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Last updated October 22, 2007 8:58 p.m. PT

Microsoft drops EU battle

Company agrees to concessions, won't pursue antitrust appeal

By TODD BISHOP
P-I REPORTER

After years of legal wrangling, Microsoft Corp.'s long European antitrust battle appears to have ended -- but not in the way the company had hoped.

The European Commission announced Monday that Microsoft made a series of concessions to level the playing field for its rivals in the computer server market. And Microsoft said it wouldn't contest a European court's near-total rejection of its antitrust appeal last month.

The concessions are meant to make it cheaper for competitors to license technical information to help their server software work smoothly with Windows.

Some people in the industry are reserving judgment on the potential effectiveness until more details emerge. But the idea is to keep Microsoft from using the dominance of its PC operating system to give its own server products an unfair advantage.

"I sincerely hope that we can just close the dark chapter of our relationship and go on in absolutely constructive and positive ways," said Neelie Kroes, the European competition commissioner, in a news conference webcast from Brussels, Belgium.

Microsoft had argued, among other things, that it shouldn't be forced to share secrets with rivals. In its March 2004 ruling, the commission also fined the company more than $600 million and required it to offer a version of Windows in Europe without built-in software for playing digital media.

The outcome has implications for future Microsoft products -- setting a precedent for regulation of the company in one of the world's largest markets.

The company had been proposing to charge significantly more for the technical information than the commission wanted. Then, last month's court decision came down in the commission's favor on that issue and others. That basically forced Microsoft's hand, legal experts said.

"When the judgment came out, it was obvious that the entire Microsoft campaign and strategy hadn't worked," said Rony Gerrits, a lawyer with Morrison & Foerster law firm in Brussels. The court "didn't agree with what Microsoft had been saying."

Microsoft Chief Executive Steve Ballmer started the latest discussions through a letter to Kroes, after the decision.

Kroes said she and Ballmer discussed the situation almost daily during the past two or three weeks, including dinner at a restaurant near her hometown in Holland. They nailed down the final details early Monday.

In a statement Monday, Microsoft said it will "work closely with the commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world."

The concessions, as explained by the European Commission:

Server rivals will be charged a nominal one-time fee of 10,000 euros, about $14,280, for access to the technical ingredients needed to make their products work smoothly with Windows. Microsoft had wanted a royalty of nearly 3 percent of revenue from software developed using the licensed information.

In cases in which Microsoft says the information includes patented material, the license will require a royalty payment totaling 0.4 percent of revenue, compared with Microsoft's previous proposal of nearly 6 percent.

According to Kroes, open-source software developers will be able to use the technical information, under terms "that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model." Microsoft also agreed not to pursue claims against open-source developers for violation of patents related to the server protocols, Kroes told reporters.

Open-source programs are made and freely shared by communities of programmers. Their use of the protocols had been a big bone of contention between Microsoft and the commission.

The concessions are "a change in how Microsoft has been acting," but more details are needed before reaching conclusions about their potential effectiveness, said Shane Coughlan, coordinator of the Freedom Task Force inside the Free Software Foundation-Europe.

"This agreement appears to set a framework for increased interoperability, in potential," Coughlan said. "What we have to do is make sure that this agreement is complete and that it will allow the type of interoperability that we need for a fair technology market."

The new licensing terms "will quicken the level and intensity of competition in some of these other areas in a way that I think will be beneficial to consumers," predicted lawyer Donald Falk, a partner at the law firm Mayer Brown who has represented various Microsoft rivals and trade groups involved in antitrust proceedings against the company.

That doesn't necessarily mean Microsoft won't prevail in the server market, he said. Rather, it means that if the company does ultimately win, it would be more likely to do so based on market forces and the merits of its business, not from an unfair competitive edge.

EU ANTITRUST ACTION AGAINST MICROSOFT

1998

December: Sun Microsystems complains to EU regulators that Microsoft is refusing to supply it with the interoperability information it needs for its server software to communicate with Microsoft's Windows desktop operating system. That triggers a long EU investigation examining whether Microsoft has abused its near-monopoly over Windows to corner other markets for server and media software.

2004

March 24: The European Commission finds Microsoft guilty, fining it $613 million and ordering it to share communications code with rivals within 120 days and market a version of Windows without a media player within 90 days. Sanction is later suspended while a judge hears a Microsoft appeal.

Dec. 22: An EU court rejects Microsoft's appeal, requiring the company to hand over code and produce a version of Windows without Media Player.

2005

June 15: Windows XP N -- without Media Player -- goes on sale, to few takers. The same month, EU also raises concerns about usability of Microsoft's interoperability document.

Oct. 5: EU appoints computer science professor Neil Barrett as trustee to oversee how Microsoft is obeying the antitrust order.

Nov. 10, 2005: Acting on a report from Barrett that the information Microsoft has supplied is "fundamentally flawed," EU says the company has not complied with its ruling and is charging too much in royalties.

Dec. 21: EU formally accuses Microsoft of not complying with the antitrust decision and threatens new fines.

2006

Feb. 22: A group of Microsoft rivals sends the EU a new complaint alleging wide-ranging antitrust problems, focusing on its Office software.

March 29: EU says it has sent Microsoft a letter detailing issues with the company's new Vista operating system.

April 24-28: The European Court of First Instance hears Microsoft's challenge to the antitrust order.

July 12: EU decides Microsoft still isn't obeying the 2004 decision and fines it again -- $357 million.

2007

March 1: EU threatens Microsoft with even more fines by accusing it of setting royalty fees too high for interoperability information.

Sept. 17: The Court of First Instance rejects Microsoft's legal challenge to the 2004 order, upholding the fine and ordering Microsoft to pay most of the commission's costs.

Monday: Microsoft agrees to slash fees for interoperability information, also offering access to open-source developers and others for a one-time fee of about $14,288. EU Competition Commissioner Neelie Kroes says this deal resolves the key parts of the dispute but warns that the EU must still decide on new fines for overcharging on royalties.

-- The Associated Press

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com. Read his Microsoft blog at blog.seattlepi.com/microsoft.

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