Microsoft's Price Fixing Penalty, 9M Euros

freakxx writes "Microsoft has been slapped with a fine of 9 million Euros by German regulators over illegally fixing the price of its Office-suite in an anti-competitive manner during a retail-promotion fair. Microsoft has accepted the fine and decided not to take this issue to any higher level."

Comments

small change...

[smoatigah]

Thats going to make a huge dent that is...

Re:small change...

[furby076]

This is a huge dent. Let's say if they didn't price fix they would sell their product at $100, but after price fixing they sell their product at $25. Their additional profit is $25/unit. So paying 9 mil Euros will put a huge dent into that additional profit if not take it out completely. Remember we are talking about a local subsidiary of MS, not MS corporate home. If MS let's them shoulder the burden of that penalty it would be heavy.

Though I am wondering how they are doing price fixing. If they have a suggested retail price on the box that does not fall under price fixing. Stores are not obligated to sell at those prices but historically stores are given some kind of preferential treatement (e.g. becoming an authorized dealer) for selling at the suggested price. The other upside is that Store A doesn't price gouge itself to be better priced then Store B. That's not price fixing. So going by

Microsoft has influenced the resale price of the software package--Office Home & Student 2007--in an anticompetitive manner

this must not lead to a form of coordination where the supplier actively tries to coordinate the pricing activities of the retailer and thus retailer and supplier agree on future actions of the retailer. I

Dude is making wind to get some brownie points (works great on /.). In all honesty setting a suggested retail price != price fixing. Again, if anyone here believes that they may want to sue every company that produces a product with a price attacked to the packaging from the manufacturer.
BTW i highlighted the "anticompetitive manner" it doesnt' state against what. Anti-competitive against Open Office? I doubt that. Anticompetitive against other MS Office retailers? Why would corporate do that? They don't care what the retailers sell it at as long as they get their money for each box sold (which they set the price). It's popular and easy to slam MS because it's been done before. The number 1 company in a given market is always viewed as the evil of the world. Since they have tons of money it's "OK" to sue.

On a side note I find fault with statements like this

Russia recently announced that it was considering adding Microsoft to a list of companies with high market share that might be subject to additional scrutiny under that country's antitrust laws,

So if I create a prodcut that EVERYONE loves and EVERYONE MUST HAVE I should be put under scrutiny and sued? Even if I didn't do anything wrong I am supposed to be punished because everyone loves my product? The American dream (or any other countries dream) being torn down one lawsuit at a time. I feel that Russia will sue because getting 9 mil euros is an easy way to increase a countries income.

Re:small change...

[GameMaster]

It may not look like much, but when you convert it from Euros to US Dollars it's something like $1.3 billion. ;-)

Re:small change...

[Kynde]

>> Russia recently announced that it was considering adding Microsoft to a list of companies with high market share that might be subject to additional scrutiny under that country's antitrust laws,
>
> So if I create a prodcut that EVERYONE loves and EVERYONE MUST HAVE I should be put under scrutiny and sued?

You create a one-hit-wonder, then perhaps no. But you dominate a market quite a while, regardless of how superior your product is, then yes, you should be subject to scrutiny. Not outright sued ofcourse, the gp never said that.

There is a good goddamn reason we have antitrust laws. It's just that now that the companies have gone so global that the countries into which they roll in the profits too seldom tend to go after them.

Re:small change...

[interstellar_donkey]

They lose money on every product sold, no matter what. They make money by selling a lot of them (volume!)

Re:small change...

[furby076]

If you want price fixing look at car dealerships. Go to Wal-mart...every wal-mart has the same prices. Go to gas stations. Go buy an X-box games.

Having a product, and subsequent versions of that, which people utilize is not a monopoly. To punish a company for making a successful product is wrong - it makes companies not want to create such products. Monopoly means no other options - but there are other options. There are other OS there are other office productivity software. The market helped make MS the dominant producer.

