October 23, 2007 in Business

Microsoft drops long EU battle

Associated Press The Spokesman-Review
 

BRUSSELS, Belgium – Microsoft Corp. ended a nearly decade-long legal battle with European regulators Monday, agreeing to key parts of an antitrust ruling that has led to hundreds of millions of dollars in fines.

The world’s largest software company will slash royalties it charges rivals for interoperability information needed to make programs that work smoothly with Microsoft’s Windows operating system. It will make access to the data easier for open source developers who the EU said are now “virtually the only alternative for users.”

Microsoft said it would not appeal a EU Court of First Instance decision on Sept. 17 that turned down its challenge to a 2004 European Commission order that found it guilty of monopoly abuse.

Daily phone calls between EU Competition Commissioner Neelie Kroes and Microsoft CEO Steve Ballmer during the past three weeks – and a dinner near her Dutch hometown – culminated in a deal early Monday.

“I sincerely hope that we can just close this dark chapter,” Kroes said. “I feel a bit sad because it took so long, it took so many years, and during those many years consumers suffered from the fact that Microsoft didn’t go along with what the commission asked it to do.”

She said the company could no longer use its leverage over the computing market from supplying 95 percent of all desktop operating systems “to harm consumers by killing competition.”

The major issues with Microsoft have been resolved, Kroes said, cautioning that Microsoft could still face penalties for overcharging royalties on interoperability information. Backdated daily fines would stop as of Oct. 22.

Kroes said the EU order set a precedent for Microsoft’s future behavior in other areas – such as its Office software and new Windows Vista operating system.

“Microsoft should bear this in mind,” Kroes said. “The shop is still open, I can assure you … there are a couple of other cases still on our desk.”

EU officials last year cited possible problems with Vista’s integrated security software, Internet search, digital rights management tools for copyright protection and software for creating documents in a format similar to Adobe Systems Inc.’s Portable Document Format, or PDF.

Microsoft has agreed to substantial changes for server software, the EU said, giving greater access to data it previously said was secret and valuable.

Kroes promised the changes would profoundly affect the software sector, especially workgroup servers where Microsoft has a 70 percent market share.

“The repercussions of these changes will start now and will continue for years to come,” she said.

The company will now charge a one-time fee of 10,000 euros ($14,310) to any developer – including those working on open source systems such as Linux – for “complete and accurate” technical information to help make software compatible with Windows. It had previously demanded a percentage of future sales.

Developers – such as IBM Corp. and Sun Microsystems Inc., which sell software based on Linux – will pay a worldwide patent fee of 0.4 percent of revenues for Microsoft’s data. Microsoft’s original rate was 5.95 percent.

Microsoft now will charge for 31 server protocols under patent instead of the 154 originally offered for licensing.

After the Court of First Instance’s ruling in September, the company “had no reason to believe that they would get anything different from appellate court,” said Keith Hylton, a professor at Boston University School of Law.

“Even a deep-pocketed firm like Microsoft has to stop spending money on litigation at some point.”

Microsoft’s decision to drop its appeal was a “shareholder-friendly” move, in that it removed some uncertainty, said Charles DiBona, an analyst at Sanford C. Bernstein & Co. He also said the lower patent fees would not have a material impact on the company.

Shares of Microsoft added 34 cents to close at $34.51 Monday.


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