Microsoft Concedes to EC, Slashes Protocol Pricing

Published: October 31, 2007

by Alex Woodie

Following its legal defeat in Europe's second highest court last month, Microsoft elected to cut its losses last week when it withdrew the two remaining appeals it had with the European Court of First Instance. The move was applauded by the European Commission, which first brought the case against Microsoft in 2004. The EC, meanwhile, published new royalty guidelines and fees that Microsoft will be allowed to charge for its protocols.

It has been a long eight years since the EC first started investigating Microsoft for its business practices in Europe. Things heated up significantly in 2004, when the European governmental watchdog agency filed a lawsuit alleging Microsoft ran afoul of antitrust laws by withholding critical communication protocols from third-party software and that it illegally reduced competition on the consumer front by bundling the Windows Media Player with Windows XP. In addition to seeking a court injunction against those practices, the EC slapped Microsoft with a hefty fine worth $613 million at the time.

The EC and Microsoft have been squabbling in court, in conference rooms, and on the front pages of major newspapers ever since. Microsoft, which has nearly limitless funds at its disposal, dragged its feet every chance it got, until the EC fined the company an additional $357 million in July 2006 for failing to comply with the landmark 2004 ruling.

As the EC pressed on with its case, Microsoft maintained several avenues of appeal, one of which finally wound its way up to the Court of First Instance earlier this year. After months of review, the judicial body finally handed down its verdict in Microsoft's appeal of the initial 2004 ruling. The court found the EC was justified on almost every count.

Microsoft could have appealed that court ruling to the European Union's highest court, the European Court of Justice. As it turned out, the company had better things to spend its time and money on. "We believe it's important at this stage to focus all of our energies on complying with our legal obligations and strengthening our constructive relationship with the European Commission," Erich Andersen, Microsoft's head lawyer in Europe, said in a press release.

In addition to dropping its appeal of the EC's initial 2004 decision, Microsoft also dropped its appeal of the $357 million fine the EC levied against it in July 2006. Microsoft paid the fine last October, and was trying to get its money back.

Two days before it dropped the appeals, Neelie Kroes, the head of the EC's antitrust division, announced that the EC and Microsoft had come to an agreement on protocol pricing. She said that, as a result of daily conversations she had with Microsoft CEO Steve Ballmer over a three week span, Microsoft would dramatically lower the compensation it had previously been seeking from developers licensing the protocols.

Instead of charging royalties of more than 7 percent for products containing patents owned by Microsoft, the software giant has agreed to charge only .4 percent, Kroes says. And when a software developer seeks to see the "secret interoperability information," he will only have to pay a one-time fee of €10,000, as opposed to a royalty of 2.98 percent.

"I hope we can close this dark chapter in our relationship," Kroes reportedly told journalists at a news conference at the EC's headquarters in Brussels.

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