Microsoft v EU

Three falls and a submission? Microsoft’s competition battle seems to be really settled at last.

The EU Commission has released full details of what it regards as acceptable and complete compliance by Microsoft with the terms of the various court judgments. The full press release is reproduced following the comment from Guy Leigh. Click here for news of the most recent judgment in the case. For the analysis by Davina Garrod and Benoit Keane, click here.

 

Guy Leigh of Addleshaw Goddard commented:

 

‘There are various reasons why Microsoft may have chosen to back down including the sheer length of time and the vast resources which the case has already consumed and, at best, the uncertain outcome of any appeal.

One thing is certain: this decision will have a major impact on the business strategy of this global giant. In the future it will have to be more open and cooperative with other software companies and it will have to reassess its marketing strategy in so far as it is likely that individual components will now be sold separately. It may also have to face significant follow-on claims for damages.

More importantly Microsoft's decision not to appeal sets a precedent which is likely to have far reaching consequences not only for the technology industry, but also for pharmaceuticals and many other sectors.

There are three clear implications for businesses:

         Market leaders should reassess their licensing strategies to ensure they are not anti-competitive, in order to avoid the risk of being forced to release valuable IP for little or no royalty. It is now clearer than ever, that being a market leader places a company in an exposed position especially when IP is a main differentiator and its licensing strategy is critical to its success

         The decision to bundle software or other items, thus favouring a certain product, must be objectively and reasonably justifiable to avoid the risk of successful claims of anti-competitive activity

         Achieving pre-eminence in an IP intensive field now increasingly invites antitrust challenges from competitors who can:

o        make a complaint to a competition authority and/or

o        pursue a damages claim on the back of an infringement decision by a competition authority


For many, competition law may now provide a solution to what had been seen as an intractable commercial problem. Certainly, antitrust actions of all types are likely to increase exponentially.’

 

 

Brussels, 22nd October 2007

Antitrust: Commission ensures compliance with 2004 Decision against Microsoft

The European Commission has ensured that Microsoft will now take the necessary steps to comply with its obligations under the Commission’s 2004 Decision regarding work group server operating systems, including the making available to ‘open source’ software developers of the interoperability information that Microsoft is obliged to disclose. Microsoft has finally agreed to three substantial changes to bring them into compliance with the decision. First, ‘open source’ software developers will be able to access and use the interoperability information. Second, the royalties payable for this information will be reduced to a nominal one-off payment of €10 000. Third, the royalties for a worldwide licence including patents will be reduced from 5.95% to 0.4% - less than 7% of the royalty originally claimed. In these agreements between third party developers and Microsoft, Microsoft will guarantee the completeness and accuracy of the information provided. The agreements will be enforceable before the High Court in London, and will provide for effective remedies, including damages, for third party developers in the event that Microsoft breaches those agreements. Effective private enforcement will therefore complement the Commission's public enforcement powers. These changes mean that open source competitors to Microsoft will be able to provide businesses with competitive, innovative alternatives to Microsoft work group server products, knowing that they are fully interoperable with Microsoft's Windows desktop operating system. 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 (see IP/07/269). Microsoft also has ongoing obligations to continue to comply with the Commission's 2004 Decision: should Microsoft fail to comply with those obligations in the future the Commission can issue a new decision to impose daily penalties.

Competition Commissioner Neelie Kroes stated: I welcome that Microsoft has finally undertaken concrete steps to ensure full compliance with the 2004 Decision. It is regrettable that Microsoft has only complied after a considerable delay, two court decisions, and the imposition of daily penalty payments. However, the measures that the Commission has insisted upon will benefit computer users by bringing competition and innovation back to the server market. The Commission will remain vigilant to ensure that Microsoft continues to respect its compliance obligations and does not engage in other anti-competitive behaviour. I have always said that open source software developers must be able to take advantage of this remedy: now they can.”

Microsoft has a 95% market share on the desktop operating system market, and in excess of 70% on the market for work group server operating systems. Open source work group server products are virtually the only alternative for users and are thus the main surviving competitive constraint on Microsoft. More competition on this market should offer consumers more innovative products, with improved functionality at better prices. For that reason, it is vital to the effectiveness of the 2004 Decision that Microsoft also complies by giving access open source developers access to the interoperability information.

Microsoft provides two separate licensing arrangements to companies wishing to obtain the interoperability information as foreseen by the 2004 Decision's remedy. The first is a “No Patent Agreement” allowing licensees access to the interoperability information, but without taking a licence for patents which Microsoft claims necessary, a claim disputed by some third parties. Microsoft has now made three changes to this licence:

  • altering the terms of the licence so that it is compatible with the open source business model
  • reducing the royalty to a flat fee of €10 000
  • allowing effective private enforcement of warranties regarding the completeness and accuracy of the information provided.

The second licence (the “Patent Agreement”) is for the patents which Microsoft considers relevant. Microsoft will now offer a worldwide patent licence for a reduced royalty of 0.4 % of licensees’ product revenues.

Companies therefore continue to have a choice of agreement, depending on whether they consider they need a patent licence.

Initially, Microsoft had demanded a royalty rate of 5.95 % of revenues for a combination of access to the secret interoperability information and for a patent licence and had refused to make the licence compatible with the open source business model.

In a statement of objections of 1 March 2007 the Commission warned Microsoft of penalty payments over its unreasonable pricing (IP/07/269). The Commission also stated that it would ensure that open source developers could have access to the non-innovative parts of the interoperability information (IP/05/673).

In addition to the two licences Microsoft will publish an irrevocable pledge not to assert any patents it may have over the interoperability information against non-commercial open source software development projects.

These measures will ensure that Microsoft’s competitors in the work group server market, including those following the open source business model, will have access to the interoperability information on reasonable terms which will in turn lead to more competition and innovation in this market.

As of today, the interoperability information appears to be substantially complete. Licensees may raise additional issues and Microsoft has an ongoing obligation to update the information as its products evolve. Both the Commission and the licensees will have the means to ensure that Microsoft keeps the interoperability information updated.

 

Published: 2007-10-24T00:00:00

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