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E.U. Fines Microsoft $732 Million Over Browser E.U. Fines Microsoft $732 Million for Antitrust Violation
(about 2 hours later)
BRUSSELS — The European Commission on Wednesday fined Microsoft €561 million for failing to live up to a settlement agreement offering consumers a choice of Internet browsers. BRUSSELS — In a highly unusual mea culpa, the European Union’s top antitrust regulator said Wednesday that his department bore some of the responsibility for Microsoft’s failure to respect a settlement that landed the company a $732 million fine.
The fine, equivalent to $732 million, is first time that E.U. regulators have punished a company for neglecting to comply with the terms of an antitrust settlement, and it could signal their determination to enforce deals in other cases, including one involving Google, where such an agreement is under discussion. Joaquín Almunia, the E.U. competition commissioner, said the Union had been “naïve” to put Microsoft in charge of monitoring its adherence to the deal it agreed to in 2009, when his predecessor let the company escape a fine in exchange for offering users of its Windows software a wider choice of Internet browsers.
“Legally binding commitments reached in antitrust decisions play a very important role in our enforcement policy, because they allow for rapid solutions to competition problems,” said Joaquín Almunia, the Union’s competition commissioner. “Of course such decisions require strict compliance” and the “failure to comply is a very serious infringement that must be sanctioned accordingly.” But Mr. Almunia insisted that the enforcement of settlements could be sufficiently strengthened to ensure that companies abide by their pledges, and he signaled that he would not retreat from his goal to use such deals to avoid lengthy legal battles with major companies in swiftly evolving technology markets.
The penalty imposed Wednesday brings the overall fines imposed on Microsoft by European antitrust regulators during the past decade to €2.26 billion. Settlements “allow for rapid solutions to competition problems,” Mr. Almunia said. “Of course such decisions require strict compliance” and the “failure to comply is a very serious infringement that must be sanctioned accordingly.”
“We take full responsibility for the technical error that caused this problem and have apologized for it,” Microsoft said in a statement.  “We provided the commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake – or anything similar – in the future,” Microsoft said. Microsoft agreed to alter Windows for five years to give users of newly purchased computers in Europe a ballot screen that would allow them to easily download other browsers from the Internet and to turn off Microsoft’s own browser, Internet Explorer.
The commission can levy a fine totaling as much as 10 percent of a company’s global annual revenue, but fines are usually much lower. Microsoft told the commission at the end of 2011 that it had been abiding by the deal. “We trusted the reports about the compliance,” Mr. Almunia said Wednesday.
The largest fine ever levied by the European authorities in an antitrust case was €1.1 billion, or $1.4 billion, in 2009 against Intel for abusing its dominance in the computer chip market. Intel is still appealing that ruling. In fact, the company had failed to include the ballot system in certain products starting in May 2011, affecting more than 15 million European users. The lapse came to light in July 2012, after rival companies reported its absence.
Although Microsoft has appealed many of its past punishments, it may be reluctant to do so this time, preferring to focus on its rivalry with Google. Microsoft is among the companies that have complained about Google’s business practices to Mr. Almunia. “We take full responsibility for the technical error that caused this problem and have apologized,” Microsoft said Wednesday. “We have taken steps to strengthen our software development and other processes to help avoid this mistake — or anything similar — in the future.”
The penalty Wednesday stemmed from an antitrust settlement in 2009 that called on Microsoft to give Windows users in Europe a choice of Web browsers, instead of pushing them to Microsoft’s Internet Explorer. A Microsoft spokesman declined to comment on whether the company would appeal, but it seemed unlikely, as the company prefers to focus on its rivalry with Google. Microsoft is among the companies that have complained about Google’s business practices to Mr. Almunia
Microsoft failed to offer users such a choice for more than a year — apparently without the failure’s being noticed by anyone at the company or the commission. The fine comes as Mr. Almunia’s office is negotiating with Google to try to resolve the commission’s concerns about the way it runs its Internet search service and its advertising business.
The company admitted the problem and apologized last year. It said the failure had been a result of a technical issue that had escaped its notice, and it updated its Windows 7 and Windows 8 software to give European users the browser choice. Mr. Almunia said Wednesday that attempts to reach a deal with Google were continuing and were unrelated to the decision taken against Microsoft. But he made it clear that the substantial fine was meant to serve as a warning to others.
The fine comes as Mr. Almunia’s office is negotiating with Google to try to resolve the commission’s concerns about that company’s dominance of the Internet search and advertising markets. Even if Google and the commission reach a settlement, a substantial fine for Microsoft would serve as a warning that a company would violate such a settlement at its financial peril. If Google eventually settles, it “will have to exert extra care to not give the impression that it is deviating from the commitments that such a settlement will entail” to avoid a similarly high fine, Mario Mariniello, a research fellow at Bruegel in Brussels and a former antitrust official, wrote in a blog post.
Antitrust regulators find that “monitoring is time consuming and resource intensive” and “it looks like Microsoft was able to forget about the Internet Explorer commitments without anyone noticing,” said Emanuela Lecchi, a partner in London at the law firm Watson, Farley & Williams. “So it would seem to me that the commission may wish to make an example of Microsoft.” But Mr. Almunia said some of the blame rested with regulators and indicated that the commission might never again, in effect, put the fox in charge of the henhouse.