You state that IE and WMP should not be bundled in with their machine - that is your opinion...mine is different. If I didn't have IE built into my computer how was I supposed to go to Mozilla's website and download firefox? Or should I have been forced to grab an AOL CD and install their crap-ware on my computer? If I didn't have WMP pre-installed on my computer how was I going to listen to music? Install Real player and all the spyware that came with it? It still boggles my mind that MS "should" be forced to install their competitors products into their software. How about Red Hat be forced to install IE or WMP? Or Mac be forced to use MS Paint and MS Office instead of their own version? Every OS has their preferred versions. Nobody is complaining about those products. Let's take this into other markets. How about BMW be forced to install Ford's dashboard? Hyndai must now install lamborghini tires.

What MS did wrong, and it was done a LONG time ago so we need to stop beating the "anti-trust" drums like they do this everyday, is force retailers to use their products. Geez this didn't happen last week, this happend a decade ago. At some point it gets old.

Re:small change...

[somersault]

Even if I didn't do anything wrong I am supposed to be punished because everyone loves my product?

Do you seriously know anyone who "loves" Windows? I hear people complaining about how they want to throw their computer across the room or how they are "rubbish with computers", but not many who say "wow, I love how intuitive this Control Panel/window manager is!".

Perhaps you don't quite understand what a "monopoly" is, or why it is bad for the consumer. It's like saying that people in a communist regime where everyone is given daily bread and water rations must really love bread and water if that's the only thing they ever eat. Or imagine that each brand of car could only run when kept supplied with the manufacturer's own brand of fuel and oil - whoever had the best fueling infrastructure would win. Microsoft currently has the best "infrastructure" simply because they got in there first, so many business applications and games are heavily reliant on Windows rather than the more open platforms that have become available as the world of personal computing has matured. As more software companies start to make their software available on different OSes or move applications into the browser etc, we'll see what people really "love".

Re:small change...

[DinDaddy]

Not only that, but "semi-colon minus right parenthesis" makes NO sense at all!

Re:small change...

[jbengt]

Having a product, and subsequent versions of that, which people utilize is not a monopoly

Obviously.

To punish a company for making a successful product is wrong - it makes companies want to figure out how to avoid punishment

There, fixed that for you.

The market helped make MS the dominant producer.

Go back and learn some PC history. It was the IBM monopoly that gave MS its' early edge, and MS did use illegal means to leverage that leg up into a OS and office suite monopoly.

If I didn't have IE built into my computer how was I supposed to go to Mozilla's website and download firefox?

Right, because it's impossible for the retailer to bundle a browser other than IE.

If I didn't have WMP pre-installed on my computer how was I going to listen to music?

Again, it would be perfectly reasonable for computer sellers to bundle multiple non-MS utilities, including a music player - except that Microsoft has often put barriers in their way making it impractical for them to do so.

What MS did wrong, and it was done a LONG time ago . . .

For suitably recent definitions of "Long Ago", like last year at ISO.

Re:small change...

[KingMotley]

The EU is just fining Microsoft like they fine all successful American companies, like:
Microsoft
Visa
American Express
Coca-Cola
Chrysler
Delta Airlines
Oracle
Texas Instruments
Qualcomm
Intel
Apple

Re:small change...

[baboo_jackal]

Heh. Good little Socialists. Suck on the teat of productive free enterprise until it shrivels up. But the EU isn't the only game in town anymore, now that we've got Obama and friends lining up to get their share.

Re:small change...

[getclear]

9 million Euros = 12.0177 million U.S. dollars Please, if you are going to make stuff up, preface your posts with "I may not know what I am talking about, but..."

That's Surprising...

[lag10]

Their motto is usually "pry it from my cold, dead hands" in regards to these fines.

Wonder what's with the change of heart?

Re:That's Surprising...

[joelmax]

They most likely expected the fine and included it into their costs for running the promo. They probably figured that the amount they would make off the promo would probably offset the cost of the fine enough to make it worthwhile.

Re:That's Surprising...

[morgan_greywolf]

Easy. $9 million is not only pocket change to to Microsoft, it's very likely that $9 million < the legal bills to fight it.

They could pay the lawyers > $9 million to fight it, or they can just pay the fine.

Either way, the outcome is the same.

Sometimes you just take the practical way out.

Re:That's Surprising...

[Anonymous Coward]

Wrong. It is *not* the legal costs.

