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The stiff stance that European Union regulators have taken in the face of intense American political and corporate pressure could spell trouble for Microsoft Corp., which is under investigation for possible antitrust law violations in Europe. In the latest action to underscore the E.U.’s strict oversight, the European Commission rejected the merger of French light-switch maker Schneider SA and rival Legrand. Despite personal pleas by French President Jacques Chirac and finance minister Laurent Fabius, the Commission, which is the E.U.’s executive agency and its competition watchdog, blocked the deal on grounds the companies had not offered the necessary concessions in time. That decision followed the E.U.’s controversial move to torpedo General Electric Co.’s $45 billion purchase of Honeywell International Inc. Despite objections from President Bush and one of the world’s most revered chief executives, GE’s Jack Welch, the Commission refused to relent. According to some observers, a showdown is brewing between Microsoft CEO Bill Gates and European competition czar Mario Monti. Under Monti, the Commission is proceeding full speed with its investigation into whether the Redmond, Wash., company has been illegally extending its dominant position in the operating systems market into the server market. The E.U. has scheduled closed hearings Dec. 20-21 to allow Microsoft officials to present their case in person. Currently, the software maker is preparing its written defense to the E.U.’s latest charges that Microsoft’s bundling of its online Media Player with its Windows OS may violate E.U. law. But the main thrust of the E.U.’s probe is whether Microsoft is breaking the rules by seeking to use Windows as leverage into the server software sector. Initially, the E.U.’s investigation concerned only older versions of Windows. But the Commission in August formally charged the company on Windows 2000 and Media Player. European regulators’ position on Windows XP, Microsoft’s new computer platform, remains unclear. As recently as Monday, European Commission press officer for Competition Amelia Torres said: “At this point, the Commission is not examining XP officially or unofficially.” But other sources involved in the E.U.’s investigation say otherwise. One person, who spoke on condition of anonymity, said the Commission has already made preliminary inquiries among competitors and third parties, as well as Microsoft, on the question of Windows. Still, the E.U. is unlikely to start a new probe now for fear of delaying its ongoing investigations and of damaging Microsoft’s business as a whole. A final ruling on the ongoing probes could come as early as April. But experts say Microsoft shouldn’t interpret the Commission’s decision to keep XP off its radar screen as an indication of Brussels softening its stance. Given Microsoft’s recalcitrance in dealing with E.U. competition authorities, which the E.U. documented in its statement of objections, Brussels has the grounds to come down pretty hard. That statement, which the regulators delivered in August and which legally outlined the E.U.’s rationale for broadening its probe into Windows 2000 and Media Player, documents Microsoft’s general unwillingness to comply with the Commission. In one tactic cited in the statement of objections, Microsoft allegedly presented a packet of more than 30 letters of support for the company that Microsoft had solicited from customers that were unaware of their ultimate use. Such stratagems could work against Microsoft when the Commission metes out a penalty. The E.U. can resort to a number of legal remedies, and the Commission is expected to devise a formula of penalties in its final ruling. The most widely used of these options is to fine a company for infringing antitrust law. Under E.U. law, the Commission can impose a fine of up to 10 percent of a company’s global annual sales, although the group has never administered a penalty even remotely close to this ceiling. Fines are calculated according to length and severity of infringement, and any aggravating or mitigating factors are considered. If Microsoft is fined in the E.U.’s probe, the Commission is certain to consider Microsoft’s willingness, or unwillingness, to cooperate. Another option the E.U. expects to figure in its final ruling is to force Microsoft to comply technologically with E.U. law. For example, one likely measure is to require Microsoft to open up its Windows source code so competing server software providers can offer compatible products. The Commission may also force Microsoft to stop bundling certain features, such as Media Player, from Windows. What few people know, and what could worry Gates, is that the E.U. is legally entitled to break up companies. Such powers are now only implicitly outlined in E.U. law, but plans are under way to formalize this authority. While dividing Microsoft is considered a weapon of last resort, such drastic measures have formed part of an E.U. antitrust ruling once before. That ruling, which came in March, involved splitting Deutsche Post AG’s competitive parcel service from its monopoly letter business. The Commission is unlikely to consider such a harsh remedy because unlike Deutsche Post, which proposed its breakup to address the E.U.’s concerns, Microsoft is certain to dismiss the notion. Were Brussels to impose a split, however, a clean break between Microsoft’s server business and its PC business would solve nearly all E.U. concerns. Copyright (c)2001 TDD, LLC. All rights reserved.

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