Microsoft: they think it's all over...

Some of the crowd are on the pitch, the fat lady is singing, hell is very cold this time of year, and Microsoft have today announced the end of their decade-long battle with the European Commission, according to reports (here, here, here and many other places).

Microsoft have announced that they will not be appealing against the recent CFI decision (see IPKat posting here), and European Competition Commissioner Neelie Kroes said in a speech today,

"I want to report to you today that Microsoft has finally agreed to comply with its obligations under the 2004 Commission decision, which was upheld last month by the Court of First Instance.

I have been in almost daily contact with Steve Ballmer over the last two or three weeks. As a result of final contacts that took place early this morning, I am now in a position to present to you the results of those highly constructive conversations.

Under the 2004 decision, Microsoft is obliged to provide information allowing third party developers of work group server operating systems to develop products that interoperate with the Windows desktop operating system. Microsoft has previously offered to license this information to developers on terms that the Commission thought wholly unreasonable.

Following our intensive discussions, Microsoft has now made substantial changes to its provision of this information, introducing the changes that I asked for.

I told Microsoft that its royalty rates were too high for the patents they claim are applicable to the interoperability information. In response, Microsoft has slashed its requested royalties for a worldwide licence, including patents from 5.95% to 0.4% - less than 7% of the royalty originally claimed.

I told Microsoft that the royalties for access to its secret interoperability information were unreasonable and had to be reduced. Microsoft has now abandoned its demand for a royalty of 2.98 % of revenues from software developed using licensed information. That percentage royalty has become a nominal, one-off payment of €10 000. This is all that has to be paid by companies that dispute the validity or relevance of Microsoft's patents.

The Commission will now adopt a decision as soon as possible on the pending non-compliance case regarding past unreasonable pricing for the interoperability information, on which the Commission sent a Statement of Objections on 1 March 2007.

I told Microsoft that it had to make interoperability information available to open source developers. Microsoft will now do so, with licensing terms that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model.

I told Microsoft that it should give legal security to programmers who help to develop open source software and confine its patent disputes to commercial software distributors and end users. Microsoft will now pledge to do so.

I told Microsoft that developers who sign licensing agreements with them should have the means to ensure respect for the 2004 decision. Microsoft has now accepted that it must give legally binding guarantees to licensees about the completeness and accuracy of the information it provides and that the licensee can obtain effective remedies, including damages, from the High Court in London. These private enforcement tools come on top of the Commission’s powers and continued vigilance to ensure that Microsoft complies with its obligations in this area as in others.

I also said that Microsoft had to provide complete and accurate technical documentation – and backed that demand with additional fines last year. I can now say that Microsoft has substantially respected this obligation. That said, Microsoft’s obligation to document its protocols is an ongoing one – the documentation needs to be maintained as its products evolve, and new issues may arise once it is being used by developers. But as of today, the major issues concerning compliance have been resolved.

Put together, these changes in Microsoft's business practices, in particular towards open source software developers, will profoundly affect the software industry. The repercussions of these changes will start now and will continue for years to come.

The Commission's 2004 decision set a clear precedent against which Microsoft's anti-competitive behaviour could be judged. Now that Microsoft has agreed to comply with the 2004 Decision, the company can no longer use the market power derived from its 95% share of the PC operating system market and 80% profit margin to harm consumers by killing competition on any market it wishes.

Today's changes to the implementation of that decision set a second clear precedent. When Microsoft illegally uses its market power to destroy competition on a market, the onus is on Microsoft to change its business practices to allow competition and innovation to be restored to the market, so consumers are given the choices to which they are entitled.

Microsoft has finally taken steps to comply with the 2004 Decision. However, I want to stress two points.

First, Microsoft has ongoing obligations to continue to comply with the 2004 Decision. If new issues arise in relation, for example, to the completeness and accuracy of the interoperability information, then Microsoft must address those issues immediately.

Second, the March 2004 Decision, as confirmed by the Court of First Instance last month, also sets a precedent with regard to Microsoft's future market behaviour in this and other areas. Microsoft must bear this in mind."

The IPKat can hardly believe it, having watched the situation evolve over several years. Merpel for one was 100% certain that Microsoft would appeal, and she has hardly ever been proved wrong. Can that really be the end of the matter? Should we be looking forward to proceedings in the High Court? Or has Steve Ballmer (see video below) really turned over a new leaf?

Microsoft: they think it's all over... Microsoft: they think it's all over... Reviewed by David Pearce on Monday, October 22, 2007 Rating: 5


  1. It seems clear that Microsoft has been planning how to end this for some time. The threat of appealing and thus wresting a success away from Kroes, near the end of her term, was a strong one. In return for not appealing, Microsoft have offered to play fair with open source. But in the run up to these negotiations, Microsoft have redefined "open source" to include a dependency on their patents. MS have just gotten two open source licenses approved by OSI so can claim to represent open source now. Oh the irony. So what we have is a good deal for everyone except those scurrying open source folks, who find themselves the real patsies in this game.

    In fact the Commission has deeply misread Microsoft's mood, and given up far too easily. They could have held out for much more.

    Microsoft's monopoly has not been weakened by this deal, indeed it's been reinforced for a while longer. Now they can publish their specs, even try to standardise them, all the while ensuring competition is strictly managed through their patent licenses.

    This is, of course, how other industries work, but we're talking about a sector where open competition is not optional. This is why I can write this blog using HTTP, SOAP, HTML, and a hundred other open standards that would never have emerged in a patented software universe.

    I'm surprised IPKat did not predict this deal, it seemed very obvious from right after the September decision, when Microsoft went all "we've changed" and "we are not sure whether we'll appeal" on us.

  2. The above comment just shows how wrong some "open source folks" can be.

    Firstly, Microsoft have every right to keep their source code proprietary, as long as this does not result in a refusal to supply interoperability details to competitors, where they are dominant in the market in question.

    Secondly, as long as Microsoft license their IP (copyright or patents) on reasonable and non-discriminatory terms, there is no abuse of their dominant position.

    Thirdly, the claim that open standards could not emerge with patents is obviously wrong, as one just has to look at the open licensing scheme for, say, MPEG technology, which continues to be developed in spite of (or because of?) patents. Arguments for making such standards freely available, rather than with payment of a reasonable licence fee, are simply sour grapes from people who don't want to play the capitalistic game. If these arguments won the day, nobody would ever be able to make any money and the whole system would eventually grind to a halt.


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