Microsoft May Face Big Fines in EU "Browser Choice" Case

Microsoft may be fined as early as January 2013 by the European Union for its failure to obey an earlier agreement to offer users a "browser choice" in Windows 7.

The EU antitrust regulators are close to a decision that would be one of the first issued in 2013, EU antitrust chief Joaquin Almunia told reporters in a press conference today, as reported by Bloomberg. EU representatives were unavailable to provide further comment, and Microsoft declined to comment.

In 2009, Microsoft agreed to include a randomized list of browser alternatives that users could install and set as the default, superseding Microsoft's own Internet Explorer browser, if they so chose. The settlement agreement was good for five years, and covered versions of Windows XP, Windows Vista, and Windows 7 that were sold within the European Union.

The settlement agreement was originally crafted as a result of a 2009 "statement of objections," legal concerns that Microsoft had violated what was then known as Article 82 of the EC Treaty, "abusing its dominant position in the market for client PC operating systems through the tying of Internet Explorer to Windows," in the EU's words.

That conclusion was markedly different than Microsoft's own saga with the U.S. Department of Justice, a years-long spat that began with the government accusing Microsoft of illegally tying Internet Explorer to Windows, led to a proposed breakup of the company, and finally to a settlement that ensured Microsoft would merely allow open access to its APIs through 2007.

Oops, We Did It Again

In July 2012, Microsoft admitted that it had somehow neglected to include the "browser choice" within Windows 7 Service Pack 1. "While we have taken immediate steps to remedy this problem, we deeply regret that this error occurred and we apologize for it," the company said in a statement. 

Microsoft said at the time that it had begun distributing the browser choice screen, which listed a dozen alternatives to Internet Explorer, the next day. It also offered to extend the so-called BCS screen by an additional 15 months. Finally, Microsoft said it had hired outside counsel to determine how the potential error occurred. Microsoft again apologized in October, and said it would make changes in how browser choice was implemented in Windows 8.

In October of this year, the EU sent Microsoft another statement of objections, this time in response to Microsoft's July admission. It's that statement of objections that could prompt fines - or at least an amended settlement.

With potential fines ranging as high as 15% Microsoft's annual sales for the EU region, it's clear that Microsoft would much prefer the inconsequential result of offering the browser choice screen for a prolonged period of time. At this point, it matters less to the company how users view the Internet, just that they use Microsoft's Bing search engine and view ads that Microsoft sells. The only real advantage of customers using Microsoft's Internet Explorer is that it makes it easier to pushing them toward the company's own search engine and ecosystem of services.

EU: Tech Watchdog

Almunia also told reporters this week that the he expects Google to provide a "voluntary" Article 9 settlement under which the company would change its business practices, apparently to avoid steering  users who search for a particular topic to its own services. The FTC is also reportedly near a similar settlement, but Politico reported that the EU's decision to require Google to change its behavior would have a more powerful, longer-term impact on Google's behavior.

With the EU's actions against Microsoft and Google, plus swift action in patent cases including Google's Motorola unit, Samsung and Apple, the EU appears to be becoming the gateway for corporate behavior. Even if U.S. regulators allow companies like Microsoft to skate past their responsibilities, the EU has begun to step in and crack down.

“This accentuates the lead role Europe has in setting standards for dominant firm behavior,” former FTC Chairman William Kovacic, immediate predecessor to current FTC chief Jon Leibowitz told Politico. “If the FTC does nothing more than say ‘Just tell us you’ll be good’ and the Europeans impose limitations as to how Google deploys their search product, it reinforces that Europe is the place to go to complain about dominant corporate behavior and get results.”