All Things Digital

Microsoft (MSFT) is appealing the $1.38 billion fine given it by the European Commission for failing to comply with a landmark antitrust ruling in what it describes as a “constructive effort to seek clarity from the court.”

By “clarity,” Microsoft means an annulment of the EC’s February decision imposing the fine–the highest ever meted out in an antitrust case. But it’s not likely to get it. At least according to the EC. Said an EC spokesperson: “The commission is confident that its decision to impose the fine is legally sound.”

Translation: No. How’s that for “clarity”?

We would be disappointed in 2008-2009 if we don’t have a very significant position in the display-ad marketplace.

- Tim Armstrong, Google’s North American president for advertising and commerce

Looks like Google’s informal corporate motto, “Don’t Be Evil,” was assurance enough for the European regulators reviewing the company’s proposed merger with online ad-serving vendor DoubleClick.

The European Commission this morning approved Google’s (GOOG) $3.1 billion acquisition of DoubleClick, clearing the way for the unprecedented combination of their advertising services, as well as their vast troves of data about consumer behavior on the Internet.

In a statement, the EC said the deal would be unlikely to have harmful effects on consumers and can proceed without conditions. “The Commission found that the merged entity would not have the ability to engage in strategies aimed at marginalizing Google’s competitors, mainly because of the presence of credible ad-serving alternatives to which customers (publishers/advertisers/ad networks) can switch, in particular vertically integrated companies such as Microsoft, Yahoo and AOL,” the EC explained. “The market investigation also found that the merged entity would not have the incentive to close off access for competitors in the ad-serving market, mainly because such strategies would be unlikely to be profitable.”

Less than two hours after the EU granted its approval, Google announced that the deal had closed. Google CEO Eric Schmidt declared himself “thrilled.” As well he should be: Shares of Google, which have lately been trading down, were up by as much as $18 this morning, or more than 4%, at about $431.

Acer Awarded 3rd Place in Westminster PC Show

Acer leapfrogged over Lenovo to officially claim the No. 3 position in the desktop PC market this morning when the European Commission approved its acquisition of Dutch computer maker Packard Bell. In a statement, the EC said the deal “would not significantly impede effective competition. “The commission’s examination showed that the proposed merger would entail horizontal overlaps for desktops and laptops, both for professionals and consumers,” it said. “However, the market would remain competitive post-merger in all segments of the PC sector, with established alternative suppliers such as Hewlett-Packard, Dell, Fujitsu-Siemens, Toshiba, Sony and Lenovo.”

If Microsoft (MSFT) believed its “new” commitment to interoperability would curry favor with the European Commission it was mistaken. Sorely mistaken.

This morning the EC slapped the software giant with another $1.35 billion in fines for failing to comply with its 2004 antitrust order. “Microsoft was the first company in 50 years of EU competition policy that the commission has had to fine for failure to comply with an antitrust decision,” European Commissioner for Competition Neelie Kroes said. “I hope that today’s decision closes a dark chapter in Microsoft’s record of noncompliance with the commission’s March 2004 decision and that the principles confirmed by the Court of First Instance ruling of September 2007 will govern Microsoft’s future conduct.”

The fine is the largest the EU has ever imposed against a single company in an antitrust case and brings Microsoft’s total European antitrust tab to about $2.5 billion, in current exchange rates. Quite a sum, to be sure. But for Microsoft, one that could easily come out of the “Found Beneath Bill Gates’s Couch Cushions” fund. Said Jeremy Allison, co-creator of the open-source workgroup file-and-print-server software Samba, “That’s not a fine, that’s just a way of getting their attention.”

In a statement, Microsoft said it was “reviewing the commission’s actions,” adding that the fine concerned past issues it thought had been resolved. “As we demonstrated last week with our new interoperability principles and specific actions to increase the openness of our products, we are focusing on steps that will improve things for the future,” the company said.

But Kroes wasn’t having any of it. “Talk, as you know, is cheap,” she said this morning. “We don’t want talk and promises.”

Color the European Commission unimpressed by Microsoft’s declaration of interoperability principles this morning. Seems the EC hasn’t forgotten that Microsoft’s made these promises before. On at least four occasions.

“The European Commission takes note of today’s announcement by Microsoft of its intention to commit to a number of principles in order to promote interoperability with some of its high-market-share software products,” the EC said in a statement. “This announcement does not relate to the question of whether or not Microsoft has been complying with EU antitrust rules in this area in the past. The commission would welcome any move toward genuine interoperability. Nonetheless, the commission notes that today’s announcement follows at least four similar statements by Microsoft in the past on the importance of interoperability.”

The European Committee for Interoperable Systems, a coalition of Microsoft rivals, was equally dubious of the announcement. Noting that Microsoft announced its last interoperability initiative in August of 2007, when it had not yet complied with the EC’s 2004 ruling requiring the disclosure of interoperability information, the ECIS said the world needs a permanent change in Microsoft’s behavior, not just another announcement. “We have heard high-profile commitments from Microsoft a half-dozen times over the past two years, but have yet to see any lasting change in Microsoft’s behavior in the marketplace,” ECIS Legal Counsel and Spokesman Thomas Vinje said in a statement.

