Yes, that DOES matter. What will financial markets think of that, what will that do to stock options of MS managers?
Summary: MS will pay, MS will obey and try to comply (they already started, just too slow...) with the ruling, MS will of course continue to use all means of lobbying (which is their good right).
Now the more interesting question is, if they have a chance with their appeal before the European Court of Justice, which doesn't look too bad for them...
EU the embodiment of reasonableness (Score:4, Informative)
As I see it, the EU is telling Microsoft:
"Ok, Microsoft you had your chance to document your API's two years ago as you were told to, but instead you chose to try and mess with us and we just don't believe you when you said you made an honest effort to comply. So here is your fine. If you think you are going to appeal your way out of this ... good luck to you. Now we know that you are working to better your lives, and we want your compliance more than your money, so we won't hurt you as much as we could have. We actually want you to do business in the EU, and for that reason we will go easy on you this time. Only ... if you think you can make a fool of us again, prepare for fines that *are* hurtful."
There are worse attitudes I suppose.
FAQ from the EU Commission [Slashdotted] (Score:5, Informative)
Competition: Commission Decision of 12 July 2006 to impose penalty payments on Microsoft - frequently asked questions
What is Microsoft required to do?
The European Commission's Decision of March 2004 required that Microsoft take various steps to put an end to its illegal and anti-competitive conduct (see IP/04/382 and MEMO/04/70). These included obligations to:
- supply complete and accurate interface information which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers; and
- make that information available on reasonable terms.
On 10 November 2005, the Commission warned Microsoft, pursuant to Article 24(1) of Regulation 1/2003, that should Microsoft not comply with these obligations by 15 December 2005, it would face a daily penalty payment of up to 2 million (see IP/05/1695). Article 24 of Regulation 1/2003 entitles the Commission to impose such penalty payments not exceeding 5% of average daily turnover in the preceding business year per calendar day to compel companies to put an end to infringements of EC Treaty anti-trust rules, where an infringement has been established by a previous Commission anti-trust decision.Why has the Commission levied a penalty payment for non-compliance on only the failure to provide interoperability information, and not the terms on which that information is provided (i.e. the first and not the second of the two points from the 10th November 2005 Article 24(1) Decision)?
As regards the provision of information on reasonable terms, Microsoft has announced that it will review the pricing of its protocols once revised technical documentation has been submitted. Furthermore, a final assessment on the degree of innovation, if any, that is contained in the interoperability information, and hence the reasonableness of the royalties that Microsoft charges, can only be made once the technical documentation embodying that interoperability information is complete and accurate.
Why has the Commission decided that the fine levied should be 1.5 million per day?
Of the two elements of non-compliance identified in the Article 24(1) Decision, complete and accurate interoperability information is a prerequisite for interoperable work group server operating systems to be developed. Microsoft's non-compliance in this regard has eliminated the effectiveness of the remedy. Consequently, the Commission has taken the view that failure to comply in this respect should at this stage constitute a larger part of the daily penalty payment identified in the Article 24(1) Decision of 10 November 2005.
Why has the Commission taken today's Decision given that Microsoft is in the process of preparing revised technical documentation?
Microsoft's obligation was to comply with the March 2004 decision's requirement to make available the relevant technical documentation as of June 2004. As of 20th June 2006, Microsoft had not done that, and the Commission decided that it was appropriate to levy a fine on Microsoft for its non-compliance so far.
More than two years after the 2004 Decision, the Commission has therefore been obliged to resort to formal measures to ensure compliance. If any revised documentation that Microsoft submits proved to be complete and accurate, then Microsoft would not be subject to further daily penalty payments from the date on which complete and accurate technical documentation was provided. This would be the best outcome. However, if Microsoft continued t
Re:Irony (Score:3, Insightful)
Re:Debundling WMP (Score:5, Informative)
Now here's where you lost the trail; the contention now is NOT ABOUT WINDOWS MEDIA PLAYER. It's about underlying windows APIs that the EU claims MS is leveraging to use their DESKTOP os monopoly (which is okay) to shoehorn their way higher up in the server space. What they required MS to do was provide their competition with information about the windows OS that would let competing products interoperate as smoothly as microsoft products.
It's kind of a convoluted, complicated, and misreported case. The EU commision is saying "Look, you can't hide these details about your desktop os just so nobody can make a (whatever server) as good as yours, you can make the whatever server, but your competitors need to have equal footing. SO tell them how (whatever) works."
theres a bunch more, 12000 pages of docs, source code sharing (under a restrictive license competitors must pay for, this is more complicated due to the possibility of DMCA claims) etc.
Re:Debundling WMP (Score:5, Informative)
Your knee-jerk argument doesn't really hold up. Let's try some slight modification and see if we can get it to work, eh?