Legal fees are regulated in Germany. For a 9 Mill Euro court fight, assuming they use in-house lawyers for their defense, the standard costs (2 "full fees") to get a judgement are just Euro 20912.

Seems MS just sees no chance to win...

Re:That's Surprising...

[timeOday]

And they'll probably pay it off by dumping copies of Windows 98 ME onto German middle schools, valued at MSRP.

Re:That's Surprising...

[lag10]

Thanks for pointing that out. I forgot to mention that in my original post.

Taking this into account, it's surprising that M$ didn't at least make an effort to resist the fine.

Punishment

[Davemania]

Is 9 million euros really a lot for microsoft? It seems like there are no other action taken against their behavior and MS is just happy to take the fine and move along.

Eurodollar to US Dollar

[LostCluster]

Given the current exchange rate that's roughly $12,000,000 United States Dollars.

Re:Eurodollar to US Dollar

[mikael_j]

It's called "Euro", not "Eurodollar". Much in the same way that the swedish currency is called "Krona" and not "Kronadollar" or how the currency used in the UK is called "pound" not "pounddollar".

/Mikael

Re:Eurodollar to US Dollar

[Anonymous Coward]

Yes. But eurodollar is actually a concept that exists in banking and predates the euro. They are dollars held in banks outside of the United States. They were instrumental to the establishment of the dollar as the world reserve currency. But with such similar terms it is not hard to see that people become confused.

Re:Eurodollar to US Dollar

[InsertWittyNameHere]

In the USA it's called Corona and it's a Mexican beer.

Re:Eurodollar to US Dollar

[vishbar]

In fact, Eurodollar has an entirely different meaning.

Re:Eurodollar to US Dollar

[GreatBunzinni]

To make matters worse, eurodollars are not nor were they ever euros. Eurodollars are regular, plain US dollars that are deposited outside of the US's jurisdiction and therefore out of the control of the US's central banking system. So I guess someone heard that new term somewhere and didn't had time to know a bit about it before spreading it around. To put it in other words...

  "You keep using that word. I do not think it means what you think it means."

"Anti-competitive"

[brian0918]

I have never understood why a company should consider the detriment to its competition when pricing its products. Can anyone explain this to me? Should a person or organization be free to set the price of its products, whether too high or too low, and likewise be free to succeed or fail based on its actions? Isn't any answer besides "yes" an indication that people have a right to the product. Either that, or one would have to argue that people were somehow coerced into buying the product.

Re:"Anti-competitive"

[LostCluster]

That's not the issue in this story. It's under German law, that the supplier and retailer can't agree on what the retail price will be.

Re:"Anti-competitive"

[Winckle]

Anti-trust laws exist to protect the market as a whole, in the 90s and early 00s the laws were used to prevent microsoft from using its dominance in one market (Operating Systems) to unfairly crush other businesses with monopolistic business practices. For example Sun's JVM versus Microsoft's JVM, which was a broken implementation designed solely to disrupt Sun and leveraged through Microsoft Windows autoupdate, something Sun could simply not compete with.

Re:"Anti-competitive"

[gravesb]

In the United States, anti-trust law usually will look at harm to consumers. Harm to competition is good. Of course, a monopoly makes things a little different. Even with a monopoly and predatory pricing, though, you have to show how that will monetize the harm later on down the road. Predatory pricing is rarely effective because it is so hard to make more money in the long run. This case isn't predatory pricing per se, but I think the theory of harm is generally the same. Anyways, European countries generally have a very different view of antitrust law and the US does, and are much more willing to use it to accomplish abstract concepts of fairness and social justice, as opposed to regulating a market for the benefit of consumers.

Re:"Anti-competitive"

[brian0918]

It's under German law, that the supplier and retailer can't agree on what the retail price will be.

But isn't that absurd? Isn't the entire concept of trade that the buyer and seller freely agree to the price of their product? If a store demands a company sell a product to them at a certain price in order to get placement in the store, the company is free to agree to the price or not. And vice versa. And a customer is likewise free to buy the product or not. Unless the company was coerced, or the retailer was coerced, or the customer was coerced, what is the problem here? Whose rights are being violated?