Vinje went on to suggest that if Microsoft is truly serious about enhancing its support of industry standards, it will endorse the Open Document Format at the International Standards Organization meeting next week and stop pushing forward with its proprietary Windows-dependent standard document format.

The European Commission paid a surprise visit to Intel this morning. The commission, which last July accused the company of abusing its dominant position in the microprocessor market, raided Intel’s Munich offices in Germany in an antitrust probe.

“Commission officials carried out unannounced inspections at the premises of a manufacturer of central-processing units and a number of personal computer retailers,” said Jonathan Todd, a commission spokesman. “[The companies] may have violated EC [European Community] Treaty rules on restrictive business practices and/or abuse of a dominant market position.”

Bad news for Intel (INTC), which is also under investigation in New York state for alleged abuses of market power.

Looks like Samba is the first beneficiary of the European Commission’s antitrust sanctions against Microsoft. To comply with the terms established by the EC’s 2004 antitrust ruling, the software giant has signed an agreement with Samba that will give the company the protocol documentation its developers need to make its open-source software inter-operate with Windows.

“Today the Samba team announced that they’re satisfied with the agreement, and are taking a Work Group Server Protocol Program trade secret and copyright license,” Microsoft Director of Platform and Technology Strategy Sam Ramji wrote in a post to the Microsoft Port 25 blog. “This will give them access to Microsoft specifications for the protocols in WSPP (such as file, print, and user and group administrative services) and allow the Samba team to create, use and distribute implementations. I expect this will significantly improve the process of Samba development, and produce better quality inter-operation between Windows and Linux/Unix environments. … This is an historic moment, and one that I’m proud of.”

As he should be. Even if it did come under duress.

Samba, which has been struggling valiantly for years to support Windows server protocols, was understandably overjoyed to finally ink such a deal. “They’re giving us all the documentation to make everything work,” Jeremy Allison, co-author of Samba, told InfoWorld. “We will have no more excuses to suck … if we don’t have something, we won’t be able to say it’s not our fault we don’t know how to do it.”

(Incidentally, you’ll find Microsoft’s Holiday Gift Guide here. And boy, is it ever something: Traditional calendars for Excel! Three dozen Outlook add-ins! Oh, and thanks for the photo, “Encyclopedia Brown.”)

This proposed acquisition raises serious competition and privacy concerns in that it gives the Google DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information by tracking what customers do online.”

–Microsoft General Counsel Brad Smith

The Federal Trade Commission isn’t going to let calls for the recusal of Chairwoman Deborah Platt Majoras or the concerns of Microsoft, AT&T and consumer advocacy groups at home and abroad get in the way of Google’s purchase of online ad-serving vendor DoubleClick.

The FTC today voted 4-1 to approve the $3.1 billion acquisition without condition. “After carefully reviewing the evidence, we have concluded that Google’s proposed acquisition of DoubleClick is unlikely to substantially lessen competition,” the commission’s majority wrote in a statement, adding that it planned to keep an eye on the company should it wield its market power unwisely. “The markets within the online advertising space continue to quickly evolve, and predicting their future course is not a simple task,” the commission continued. “Accounting for the dynamic nature of an industry requires solid grounding in facts and the careful application of tested antitrust analysis. Because the evidence did not support the theories of potential competitive harm, there was no basis on which to seek to impose conditions on this merger. We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the commission intends to act quickly.”

One would hope so. In a lone dissenting opinion, commissioner Pamela Jones said the merger of Google’s data with DoubleClick’s is potentially quite problematic.

The transaction will combine not only the two firms’ products and services, but also their vast troves of data about consumer behavior on the Internet. … I acknowledge that behavioral targeting may create economic efficiencies that would–in the short run–be attractive to the parties’ advertiser and publishing customers (putting aside for a moment the potential impact on consumers on the privacy front). Still, marrying the two datasets raises long-term competition questions that beg further inquiry.

• In a post-merger online advertising market driven by the value of behavioral targeting, will Google/DoubleClick face meaningful competition?
• Will any other firm be able to amass a dataset of the same scope and size?
• Will any other company be able to overcome network effects and offer an equally focused level of behavioral targeting?
• If advertisers and publishers have to channel their online advertising through Google/DoubleClick in order to access the best dataset that supports targeted advertising, will any other firms have the ability or incentive to compete meaningfully in this market?

“… I am convinced that the combination of Google and DoubleClick has the potential to profoundly alter the 21 century Internet-based economy–in ways we can imagine, and in ways we cannot. I do not doubt that this merger has the potential to create some efficiencies, especially from the perspective of advertisers and publishers. But it has greater potential to harm competition, and it also threatens privacy. By closing its investigation without imposing any conditions or other safeguards, the commission is asking consumers to bear too much of the risk of both types of harm.”

The FTC’s ruling now leaves the final decision on the deal to the European Commission.

