22 April 2004 The European Commission (EC) more than doubled its standard antitrust fine against Microsoft to ensure it had a “sufficient deterrent effect”, given the software giant’s huge cash reserves, it has emerged.

The record-breaking €497 million fine was also set in recognition of Microsoft’s refusal to change its “general pattern of conduct” while the EC conducted its five year investigation.

Details of the EC’s March ruling against Microsoft are set out in the 302-page legal decision. But more detailed evidence, which runs into tens of thousands more pages, has not been publicly disclosed. This has prompted complaints from Microsoft that the EC has given “little explanation and no economic analysis” for its conclusions.

The EC’s document says its order to strip Microsoft’s Media Player software from its Windows operating system relied exclusively on evidence from the company’s competitors.

It says that Microsoft’s “bundling” of Media Player with Windows has “spill over effects on competition in related products” such as media encoding, which could edge out rivals even further.

For example, downloads in Windows Media Player format automatically lock out users of Linux and other operating systems that Microsoft refuses to support, not to mention the frequent difficulty of making Media Player work with non-Microsoft browsers.

The report also cites the “inconvenience” to consumers of the need to download alternative players, but the commission’s apparent failure to ask consumers themselves whether they were harmed by such inconvenience has brought criticism from Microsoft and its investors.

The software giant has taken the opportunity to renew its attack on the EC, accusing it of “seeking to make new law that will have an adverse impact on intellectual property rights and the ability of dominant firms to innovate” which “will not be confined to the software industry or to Europe”. It claims its bundling practices actually encourage innovation.

Microsoft has also criticised the EC’s order to make some of its server software code available to rivals. “The decision goes well beyond established legal precedents by asserting a broad and ill-defined duty on dominant firms to share the fruits of their research and development,” it claimed. “These rulings put at risk the economic incentives for a broad range of companies and industries.”

Microsoft’s criticisms precede a hearing in the EC’s Court of First Instance later this year. It is expected to try to have the EC’s ruling suspended, pending a full appeal which could take as long as five years.

Although Microsoft is settling several of its long-term law suits, most recently a class action brought by companies in the US state of Minnesota, it still faces many more. The size of Microsoft’s cash hoards may prompt other authorities to follow the EC’s precedent and set similarly enormous fines.