"The next step is to open a formal proceeding into the company's breach of an agreement," EU Competition Commissioner Joaquin Almunia told reporters, at a press conference in Warsaw. "We are working on this."
Almunia said Microsoft has acknowledged the breach. "It should not be a long investigation because the company itself explicitly recognized its breach of the agreement." If found in violation, Microsoft could be fined up to $7.4 billion, or 10% of its most recent annual revenue.
Microsoft in 2009 hashed out a deal with the European Commission (EC), which claimed Explorer's prominent place on the Windows desktop gave it an unfair advantage in the browser market against rival browsers from Opera, Google, and Mozilla, which develops Firefox.
[ The Mozilla Foundation also plans to release a version of Firefox for Windows 8 tablets. See Firefox Browser Planned For Windows 8 Tablets. ]
To remedy the situation, Microsoft agreed to add a so-called "Browser Choice Screen" (BCS) to Windows, from which users could select a default browser the first time they booted their systems. But the Commission contends that Microsoft failed to implement the BCS in Windows 7 Service Pack 1, which debuted in Europe in February 2011, despite Microsoft's assertions in compliance reports that it was meeting the terms of the agreement.
"We take compliance with our decisions very seriously, and I trusted the company's reports were accurate," Almunia said earlier this year.
Microsoft previously acknowledged that it was not in compliance with the agreement, and blamed its failure to comply on "a technical error." The company conceded that "we missed delivering the BCS software to PCs that came with the Service Pack 1 update to Windows 7."
Microsoft said the slipup affects 28 million PCs running Windows 7 SP1. "While we have taken immediate steps to remedy this problem, we deeply regret that this error has occurred and we apologize for it," Microsoft said in July. The company said it began distribution of the BCS to Windows 7 SP1 users July 2 through a software update, and that it took other steps to ensure compliance with its EC agreement.
The moves were apparently insufficient to satisfy the EC. Microsoft representatives did not immediately respond to a request for comment.