Microsoft could face billions in new fines over browser choice

European Union (EU) antitrust regulators today threatened Microsoft with more fines, potentially massive ones in the billions of dollars, after the company failed to make good on its promise to offer consumers there a choice of browsers.

The EU's chief regulator, Joaquin Almunia, talked tough. "If the facts are confirmed, [I will] use the legal instruments at my disposal to deter and to punish [Microsoft]."

In announcing the new investigation, Almunia, the head of the EU's Competition Commission, added, "If confirmed, this would have severe consequences ... and there will be sanctions."

Microsoft immediately apologized, calling the failure to offer the browser choice screen to Windows 7 users a "technical error."

The browser ballot was the result of a deal Microsoft struck with the Competition Commission in late 2009 after officials launched an investigation after a complaint from Norwegian browser maker Opera Software. Opera accused Microsoft of manipulating the battle for browser share by tying Internet Explorer (IE) to Windows.

The settlement required Microsoft to display a screen in Windows that provided download links to other browsers, including Apple's Safari, Google's Chrome, Mozilla's Firefox and Opera Software's Opera. The same browser ballot must appear in Windows 8, the upgrade slated to ship in October.

According to Almunia, Microsoft dropped the ball. "It appears that since the launch of Windows 7 Service Pack 1 the choice screen has not been displayed," Almunia said at a news conference in Brussels Tuesday morning.

Microsoft launched Windows 7 Service Pack 1, or SP1, the first major upgrade to the 2009 operating system, in February 2011.

Almunia claimed that as many as 28 million Europeans had been denied the browser choice screen because of Microsoft's blunder.

In a statement of its own, Microsoft claimed the omission was an oversight.

"Due to a technical error, we missed delivering the BCS [browser choice screen] software to PCs that came with the Service Pack 1 update to Windows 7," the company said. "We learned recently that we've missed serving the BCS software to the roughly 28 million PCs running Windows 7 SP1."

Microsoft also downplayed the problem, noting that users running other editions of Windows, including Windows XP, Vista and the original version of Windows 7, received the browser ballot correctly. "We estimate that the BCS software was properly distributed to about 90% of the PCs that should have received it," said Microsoft.

Although Almunia said nothing about the Competition Commission's take on Microsoft's explanation, he did say that while he prefers settling with companies accused of antitrust violations rather than go through the lengthy process of filing formal charges, that only worked if deals are religiously adhered to.

"This can only work if companies implement these [settlements] fully," he said.

He also said that as recently as December 2011, when Microsoft last filed a required compliance report with his agency, the company maintained all was well.

When informed on July 2 of the missing browser ballot, Microsoft crafted a fix, tested it, then began pushing it to Windows 7 SP1 users on July 3. The update should reach all affected EU users by the end of this week, Microsoft said.

The Redmond, Wash. developer has also hired an outside legal firm to conduct an investigation into how the technical error, as it described it, occurred. The lawyers' report will be forwarded to Almunia's agency when it is completed.

Under EU law, the Competition commission can levy fines as high as 10% of a company's annual revenue, putting Microsoft's potential liability at an astounding $8.9 billion. Microsoft's global revenue for the five quarters starting Jan. 1, 2009, totaled $89.5 billion. If only the last four quarters -- starting April 1, 2011 -- were considered, the fine could still reach $7.3 billion, based on Microsoft's revenue during those 12 months of $73 billion.

Almunia was especially concerned at the repeat nature of Microsoft's offense, and said that would be taken into consideration if or when a fine was decided. "Non-compliance with an Article 9 commitment has never occurred in the past," said Almunia, referring to promises companies make when they settle with the EU prior to formal charges being filed. "This is the first time that this has occurred."

He may have been accurate about settlement commitments, but Microsoft has actually been punished before for not following orders to the EU's satisfaction.

Four years ago, Microsoft was fined $1.3 billion when the EU said the company thumbed it nose at an earlier ruling by continuing to charge an "unreasonable price" for licensed Windows' communication protocols. Last month, Microsoft lost its appeal of that fine when a EU court confirmed the punishment even as it reduced the fine by 4%.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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