Imaging one car manufacturer was responsible for producing 95% of the cars in circulation and aggresively used its position to limit the availability of cars from other manufacturers or the emergence of new manufacturers.
Imagine they not only bundled their own brand stereo with the car, they made it virtually impossible to remove the stereo system without causing severe damage to the car, so that even if you were to install an additional stereo you'd have to keep the original stereo.
Now imagine the car manufacturer starts using its imense wealth and market position to persuade content providers to release music encoded in a format only the above stereo can play (or charging hefty license fees to the smaller car/stereo manufacturers if they want to use this technology themselves to actually be able to play music).
Finally, imagine the car manufacturer went out into the world and used its wealth to influence political decisions in their favour to help them maintain an effective stranglehold on the market and, at the same time, insidiously "educate" people while they're still at school into thinking that only one car manufacturer can give them what they need.
Hope that helps.
Re:They're claiming it's a "clarity" problem? (Score:3, Funny)
On my computers?
all the best,
drew
(da idea man)
Re:They're claiming it's a "clarity" problem? (Score:5, Insightful)
Give us the documentationthen we will write you your Windows replacements!!! What do you think this whole case is about???
Re:Enough is enough (Score:4, Insightful)
Of course, there would be a huge vacuum in the end user OS market. But then, there's nobody that keeps you from copying your OS. People would probably not be able to activate their WinXP anymore (unless someone writes a, then legal, crack/patch for it), so they would probably step back to Win2k. Copy it, it's legal (the one holding the rights is "dead". Because if there was someone who picked up the rights for the systems, the whole point would be moot since he would also be responsible to keep the system running).
For the next 3-4 years, people would 'survive' on the old systems. They're good enough to exist for a little longer. And then other OS manufacturers will step in. Apple will certainly try to push into the market, now that they have the ability to run on x86 systems. Linux distributions will try to expand their market share, trying to break into the low-end user market. Sun might try a stunt to get out of the hole they're in. And of course IBM would certainly try to regain some of their business partners.
So I'd say if MS just said "fu.. you, I quit", the result would be a bomb in the IT sector, markets and stocks would go bonkers for a few days or even weeks, but I doubt there would be any real fallout.
Re:Double Standard (Score:5, Interesting)
Yes, I noticed that. However, the comparison is actually "Mac vs PC", not "Mac vs Microsoft". I can't buy a PC from Microsoft, I can buy a PC from Dell. Or HP. Or Fred down the road if I give him the cash to build one.
Dell, HP and Fred-down-the-road can bundle whatever applications they like. Years ago a lot of budget places used to bundle Lotus Smartsuite to keep their prices down vs bundling Office. So the comparison is valid. And yes, having no marketshare does rather free you from monopolist rules because, pretty much by definition, you're not a monopolist.
Cheers,
Ian
Re:WGA and the EU (Score:4, Insightful)
Sure, it isn't nice. But then again the goal of sanctions isn't to be nice but to remedy the problem. MS was found to be in violation of antitrust law, and forcing MS to document interfaces so that competitors can more efficiently make interoperatible software was seen as the most efficient remedy.
Re:the MS game plan.... (Score:5, Insightful)
Any involuntary price increase at this point can't be a good thing for them, because (assuming rational behavior) they've already set their prices for optimum profit. Increasing them further might not make people immediately switch from Windows, but it could change purchasing patterns in other ways: slowing the upgrade cycle, making piracy or theft more attractive, etc.
True, most people would just bend over and take it, but Microsoft is already giving it to them as hard as they can -- forcing them to be harder isn't good for them. The damage to MS might be insignificant, though.
Re:wth? (Score:5, Insightful)
M$ is getting F'd in the A because they built an o/s that a business 'chooses' to use. That business wants to get additional software that integrates with their servers as smooth as possible. Business chooses M$ software because it smoother than the competition (and not by much I must add).
I really don't understand???? Whats the problem here?
Because of something called a 'monopoly'. Microsoft have overwhelming dominance on the desktop. They are using that dominance to sell servers, which is a separate market. Using monopoly dominance in one market to influence sales in another is illegal.
Microsoft server software integrates more smoothly than the competition with their desktop systems because their desktop systems require specific protocols for this integration which Microsoft are keeping secret. Other systems have managed to replicate this only by reverse-engineering what is seen to go across networks.
Microsoft could easily have provided good integration with desktop systems using standard or existing protocols (they have proved in the past that they can produce quality implementations of such things).
None of this would matter if Microsoft were not effectively a monopoly presence on the desktop (that does not mean total dominance - it means enough presence to seriously influence other markets).
Clear now?