Belfast Telegraph

Tuesday 16 September 2014

Why has Microsoft been fined, and how will this affect the consumer?

Why are we asking this now?

A panel of 13 judges sitting in Europe's second-highest court, the European Court of First Instance, has upheld the European Commission's decision to fine Microsoft a record 497m euro (£343m) for using the dominance of its Windows operating system to stifle the progress of its competitors. After a nine-year legal battle, the US computer giant may now have to concede defeat and comply fully with the demands from Brussels.

What has Microsoft been punished for?

In 2004, the commission found the software company guilty of using its strength to gain an unfair advantage over its competitors in two ways. Firstly, it was found to be using its dominant Windows operating system to force its software packages such as Media Player on to PC users, stifling the progress of competing products, such as RealNetworks' RealPlayer or Apple's QuickTime player. Secondly, the commission concluded that Microsoft was not providing rivals with the information necessary for them to develop software compatible with its Windows operating systems. It was later criticised for charging its rivals too much for the information. Microsoft also racked up a fine of ¿280.5m (£195m) last year for ignoring the EU's 2004 judgment.

Who is complaining about Microsoft?

Unsurprisingly, Microsoft's competitors. It was one of them, Sun Microsystems, which kicked off the EU's battle with Microsoft in 1998. The company complained to EU regulators that Microsoft was refusing to supply it with the information it needed to make its products compatible with Microsoft's Windows operating system, used on more than 90 per cent of PCs. In 2006, a group of rivals made a fresh complaint to the EU about Microsoft. The problem for those companies has been that, while the legal battles have rolled on, Microsoft has continued to increase its market share.

How big a blow is this for Microsoft?

The upholding of the 2004 decision will come as a major blow, even to such a dominant and profitable company. As well as the record fine, it has been ordered to pay most of the European Commission's court costs. For a company that racks up monthly profits of $1bn, though, that might not be a problem. More significant is the principle of the verdict. Microsoft's appeal was comprehensively turned down yesterday, meaning that it may well have to reconsider its behaviour towards its rivals, which will now be under greater scrutiny than ever.

Despite yesterday's decision, Microsoft still has one slim chance of overturning the verdict. Although the dispute has now been rumbling on for nine years, the case could make it all the way to Europe's highest court, the European Court of Justice, if Microsoft decides to lodge a further appeal. The company has not yet said if it intends to continue fighting the EU's latest ruling but an appeal is expected.

Why is the case so important for the EU?

The EU's battle against Microsoft has been the most high-profile anti-trust case in EU history, and as such it has taken on added importance for Brussels. The case has used a huge amount of the time and resources of the EU's competition commission. Defeat would have been catastrophic for its credibility as a tough policeman of big business. The commission's president, Jose Manuel Barroso, was quick to announce that the verdict " confirms the objectivity and the credibility" of the EU in regulating such major issues.

Reputations were also on the line in the case, most notably that of the EU's competition commissioner, Neelie Kroes. She has been criticised by some competition lawyers for not having a clear vision over regulation, making her stand over Microsoft vital in retaining credibility. Defeat could have meant the end of her tenure at the commission.

Has action been taken against the group in the US?

Microsoft's tussle with the EU is not the first time it has attracted the unwelcome attention of anti-trust regulators. At the start of the decade, it also faced a challenge from the US Department of Justice and several US states over the way it used the popularity of its Windows operating system to spread its software.

At one time, there was serious talk of splitting up Microsoft, but the company eventually reached a settlement with US anti-trust regulators in 2001.

The settlement was similar to the EU's verdict, preventing the company from using its operating system to give its software products an unfair advantage. Although its battle with US regulators was not as acrimonious as its European courtroom spat, American authorities continue to monitor Microsoft.

Will the consumer really benefit from the verdict?

In theory, but maybe not in practice. Forcing Microsoft to make its products compatible with those of other companies could lead to greater choice. But, in reality, computer desktops won't be changing any time soon. After the verdict, competition commissioner Kroes admitted that software customers still had as little choice now as they did when the fine was imposed on Microsoft three years ago. Consumers can now buy a version of Microsoft's operating system without its Media Player already installed but the price difference is almost non-existent.

A trip to the high street will confirm that the software industry still has a long way to go before Microsoft faces some serious competition. Most new PCs come kitted out with Microsoft's latest operating system, Microsoft Vista. And while Apple's iTunes may have stolen a march when it comes to music downloads, Microsoft's Media Player programme is still used by the vast majority of PC users.

So what difference will it make?

It seems to have come too late to weaken Microsoft's position but the ruling could have significant benefits for consumers in other markets. The decision is seen by many analysts as a test case in how a dominant company should behave towards its competitors. The EU clearly thought that Microsoft had a duty to allow the development of fair competition.

In the future, whenever a company is thought to be stifling competition, this ruling could act as a key weapon in boosting competition, which will certainly help consumers in the long run. And the confidence that the verdict has given the EU could lead it to take on big business even more in the future.

Is this really a significant verdict for consumers?

Yes...

* Big companies have now been warned that they will be punished for anti-competitive action

* There is now the prospect of more competition and greater choice for consumers

* The EU has shown itself to be a viable champion for consumers against big business

No...

* With profits of $1 billion a month, Microsoft can take the fine with little problem

* Microsoft continues to completely dominate the world of computing, despite this nine-year battle

* The only way Microsoft can really be challenged is not through the courtroom, but through creative innovations by competitors

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