The European Commission has been formally investigating Google since November 2010. Mr. Almunia offered the company a settlement last May after finding that it might have abused its dominance in Internet search and advertising by giving its own products an advantage over those of others, even while maintaining that it offered neutral results. “Maybe we should have tried to complement the responsibilities of the reports about the implementation, but we only reacted when we received the first complaint,” Mr. Almunia said. “Maybe in 2009 we were even more naïve than today.”
Mr. Almunia and Google have been negotiating since then, and a final agreement may not come until later this year, suggesting that the strategy of seeking quick results in antitrust technology cases through settlements instead of lengthy legal battles could be coming undone. He said the commission would be more inclined to use trustees to police future settlements, would be more precise in defining their responsibilities and would “pay even more attention to the reports that the monitoring trustees will send to us.”
The commission has taken a tougher line with Google than U.S. regulators did. The Federal Trade Commission decided in January after a 19-month inquiry that Google had not broken antitrust laws. But Mr. Almunia has insisted that Google make changes to the most sensitive area of its business, online search. Companies that agree to settlements usually pay for trustees, but the choices are vetted for conflicts of interest, according to E.U. officials.
The latest dispute with Microsoft stemmed from the settlement of a case concerning Microsoft’s dominance in Internet browsers, a position the company has ceded to market forces in recent years. In Microsoft’s 2009 settlement, the company did not pay a fine, but it agreed to install a system called Browser Choice Screen with Windows. It was intended to offer software like the Chrome browser from Google and the Firefox browser from Mozilla as alternatives to Internet Explorer, Microsoft’s browser. The choice was to be offered for five years, according to the agreement. Since 2003, when the current settlement rule was introduced, the commission has taken 29 such decisions. But there were no appointments of independent monitoring trustees in the majority of those cases, including in a settlement with I.B.M. in late 2011.
More than 15 million European users of the Windows 7 SP1 version of the software were not offered a choice of browsers for 14 months in 2011 and 2012, Mr. Almunia told a news conference Wednesday. Mr. Almunia said he had not yet decided whether to appoint a trustee to oversee whether Microsoft was adhering to the rest of its compliance period in the browser case, which runs to 2014.
Millions of European users of the Windows 7 SP1 version of the software may not have been offered a choice of browsers from February 2011 to July 2012, according to E.U. officials. Microsoft has been a special case in the history of E.U. antitrust enforcement, racking up a total of €2.26 billion, or $3.4 billion, in fines over about a decade.
The company said it learned of the error when the commission sent a notification about reports it had received indicating that alternative browsers were not being offered on some personal computers. Microsoft was the first company to pay so-called periodic penalties for failing to follow an order to make it easier for rival products to communicate with powerful server computers running Windows. That amount, nearly €900 million, was subsequently reduced to €860 million after the company appealed to the General Court of the European Union.
Microsoft’s failure to comply with the European order has already resulted in financial penalties of a different sort for company executives. In a filing with U.S. financial regulators last October, Microsoft said that Steven A. Ballmer, the company’s chief executive, and Steven Sinofsky, then the head of its Windows division, had received less than the full annual bonuses they were eligible for, in part because of the issue in Europe. The decision against Microsoft was another milestone for E.U. antitrust law, and for Microsoft, which became the first company to be punished for failing to adhere to a settlement.
A month later, Mr. Sinofsky left the company in a decision that was described as “mutual” by people briefed on the matter. Although the commission can levy fines of up 10 percent of a company’s most recent global annual sales, the penalty on Wednesday represented 1 percent of Microsoft’s annual sales, partly because the company cooperated with the commission after the issue came to light.
Nick Wingfield contributed reporting from Seattle Mr. Almunia said there had been no indication that Microsoft intentionally broke the settlement agreement.
The fact that nobody — apart, apparently, from rival companies — noticed the absence of the browser choice screen for more than a year has prompted critics of the European antitrust enforcement to question the effectiveness of the measure.
But Mr. Almunia insisted Wednesday that the remedy had been effective, saying that, “our decision was very relevant in opening the market and broadening the choice for users, for what kind of browsers they want to use.”
Microsoft, which currently offers a browser choice in its latest Windows 8 operating systems in Europe, said last year that it was prepared to extend the system beyond 2014 by an additional 15 months, partly to atone for its error. But it remained unclear on Wednesday whether that plan would go forward.

This article has been revised to reflect the following correction:

This article has been revised to reflect the following correction:

Correction: March 6, 2013Correction: March 6, 2013

An earlier version of this article misstated the 14-month period in which, according to European officials, Microsoft failed to offer a choice of browsers to more than 15 million European users of the Windows 7 SP1 version. It was in 2011 and 2012, not from 2011 to 2014.

An earlier version of this article misstated the 14-month period in which, according to European officials, Microsoft failed to offer a choice of browsers to more than 15 million European users of the Windows 7 SP1 version. It was in 2011 and 2012, not from 2011 to 2014.