Re:"Anti-competitive"

[gravesb]

It seems equally absurd that MS can't influence the price between the store and end consumer. They can certainly do it indirectly by selling through their website directly to consumers. So why not allow them to coordinate broad promotional rates?

Re:"Anti-competitive"

[brian0918]

Anti-trust laws exist to protect the market as a whole

I believe they harm the market by undermining the very rights that make the market possible. People must be free to succeed or fail by their own actions. Any company that would attempt to artificially inflate prices would see their previous customers no longer buy their product, and move on to another product.

in the 90s and early 00s the laws were used to prevent microsoft from using its dominance in one market (Operating Systems) to unfairly crush other businesses with monopolistic business practices.

This sentence has no content. There is nothing inherently wrong with a monopoly, so long as the business is good and the company is not coercing you in any way, nor using government force to their benefit. If the latter, then the government - the provider of the force - would be to blame.

For example Sun's JVM versus Microsoft's JVM, which was a broken implementation designed solely to disrupt Sun and leveraged through Microsoft Windows autoupdate, something Sun could simply not compete with.

So clearly the solution is to spread the word about the incompetence of Microsoft, and persuade people to rationally decide to move away from Microsoft products. Clearly the solution is not to remove all responsibility from consumer actions, and leave consumer safety up to the whims of bureaucrats and their highest-paid lobbyists. No?

Re:"Anti-competitive"

[Insanity Defense]

But isn't that absurd? Isn't the entire concept of trade that the buyer and seller freely agree to the price of their product? If a store demands a company sell a product to them at a certain price in order to get placement in the store, the company is free to agree to the price or not

This is not the manufacturer and retailer agreeing to a price between them. This is the manufacturer dictating to the retailer what price the RETAILER gets to charge its own customers.

Once the manufacturer has sold a product they should no longer have any control of it. Should the car dealer you bought from be able to dictate the price you charge when you resell it later on? Should the home builder be able to dictate what price a susequent owner sells for? I for one think not. Once the product is sold the prior owner should have no control over the new owners dealing with that product.

Re:"Anti-competitive"

[Hermel]

A law that forbids price fixing leads to lower prices for the consumer as it allows different vendors of a product to compete against each other. However, this also means that the producer looses some of its control over his products.
Most European countries consider this a small price to pay to get the lower prices. Especially if the profits of overpricing go abroad anyway. :)

Re:"Anti-competitive"

[Divebus]

in the 90s and early 00s the laws were used to prevent microsoft from using its dominance in one market (Operating Systems) to unfairly crush other businesses

Yeah... how did that turn out?

Re:"Anti-competitive"

[brian0918]

In the United States, anti-trust law usually will look at harm to consumers.

Doesn't that imply that consumers have a right to any product for which they would be considered to be harmed were they not able to have access to it? With every other right - life, liberty, property, pursuit of happiness - for someone to be "harmed" would mean that another entity was preventing them access to their life, to their property, to their choice of actions in their attempt at happiness. Doesn't this implication of a "right" to a product thereby violate the pre-existing rights of individuals to do with their property - the product they make - as they please? This all seems like common sense to me.

Re:"Anti-competitive"

[Tony Hoyle]

No, that's illegal. I'm surprised it isn't illegal in the US.

They can say 'If you want a contract with us, we're going to charge you $X per unit' but the retailer is free to set any price they like above or even below that. To do otherwise is price fixing - it destroys competition in the marketplace by forcing everyone to sell at the same (inflated) price.

Re:"Anti-competitive"

[brian0918]

No, that's illegal.

I'm not arguing whether or not it's illegal - that's a matter of fact. I'm arguing whether it should be illegal.

To do otherwise is price fixing - it destroys competition in the marketplace by forcing everyone to sell at the same (inflated) price.

You contradict yourself in the same sentence. You say that competition will be destroyed, but then say that everyone will have to sell at a higher price. What prevents a competitor from selling a similar product at a lower price? And how do you justify the violation of rights that comes with such regulations against setting the terms of one's contracts?

Re:"Anti-competitive"

[brian0918]

But refusing means they can't sell the product at all.

Exactly. The person or company who made the product owns it until they sell it. That is called private property, and is a right required for a person to make rational decisions to benefit his life and his values.

