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Byline: Cynthia L. Webb

Word leaked out yesterday that Microsoft Corp. is going to be slapped with a roughly $613 million fine for unfairly wielding its might in the European software marketplace -- chump change compared to the more than $50 billion in cash the company has sitting in the bank.

Sure, European antitrust head honcho Mario Monti is expected to outline other antitrust remedies when the European Commission formally announces its final ruling on Microsoft tomorrow. But the peanut gallery is already chiming in. Bottom line: Many observers (Filter included) don't think Microsoft will fundamentally change its ways over this ruling. Nonetheless, the remedies European antitrust regulators are pushing for could at least rock the boat for Microsoft's business strategy.

The Los Angeles Times noted that news of the $613.5 million fine set "the stage for a sweeping antitrust ruling this week that could limit how the company builds and sells software in one of its most lucrative markets." And the newspaper did one of the better jobs today of putting the fine into perspective: "Although the fine would be the largest imposed by the European Commission, it is considerably less than the $3 billion it could have levied against Microsoft, which has spent years battling lawsuits around the world alleging anti-competitive behavior. ... Microsoft has more than $50 billion in cash reserves. It would take the company, which had global revenue of $32.2 billion last year, less than a month to earn $613.5 million." The Seattle Times carried this witty observation on the fine: "One analyst said it's merely a 'rounding error' for a company with more than $53 billion in cash." * The Los Angeles Times: Microsoft Is Facing Record EU Fine (Registration required) * The Seattle Times: Microsoft Faces EU Antitrust Fine But 'Bundling' Issue Is Bigger Concern

According to The Financial Times, the 20 European Commissioners could still change the fine when they meet tomorrow. "Commission fines are based on factors such as the gravity of the offence, the turnover of the company concerned and the time for which it continued -- five years and five months in the case of Microsoft. But the Commission has the discretion to adjust the amount of the penalty. Some people said the fine had been doubled to take account of the company's global operations, including those in the US. The company's appeal against the fine is likely to object to such considerations," the paper said. * The Financial Times: EU To Fine Microsoft A Record $613m

Reuters provides more nitty gritty on how the fine fits with Microsoft's overall financial picture: "The fine amounts to slightly more than one percent of Microsoft's roughly $53 billion cash on hand. On January 22 it projected expected revenues of $8.6 billion and operating income of $3.1 billion for the current quarter. Microsoft has three months to pay the fine but may instead give a bank guarantee during the appeal. If it ends up losing, it would owe the fine plus interest. Microsoft argues that it should not have to pay because it did not infringe the rules intentionally and that it should not be fined for its worldwide turnover because the United States has already acted in the case. European Union law says that fines are based on the worldwide turnover of companies. The absolute limit is 10 percent of annual turnover for the year before the decision, which for Microsoft would amount to $3.43 billion." * Reuters: EU Set To Rule Against Microsoft

Of course, Microsoft has already said it will appeal the ruling. "In view of the absence of a clear legal standard under E.U. law, a fine of this size isn't warranted," said Tom Brookes , the company's spokesman in Brussels, according to The New York Times. Company spokesman Lou Gellos told Agence France-Presse: "It's certainly unwarranted because we think it comes only from the inability to reach a settlement on one issue after we essentially agreed on every other issue." * The New York Times: Antitrust Fine For Microsoft Said To Be $613 Million (Registration required) * Agence France-Presse via Yahoo! News: EU Commission Proposes 497-Million Euro Fine On Microsoft

Don't Follow the Money

While the record EU fine has made Microsoft's blood boil, it's the antitrust remedies that European regulators are expected to impose that Microsoft (and its many business foes) are most interested in. The company is expected to be required to sell two separate versions of its operating system in Europe -- one with the Windows Media Player and another without. The company "would also have to share more Windows code to allow rival makers of server software to compete with Microsoft more fairly, according to people close to the case. Computer servers drive networks of PC's. These remedies would have more of an impact on Microsoft than a fine, because the company has more than $50 billion in cash reserves and has already set some of that aside for covering legal costs," The New York Times reported.

"[A]nalysts say the ruling could indirectly hurt Microsoft's attempts to counter the freely available Linux operating system, which is becoming a strong competitor to Windows in Asia, especially in the government sector," the Associated Press reported. Jupiter Research analyst Joe Wilcox said: "Microsoft has been trying to improve relationships with governments worldwide and an adverse ruling in the EU could hamper those efforts." * The Associated Press via The Washington Post: EU May Set Record With Microsoft Fine (Registration required)

The San Jose Mercury News said "Wednesday's expected decision may reverberate far beyond Europe. ... [T]he European case looks ahead at newer markets and technologies, such as digital media and server software." The EU decision, Association for Competitive Technology 's Jonathan Zuck said, "calls into question what features are going to be added to Windows. It's potentially a bad precedent. ... If I have a technology similar to what could be built into Windows, I'm going to sue." The Merc added: "Such a decision could potentially throw a wrench into Microsoft's plans for enhancing its next version of Windows, dubbed Longhorn , with new technologies for search, security, voice recognition and digital music and videos." * San Jose Mercury News: Europe Ready to Punish Microsoft

The Wall Street Journal reported that Microsoft is passing around details of the settlement deal it tried to get EU officials to endorse. "The commission's jurisdiction for such an order is limited to Europe, Microsoft argues in the document being circulated to EU officials, while the company offered an alternative solution that would have applied world-wide. The document suggested Microsoft could ensure that three alternative media players could be preinstalled on some 300 million new PCs a year in Europe and 'in many other parts of the world,' thus 'ensuring that European and other consumers have ready access to a broad variety of media players without having to download them from the Internet.' The commission's proposed solution, by contrast, 'is unlikely to have any impact,' the document says." * The Wall Street Journal: EU Member States Back Record Fine For Microsoft (Subscription required)

The EU Microsoft ruling is expected to continue dominating headlines this week, as Wall Street and other interested observers wait to dissect Europe's antitrust ruling after it is officially unveiled tomorrow. Stay tuned for more details. And also don't forget that any ruling will be tempered by Microsoft's plans to appeal. The Times of London reminds us that the appeals process could take up to seven years. * The Times of London: Microsoft Fined Record €497m

Take the Deal, Bill

The Boston Globe today effectively endorses the EU's expected decision in an editorial. Excerpt: "Rather than appealing the decision, Microsoft ought to use it as a guide in future product introductions. ... If Microsoft appeals, the matter could remain in court for years. And in no circumstances would the decision apply to the United States, where the antitrust decision in a different Microsoft case is far milder. The European action, if it is sustained, would set useful limits on Microsoft in a vast market. Microsoft would still be free to develop add-on programs, but they would have to compete on their merits without the unfair boost of an innate connection to Windows." * Boston Globe Editorial: Opening Windows

A Boost for Real?

No surprise here: Microsoft critics are already lauding the planned fine. "We think a very large fine is appropriate for a company with this much money," Robert Kimball , general counsel of Seattle-based RealNetworks Inc. , told The Los Angeles Times.