Q&A: Commissioner Neelie Kroes can't believe that Microsoft didn't understand how to document server protocols

They call her "Nickel Neelie."

Neelie Kroes, competition commissioner for the European Union, apparently earned her nickname because she's tough in the same vein as "Iron Lady" Margaret Thatcher.

Kroes, 64, is proving her moniker once again. On Wednesday, she slapped Microsoft with a $357.3m (€280.5m) fine for failing to comply with the European Commission's landmark 2004 antitrust ruling.

When Kroes became the Commission's antitrust chief in fall 2004, she faced critics who feared that her previous stints on corporate boards would make her too pro-business.

But the former Netherlands transportation minister has demonstrated that she has no qualms about tangling with Fortune 500 companies. Just ask Microsoft.

On Wednesday, Kroes responded via email to questions from ZDNet UK's sister site, CNET News.com, about the fine.

Q: Now that the decision has been made to fine Microsoft, what methodology was used to determine the size of the fine? After all, a range of zero to €2m per day is quite wide.
A: The European Commission formally warned Microsoft in November last year that it would be liable to a daily penalty payment of €2m per day should it, as from 15 December, 2005, not comply with its obligations to: (1) provide complete and accurate interoperability information; and (2) provide that information on reasonable terms.

The daily penalty payment of €1.5m that the Commission has imposed for non-compliance on the first of these points reflects the fact that the failure to provide complete and accurate interoperability information has largely eliminated the effectiveness of the remedy.

Therefore, the Commission has taken the view that Microsoft's failure to comply in this respect should at this stage constitute a larger part of the €2m daily penalty payment identified in November 2005. This also means that the remainder of the €2m per day (ie €0.5m) may be imposed subsequently for the period in question, should the Commission come to the conclusion that the terms on which Microsoft has made the interoperability information available are not reasonable.

How did you determine the exact cut-off date for the fine? What were the specific events that occurred to make that particular date the one you chose?
The cut-off date was 20 June this year. As Microsoft has been submitting a large amount of revised interoperability information after that date, it is not possible to make an assessment of whether Microsoft has complied with its obligations after then.

When did you notify Microsoft of your decision to fine the company and the size of the fine? What was the company's reaction?
The decision was formally notified to the company on the morning of 12 July. I am afraid that I cannot comment on Microsoft's reaction, and nor would it be appropriate for me to do so.

How confident are you that this fine will act as a deterrent to Microsoft in the future? And why do you feel this way?
I regret that the Commission has had to take such a step today, but given Microsoft's continued non-compliance to date, I have been left with no alternative. Today's decision reflects my determination to ensure that Microsoft complies with its obligations. I sincerely hope that this decision, together with the higher potential daily penalty payment of €3m from 31 July, 2006, in the event of non-compliance after that date, will mean that Microsoft will now comply.

Do you believe Microsoft answered your questions truthfully?
Microsoft has claimed that its obligations in the decision are not clear, or that the obligations have changed. I cannot accept this characterisation — Microsoft's obligations are clearly outlined in the 2004 decision and have remained constant since then.

Indeed, the monitoring trustee appointed in October 2005, from a shortlist put forward by Microsoft, believes that the decision clearly outlines what Microsoft is required to do. I must say that I find it difficult to imagine that a company like Microsoft does not understand the principles of how to document protocols in order to achieve interoperability.

Have you seen changes in the way Microsoft is handling Vista since making a public announcement in March that you also had antitrust concerns regarding its pending operating system?
Kroes: It is true that I informed Microsoft of my view that it should take into account the general principles of the 2004 decision when designing Vista in order to avoid potential problems when that product is released. Indeed, Microsoft sought input on these issues from the Commission. However, it is premature to speculate on Vista, since that product will not be launched until next year.

I nevertheless take note that a significant number of companies, both European and American, are expressing concerns to us …

…on the potential competition implications of Vista. We are still in contact with Microsoft concerning Vista and of course expect Microsoft to ensure that Vista will be fully compliant with the EU's competition rules.

Microsoft Chairman Bill Gates recently announced that he's stepping down from any daily involvement with the company in the coming two years. What impact, if any, do you think this will have on the Commission's relationship with Microsoft?
The Commission enforces the EU competition rules in light of the applicable treaty provisions and court jurisprudence, and on the basis of the specific factual circumstances of each individual case. Personal working relationships do not, therefore, in themselves influence how we enforce competition policy. Having said that, it has always been the case that our working relationship with Microsoft has been characterised by courtesy and professionalism at all levels.

More specifically, did the Commission ever suggest to Microsoft that the relationship between the software giant and the Commission could improve if Gates were less involved with the company, prior to his announcement of relinquishing his chief software architect role?
Absolutely not. As I have outlined, such issues do not influence the way the Commission enforces competition policy. In any case, I should point out that my contacts have been with (Microsoft chief executive Steve) Ballmer.

Microsoft, meanwhile, is appealing your 2004 order. What happens to the fines it already paid if the Court of First Instance rules in its favour?
Microsoft has paid the money into a "blocked account". Should the Court of First Instance rule in Microsoft's favour, that money will be repaid to Microsoft, with interest.

Would competition be improved if the US District Court's original ruling — that Microsoft be broken up — had been carried out? I can only comment on the Commission's decision, where remedies were imposed to restore effective competition in the concerned markets on the basis of the specific factual and legal circumstances before us. It would not be appropriate for me to comment on competition decisions taken by the US authorities.

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