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Brussels, 12th July 2006

Competition: Commission Decision of 12 July 2006 to impose penalty payments on Microsoft – frequently asked questions

(see also IP/06/979)

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:

(1) supply complete and accurate interface information which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers; and

(2) 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 to fail to comply with the requirements of the March 2004 decision, then further penalties could not be ruled out.

The overall penalty payment for just over half a year of non-compliance is €280.5 million, whereas the March 2004 Decision’s fine for an abuse lasting more than five years totalled €497 million. What is the explanation for this?

The March 2004 Decision imposed a fine on Microsoft for a past abuse of its dominant position. The present penalty payment relates to Microsoft’s ongoing non-compliance with a formal obligation set out in a Commission Decision, and is hence of a qualitatively different nature. Despite the Commission’s repeated calls for compliance, Microsoft has failed to do so. Microsoft’s continuing failure to bring its abuse of a dominant position to an end is liable to increase further the risk of elimination of effective competition in the work group server operating system market.

Where does the money go?

The penalty payment is paid into the EU Budget. It does not increase the Budget, but reduces the contribution from Member States. The fines therefore reduce the overall tax burden on individuals.

Why has the Commission increased the level of daily penalty payment to which Microsoft would be subject in the event of its continued non-compliance?

The Commission has taken this step because of Microsoft’s continued non-compliance. More than 8 months after the Article 24(1) Decision warned of daily penalty payments, Microsoft has still not complied with its obligations.

Has the Commission been in contact with the US authorities?

The Commission is in regular contact with the US authorities on these issues.

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