Microsoft May See $7.4B Antitrust Fine

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The European Union's competition watchdog said Tuesday that it has launched a probe into Microsoft's failure to comply with an agreement under which it promised to make it easier for consumers to use alternatives to the Internet Explorer Web browser on Windows PCs.

Microsoft in 2009 hashed out the deal with the European Commission (EC), which claimed Explorer's prominent place on the Windows desktop gave it an unfair advantage in the browser market against rival browsers from Opera, Google, and Mozilla, which develops Firefox.

To remedy the situation, Microsoft agreed to add a so-called "Browser Choice Screen" to Windows, from which users could select a default browser the first time they booted their systems.

But the Commission contends that Microsoft failed to implement the BCS in Windows 7 Service Pack 1, which debuted in Europe in February 2011, despite Microsoft's assertions in compliance reports that it was meeting the terms of the agreement.

"We take compliance with our decisions very seriously, and I trusted the company's reports were accurate," said Joaquin Almunia, the EC's VP for competition, in a statement. "It seems that was not the case, so we have immediately taken action. If, following our investigation, the infringement is confirmed, Microsoft should expect sanctions."

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Under the agreement, the penalty could be as much as 10% of Microsoft's annual revenue, which is estimated at about $74 billion for the company's just-ended fiscal year. That means a potential fine of $7.4 billion. Microsoft is expected to report full-year financial results Thursday.

Microsoft acknowledged that it was not in compliance with the agreement, and blamed its failure to comply on "a technical error." In a statement Tuesday, the software maker conceded that "we missed delivering the BCS software to PCs that came with the Service Pack 1 update to Windows 7."

Microsoft said the slipup affects 28 million PCs running Windows 7 SP1. "The BCS software has been delivered as it should have been to PCs running the original version of Windows 7, as well as the relevant versions of Windows XP and Windows Vista," the company said.

"While we have taken immediate steps to remedy this problem, we deeply regret that this error has occurred and we apologize for it," said Microsoft. The company said it began distribution of the BCS to Windows 7 SP1 users July 2 through a software update, and that it has taken other steps to ensure compliance with its EC agreement.