And if the vendor uses the same "contract" with all the retailers, that means the vendor is now setting the prices, so there is no longer competition between retailers.

Of course there is still competition. Some stores are more convenient than others, and stores would compete to be as convenient to the customer as possible. At the same time, other vendors make other products that are sold in other stores. It's ridiculous how the so-called "pro-competition" camp is opposed to a single vendor's product being sold at the same price in all stores, but is in favor of all competing vendors' products being sold at the same prices in all stores - anything else is considered anti-competitive. You're in favor of a contrived competition, which violates the rights of people to set the terms of their contracts and the price of their property, and in the long run will mean products staying at higher prices than they would have otherwise.

Re:"Anti-competitive"

[gravesb]

No. The harm is generally the conversion of consumer surplus into monopoly rent. It has nothing to do with any rights in any Hofeldian or legal sense. It has more to do with the economic theory of monopolies and efficient markets. And, depending on your theory of rights (the one you seem to be trying to assert was valid under Lochner, but has been frowned upon since the 1940's), there will always be a conflict somewhere. Congress decided that the more efficient solution in this case is the best solution, and that's why we look at the harm to consumers.

Re:"Anti-competitive"

[Kynde]

Fuck Germany. They need Microsoft more than Microsoft needs them.

Come on, nobody needs microsoft that much...

Re:"Anti-competitive"

[gravesb]

There is a limit to what people are willing to pay, even for a monopoly product. Monopoly rents aren't infinite.

Re:"Anti-competitive"

[brian0918]

I'd suggest you learn your economic theory from something other than an Ayn Rand book

It is not a matter of "economic theory" but of individual rights. For it to be any other case would mean that the ends justify the means. No ethical system is possible if you are to be judged on the results of your actions rather than the actions themselves (given your knowledge at the time of the actions). It is not possible to answer the question, "What should I do in this situation?" if you must account for unknowable future events and unforeseen consequences.

In reality, monopolies form (not in and of itself illegal) and then abuse their position as a monopoly to manipulate the market in other ways

There is nothing inherently wrong with monopolies, just as there is nothing inherently good about competition. So long as people are free to decide whether to buy something or not, the seller is responsible for their actions. Only when people are able to lobby the government to pass laws in their favor, and the government willingly enforces those laws, do rights actually get violated.

It's when they leverage their position as a monopoly to do bad things.

You will have to provide more specific examples where a company apart from government legislation to their benefit was able to violate the rights of individuals. This would be quite an astonishing example, as it would mean the company openly broke the law and nothing was done about it. If you mean something else by "bad things", let me know.

Go read up on deadweight loss, predatory pricing, price discrimination, exclusive dealing, and price gouging and learn why anti-trust laws exist, for your own good, please.

I have read up on all of these, and found no examples violates individual rights without government intervention (either to stop those rights violations, or to enforce them). What you are doing is trading the illusion of lower prices now for the reality of higher prices (as opposed to artificially inflated prices) later - as a utilitarian you should be able to appreciate that, though you would do better to get more fundamental and understand individual rights.

Re:"Anti-competitive"

[maxume]

Any heroin addict? I bet there are lots that if you showed them two doors, one with $1,000 cash behind it and one with a little bit of heroin behind it, they would take the money and go talk to their everyday dealer.

I don't think that even severe addiction is going to remove the tendency to price shop.

Re:"Anti-competitive"

[brian0918]

This is not the manufacturer and retailer agreeing to a price between them. This is the manufacturer dictating to the retailer what price the RETAILER gets to charge its own customers.

Yes, that is contract law. You can require anything under a contract - so long as it doesn't violate individual rights - and if the other person agrees to those requirements, they are contractually obligated to abide by them. Where is the problem?

Once the manufacturer has sold a product they should no longer have any control of it.

If that is in the terms of the contract, then you would be right. If not, then you wouldn't be.

Should the car dealer you bought from be able to dictate the price you charge when you resell it later on?

I would be an idiot to sign such a contract, but if I did, then yes, they would and should be able to. Again, I wouldn't sign such a contract. I want the car to be my property, so I don't allow them any situations where they can control it after I have given then $X of my money.