Ironic, isn’t it, that Google has played a key role in the investigation of the family ties that could prevent Federal Trade Commission Chairwoman Deborah Platt Majoras from voting on its proposed merger with DoubleClick.

Yesterday, the Electronic Privacy Information Center and the Center for Digital Democracy filed a petition with the FTC demanding that Majoras recuse herself from voting on the Google-DoubleClick deal because her husband is a equity partner at Jones Day, the law firm representing DoubleClick in the merger. Moreover, Majoras herself was once a partner at Jones Day as well. “A reasonable person with knowledge of the relevant facts would question the chairman’s impartiality in this matter,” the two consumer advocacy groups said in the filing (PDF). “The direct and predictable financial interest is on the spouse of the chairman, whose firm does not simply represent a party before the commission but who himself is directly responsible for the firm’s business development in Washington, D.C.” (In a statement issued by the FTC today, Majoras corrects what she calls “key factual errors” in the petition and lays out her case for fulfulling “the duties entrusted to me when I was appointed and confirmed.”)

Now, the FTC claims that Jones Day is advising DoubleClick only on the European Commission’s review of the merger. “We learned only yesterday that Jones Day is representing DoubleClick before the European Commission, not the (U.S.) Federal Trade Commission,” FTC spokeswoman Claudia Bourne Farrell told News.com. “Jones Day has not appeared before the FTC on this matter.”

But a page on Jones Day’s Web site seemed to say otherwise–at least until it was deleted. But while it may have disappeared from jonesday.com, it did not disappear from Google’s cache.

Jones Day is advising DoubleClick Inc., the digital marketing technology provider, on the international and U.S. antitrust and competition law aspects of its planned $3.1 billion acquisition by Google Inc. The proposed acquisition will combine DoubleClick’s expertise in ad management technology with Google’s Internet search and content platform. The transaction is currently under review by the U.S. Federal Trade Commission and European Commission.”

Now why would Jones Day pull that page (and beyond that, why would it be so ignorant of the dangers of Google’s cache)? It was “confusing,” the firm says. “The language in the posting apparently was confusing, since EPIC cites it as evidence JD is representing DC at the FTC, and we never have,” Jones Day partner Joe Sims told News.com. “So we took it down and will rewrite it to eliminate the confusion.”

The FTC is currently reviewing the matter with its ethics officer.

Looks like Microsoft CEO Steve Ballmer may have a shot at a second dinner date with EU Competition Commissioner Neelie Kroes.

Less than three months after agreeing to comply with key elements of the European Commission’s 2004 antitrust order against it, the company is facing new accusations of monopoly abuse. Norway’s Opera Software ASA said today it has filed an antitrust suit against Microsoft in the European Union, accusing it of stifling competition by tying its Internet Explorer Web browser to Windows and hindering interoperability by not implementing widely accepted Web standards.

“We are filing this complaint on behalf of all consumers who are tired of having a monopolist make choices for them,” Opera CEO Jon von Tetzchner said in a rather here-I-come-to-save-the-day statement. “In addition to promoting the free choice of individual consumers, we are a champion of open Web standards and cross-platform innovation. We cannot rest until we’ve brought fair and equitable options to consumers worldwide.”

And reminded the world that Opera is not just a drama set to music, but an unpopular Web browser, as well.

Opera asks that the EC’s competition division force Microsoft to unbundle IE from Windows and require the company to follow fundamental and open Web standards, which is an interesting twist on the old antitrust classic. And one that may have some legs, given IE’s inability to pass the Web Standards Project Acid2 test. “Microsoft often participates and even promises to support these standards, but we find it often isn’t the case,” Opera CTO Håkon Wium Lie told ZDNet. “We find bugs and programmers have to code around (Microsoft).”

Oh, they must be fighting back tears of laughter up in Redmond today. After subjecting Microsoft’s business practices to years of legal review, Europe’s antitrust regulators have turned their withering attentions to Google.

Yesterday, the European Commission refused to approve Google’s proposed $3.1 billion acquisition of online-ad company DoubleClick, opting instead to subject it to a full-scale review. “The [commission] will, in particular, investigate whether without this transaction, DoubleClick would have grown into an effective competitor of Google in the market for online-ad intermediation,” the EC said in a statement. “It will also investigate whether the merger … could lead to anticompetitive restrictions for competitors operating in these markets and thus harm consumers.”

News of the extended inquiry, which will conclude April 2, comes amid increased scrutiny of the DoubleClick deal in the U.S., where Microsoft, Microsoft-sponsored industry groups and other Google rivals have expressed concerns that the acquisition would give Google a stranglehold over the $40.6 billion global online-advertising market.

Suffice to say, Google wasn’t at all happy to hear it’s facing another four months of regulatory purgatory. “We are obviously disappointed by the European Commission’s decision to extend its review of our acquisition of DoubleClick,” Google CEO Eric Schmidt said in a statement. “We seek to avoid further delays that might put us at a disadvantage in competing fully against Microsoft, Yahoo, AOL and others whose acquisitions in the highly competitive online-advertising market have already been approved.”