Talks between Microsoft and EU collapse

Brussels - EU competition commissioner Mario Monti and Microsoft today issued statements that negotiations to avoid a fine against the Redmond based software company have ended without reaching an agreement. Monti announced that the EU intends to set a strong precedent with the Microsoft case, indicating a fine which significantly could exceed the $200 million rumored in recent weeks.

While both statements were blurry and gave little details about the possible fine, both parties said that certain progress was made. Microsoft CEO Steve Ballmer, who arrived for last minute negotiations a few days ago in Brussels, said that "these discussions were carried out in a cooperative spirit and with professionalism on both sides." According to Brad Smith, senior vice president and general counsel for the software maker, the settlement offer proposed by the company could "have resolved the issues of the case."

Monti however disagreed and said that no agreement was possible to issues which might arise in the future. "In the end, I had to decide what was best for competition and consumers in Europe. I believe they will be better served with a decision that creates a strong precedent," he said. "It is essential to have a precedent which will establish clear principles for the future conduct of a company with such a strong dominant position in the market," Monti added.

A "strong precedent" refers to a fine the EC will announce on March 25 as well as demands to change the Windows operating system. While various sources have speculated that the EU will fine Microsoft about $200 million, today’s statement indicates that Monti won’t be happy with that amount. Laws in the EU allow Monti to fine Microsoft 10 per cent of the firm’s revenue, according to a spokeswomen for the EC. Microsoft’s revenue in 2003 was $32.19 billion, which would give Monti the authority to fine Microsoft more than $3 billion.

As well as a fine, the EC is expected to order Microsoft to offer a version of Windows without its Media Player. According to sources, the EC will also ask Microsoft to allow access to its servers to enable rivals to integrate their software.

Microsoft already has announced, that the company would appeal a fine issued by the EC. "Perhaps the courts will provide the clarity that is necessary to resolve these issues," Smith said. "Today is just another step in what could be a long process."

Industry analysts were little surprised by the EC statement. "I think, you can count on one hand how often Microsoft has reached an agreement in a case like this," said Charles King, research director at the Sageza Group. "The company has enough lawyers and money available to push this through court."

King does not think that the move by the EC will have any immediate impact on European users. However, the pressure on Microsoft could increase, if the European Commission will come up with a ruling which is conceived as fair and Microsoft does not agree : "Microsoft might have trouble explaining, why they can’t agree with something reasonable. This could push some people even more towards Linux," King said.