US backlash fear after hefty EU fine on Microsoft

Tensions between the United States and the European Union are set to be inflamed as the European Commission prepares to release details this morning of a record €497m (£331m) fine to be imposed on the American software giant Microsoft for allegedly impeding free competition.

Pressure will rise on the White House to challenge the decision, which will be approved at a full meeting of the European Commission today on recommendations from the EU competition chief, Mario Monti, after a five-year probe. It will be the highest fine ever imposed by Brussels on a foreign company.

"This ruling is yet another example of the EU assaulting a successful American industry and policies that support our economic growth," said US Senator Patty Murray, a Democrat from Microsoft's home state of Washington. She called on President George Bush to "engage" with Brussels on the case.

More important may be the reaction of the US Justice Department, which negotiated a settlement with Microsoft in 2001 after a similar investigation into claims that its Windows software was unfair to competitors in the industry. As details of the impending EU decisions have leaked out, officials in Washington have maintained a more or less tactful silence.

Last week, an official at the Justice Department said it believed its settlement "provides the appropriate framework for marketplace competition in this important sector". But Senator Murray insisted the EU "has now directly attacked the authority of the United States and our economy in general. American jobs and economic interests are threatened".

There was similar controversy three years ago when the EU took the unusual step of overriding regulators in Washington and blocking a proposed merger between General Electric and Honeywell. Although both were American companies, the EU is entitled to intervene in cases where the companies in question do substantial business in Europe. In the latest case, Europe accounts for 30 per cent of Microsoft's revenues.

Microsoft's chief lawyer in Europe, Horacio Gutierrez, signaled its intent to appeal against today's ruling, which also includes provisions requiring the company to offer stripped-down versions of Windows without its media player software.

"We believe it's unprecedented and inappropriate for the Commission to impose a fine on a company's US operations when those operations are already regulated by the US Government," Mr Gutierrez said, referring to the 2001 Justice Department accord. "The conduct at issue has been permitted by both the US Department of Justice and a US court."

The fine, though very large by European standards, would barely dent Microsoft, which reportedly has more than $50bn cash in hand. The restrictions on its ability to bundle extra features with Windows is a far more threatening prospect. Yet the effect of the EU decision could be delayed by months or even years if the company pushes ahead with an appeal.