Microsoft throws in the towel in fight with EU [JAVA mentioned]
By Kevin J. O'Brien
Published: October 22, 2007
BERLIN: With its legal options running out, Microsoft bowed Monday to pressure from the European Commission and agreed for the first time to sell technical information to rivals at nominal cost, ending a 32- year practice of designing systems closed to other software developers.
Microsoft agreed to comply with terms of the Europe Commission's 2004 order and sell its server software protocols - the digital keys that rivals need to make their software work with Microsoft's own. The ground-breaking decision has far-reaching implications for the $50 billion global server market.
The pact was negotiated by the European competition commissioner, Neelie Kroes, and Steve Ballmer, the Microsoft chief executive, over the past few weeks. It would enable Microsoft's competitors - from global enterprises like International Business Machines, Sun Microsystems and Network Appliance to small, independent software developers - to make and sell server software that works seamlessly with Microsoft's own, which industry experts predicted would open vast new sales opportunities.
Although the legal dispute began in Europe, Microsoft agreed to license its server protocols globally, effectively altering the rules of the marketplace far beyond the European Union.
Joanne Correia, an analyst at the research firm Gartner, said Microsoft was the global market leader in server software for home users and small businesses.
Georg Greve, president of the Free Software Foundation Europe, a group that had challenged Microsoft's practice of using confidential server protocols, called the accord "a huge breakthrough." Greve added, "Microsoft is finally doing what the commission ordered it to do. This will level the playing field."
Kroes announced the agreement a little more than a month after Europe's second-highest court, the Court of First Instance in Luxembourg, on Sept. 18 rejected Microsoft's appeal of the 2004 ruling, which found it had violated European antitrust law to gain unfair advantage in the server and desktop media player software markets.
Microsoft, the world's largest software maker, said it would give up further legal appeals of the ruling.
"These changes in Microsoft's business practices, in particular towards open-source developers, will profoundly affect the software industry," Kroes said in a statement. "The repercussions of these changes will start now and will continue for years to come."
Legal experts said the appeals court's decision last month was a severe blow to Microsoft, leaving the company, based in Redmond, Washington, with only a last-ditch appeal - on procedural grounds, not the facts of the case - to the European Court of Justice, the highest court.
After the court's rejection, Ballmer wrote a conciliatory letter to Kroes, which led to a series of negotiations between the two, according to a commission official who declined to be identified.
Volker Lendecke, the co-owner of SerNet, a company in Göttingen, Germany, that makes server software, said the commission's agreement with Microsoft would have huge ramifications for his industry.
Most small businesses, Lendecke said, have already installed Microsoft server software and had been reluctant to buy competing software which did not work flawlessly with Microsoft's servers.
"We were at a disadvantage because many of our potential clients were reluctant to mix their server software because they feared interoperability problems, which was Microsoft's strategy all along," Lendecke said. He added that his company would buy the protocols and design products to work in tandem with Microsoft's.
"Now, we are going to be able to compete with Microsoft on merits and no longer be at a disadvantage to a monopoly," Lendecke said.
Thomas Vinje, a lawyer representing the European Committee for Interoperable Systems, a Brussels group that included the Microsoft rivals IBM and Sun Microsystems, said resolution of the legal dispute in a global licensing agreement made Microsoft's server protocols available for purchase worldwide - not just in the European Union.
"These products can only be factored and distributed on a worldwide basis, so the only effective means of implementing the decision was to do so on a global basis," Vinje said. "And Microsoft has agreed to do this."
The terms of the pact call for software developers to pay a one-time fee of €10,000, or $14,150, to gain access to Microsoft's server protocols.
Microsoft had previously argued for a fee based on sales of new products. Commercial competitors that use Microsoft's protocols in their own products will pay up to 0.4 percent of sales to Microsoft. Microsoft had originally demanded 5.95 percent of sales as royalties.
Microsoft said it would make the server protocols available for purchase through one of its Web sites, www.microsoft.com/protocols,
The commission, in turn, said Microsoft was now in compliance with its original order.
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In her statement, Kroes called the agreement a victory for European consumers.
"Now that Microsoft has agreed to comply with the 2004 decision, the company can no longer use the market power derived from its 95 percent share of the PC operating system market and 80 percent profit margin to harm consumers by killing competition on any market it wishes," the commissioner said.
Microsoft, which had maintained over the past three years that it was complying with the 2004 order, said the pact resulted from a "constructive" dialogue with the commission.
The company said it would "continue to work closely with the commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world."
Microsoft has paid nearly €1 billion in fines since the commission's initial ruling and could face up to €1.6 billion more, which began accumulating in December 2005 after Microsoft failed to provide the protocols.
Kroes said she would decide before the end of the year whether Microsoft must pay additional fines.
David Smith, a Gartner software analyst, said Microsoft's decision to license its software protocols was unprecedented, but the company had already moving away from its closed-ended business model as it met challenges from open-source competitors and the demands of its own customers, who are increasingly demanding software that they can combine without problem with others.
"Yes, this agreement does set a precedent but in many ways the market had already moved on anyway," Smith said.
Correia, Gartner's director of software research, said Microsoft stands to gain through the agreement by opening a new source of revenue from licensing.
"They have a new revenue stream and they are also finally able to get out from under this case in Europe," Correia said. "So when you look at it that way, it's a win for Microsoft."
[snip to end--remainder titled, "Google offers concessions"]
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