Once the product is sold the prior owner should have no control over the new owners dealing with that product.

But the product is not sold at that point. It is not until they sign the contract that the product is sold. This is essentially a merger between manufacturer and retailer. If they want to merge, and no rights are violated by such a merger - obviously true - then they should be free to do so.

Re:"Anti-competitive"

[brian0918]

Because of the supply control effects, sellers in an oligopoly often try strategies to switch from being (for example) the number 2 or 3 player to being the number 1 player. These tactics are largely a matter of game theory, but can and do include tactics like selling things at a loss in order to grab market share from a competitor.

This is all the more reason for more responsibility in the hands of the consumer. Through the education you provide, I as a consumer am better able to decide what companies to deal with, and I will not deal with a company if they are simply trying to grab market share. If they're selling at a loss, I can't count on them remaining viable in the future - no tech support 5 years down the road, no updates, etc. Yet you are arguing for less responsibility for the consumer. You would have responsibility handed over to the government, leading me - the consumer - to make worse decisions over time, and to expect the government to help me out whenever I made bad decisions from lack of education.

The study of oligopolies is one of the hot fields in microeconomics.

That is fine so long as it does not influence the government to write legislation violating individual rights... yet this is precisely why the study of oligopolies is so "hot".

Re:"Anti-competitive"

[V!NCENT]

People only need Microsoft as long as it's alive. When/if the company goes bankrupt, then would be no Windows, therefore no more Windows apps created, therefore Apple/Linux apps created, therefore Wine would be catching up to the Win32 API and everything, therefore nobody would need it anymore.

Measly 9 million Euros

[Junior J. Junior III]

I have no idea what taxes are like in Europe, but I'd have to imagine that that's probably significantly less than the amount of sales tax collected on the sale of those licenses. At that point, it's just another minor cost of doing business. No wonder MS didn't feel a need to appeal.

9m euros = cheap

[gcnaddict]

Challenging a 9m euro fine would be more expensive (lawyer fees) than just eating the fine, so I can understand their decision.

It doesn't mean guilt... but they might be guilty anyway, so meh.

It will take them a shole 3 hours to recoup

[blind biker]

According to Microsoft's 1st quarter 2009 earnings report, net income for the quarter was 4.37 billion US$.

Assuming a quarter has 90 days (and not distinguishing between working and non working days), MS makes
4370000000 / (90 * 24 * 60) = 33719 US$/minute
which means that Microsoft will make the 12.000.000 US$ in less than 7 hours - and this including non-working days, and assuming 24-hour days.

If you're not MS, you may weep now.

Re:Laugh it up Mein Herr

[Tony Hoyle]

No, it means the retailers are free to determine the price vs. the wholesale price. Some of the cheaper ones will sell it cheaper than they do currently, and some will sell it at RRP or higher. Competition in the market is restored.

Microsoft don't get to set the price. That's the point. The can recommend one but they cannot make retailers sell at that price.

Re:Issue fines in percents instead?

[Tony Hoyle]

Fining them $6B would mean they'd appeal it and it'd ending up being an expensive legal mess. You want to fine enough that it destroys the extra profit made, but not enough that it's worth them rolling out the lawyers.

Cheap

[Kynde]

If parking tickets where 2cents I could park where ever I'd like. I think the same holds for Microsoft in this case.

From the Bundeskartellamt

[comm2k]

For all of you wondering why Microsoft was fined. Linked in the article.. but who reads that anyway?

The product in question was heavily advertised in the autumn of 2008 in stationary retail outlets. Amongst others, a nationwide active retailer advertised the product with financial support from Microsoft. Even before the launch of the advertising campaign in mid-October 2008, employees of Microsoft and the retailer in question had agreed on at least two occasions on the resale price of the software package "Office Home & Student 2007".
Not every contact between supplier and retailer regarding resale prices constitutes an illegal concerted practice within the meaning of Section 1 ARC. However, this must not lead to a form of coordination where the supplier actively tries to coordinate the pricing activities of the retailer and thus retailer and supplier agree on future actions of the retailer. In the present case, this boundary has been crossed. Microsoft has accepted the fine.

http://www.bundeskartellamt.de/wEnglisch/News/2009_04_08.php