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Microsoft being criticized again by the European Commission

March 4, 2007

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In response to a 2004 antitrust ruling, the European Commission has criticized Microsoft one more time, increasing the possibility of further penalties for the Redmond company. European regulators said that the software giant proposes overcharging for vital interoperability information needed by rival software makers to allow their products to work properly with the Windows operating system.

On top of fining Microsoft €497 million, the landmark antitrust ruling ordered the company to disclose interoperability information "on reasonable and non-discriminatory terms" to rival makers of workgroup server operating systems, to allow them to build systems that work as smoothly with PCs running Windows as Microsoft's own server operating system.

On March 2nd, the European Commission said in a statement that it believes 1,500 pages of information submitted by Microsoft since December 2005 isn't innovative enough to justify the prices the company proposes charging for access to that information.

The Commission detailed its latest accusations in a statement of objections, or formal charge sheet. Microsoft's top lawyer Brad Smith said the company disputes the Commission's interpretation of events. "Overall, Microsoft has spent three years and many millions of dollars to comply with the European Commission's decision. We submitted a pricing proposal to the Commission in August 2006 and have been asking for feedback on it since that time," Smith said.

"We're deeply disappointed that this feedback is coming six months later and in its present form, but we're committed to working as hard as needed to address the Commission's Statement of Objections as soon as we receive it," Smith added.

"Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative," said competition commissioner Neelie Kroes in the statement. "The Commission's current view is that there is no significant innovation in these protocols," Kroes added. "I am therefore again obliged to take formal measures to ensure that Microsoft complies with its obligations."

Microsoft claims the prices for access to the interoperability information are fully justified because the information comes from its own innovative work and much of it is protected by patents and patents pending.

But the Commission said nearly all the information submitted is obsolete and much of it is available royalty-free from competing software vendors. Microsoft has proposed two separate licensing arrangements for companies wishing to obtain the interoperability information.

The first is a 'No Patent Agreement,' allowing licensees to use the protocols which together comprise the interoperability information, but without taking a license for patents. The second is an 'All IP Agreement,' which combines this first license with an additional license for the patent-protected information.

Overall, both licenses confirm that an assessment of the reasonableness of Microsoft's prices depends on whether there is innovation in the protocols, and if there is, what exact amount will be charged for comparable technologies in the market.

The software giant divided the protocols available under the two arrangements into gold, silver and bronze price categories, based on the claimed degree of innovation. The Commission said Microsoft has already agreed that there is a fourth category of protocols, not necessarily innovative, for which there will be no royalty.

The Commission's strong dissatisfaction and overall irritation with Microsoft's submissions is based on advice from Professor Neil Barrett, the monitoring trustee chosen by both Microsoft and the Commission to oversee Microsoft's compliance with the 2004 antitrust ruling.

The Commission felt similar dissatisfaction for TAEUS, a consultancy hired by the Commission to act as technical advisors in the matter. "Both consider that there is no innovation in any protocol in the gold and silver categories. These protocols represent more than 95 percent of the price of the total technical documentation. The Trustee considers that of the total of 160 claims, only four, relating to relatively minor bronze protocols, represent even a limited degree of innovation," the Commission said.

Microsoft now has one month to respond before the Commission slaps new and steeper daily fines for non-compliance. The Commission declined to specify in what amounts additional fines would be, but with the daily fine doubled to €3 million, it's expected to run into hundreds of millions of euros.

ECIS, the European Committee for Interoperable Systems, welcomed the Commission's latest effort to make Microsoft comply with the 2004 ruling. "We regret it is necessary," said Chairman Simon Awde. ECIS counts many of Microsoft's largest rivals as members, including IBM Corp., Oracle Corp. and Sun Microsystems Inc.

Commission spokesman Jonathan Todd told journalists Thursday that Microsoft's continued failure to comply with the antitrust ruling is unprecedented. "In the fifty years of European antitrust policy, it's the first time we've been confronted with a company that has failed to comply with an antitrust decision," he said.

"You have to look at their attitude faced with other antitrust authorities in other jurisdictions. This is a company that apparently does not like to have to conform with antitrust decisions," Todd added.

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Source: IT World Canada