Microsoft royalties may suffer huge reduction

Microsoft could be forced to give rivals vital technical information in exchange for little or no royalties, according to a secret document.

The software company originally wanted 5.95 percent in royalty payments on software that uses certain Microsoft-patented routines that are sold by the company to its rivals as part of the settlement with the European Commission.

According to the Financial Times, which claims to have seen a confidential internal European Commission document, Microsoft was told it could have zero or 1 percent of the disputed royalty payments.

The document was written by Professor Neil Barrett, the expert agreed on by Microsoft and the Commission. According to Professor Barrett, at a 5.95 percent royalty rate, Microsoft's rivals would recoup their development costs within seven years. Barratt said in the document that this would be unacceptable, and that even a royalty of 1 percent was too much. Microsoft's suggested remedy would be "prohibitively high... and should be reduced in line with this analysis", Professor Barrett suggested, according to the Financial Times report.

The Commission maintained that Microsoft's proposed solution and the 1 percent figure would not be acceptable to Microsoft's rivals either.

There are thought to be three companies — IBM, Sun and Oracle — that lie at the heart of the anti-Microsoft camp. All three have made no secret of their belief that Microsoft acts in an uncompetitive way and has consistently made it difficult for them to produce applications that can work with Microsoft software in a fully interactive way. According to the Financial Times, the Commission understands that prices proposed by Microsoft would not "allow [IBM, Sun and Oracle] to develop products that would be viable from a business perspective".

This phase of the Microsoft/European Commission dispute has been raging for three years now, since the Commission first fined Microsoft €497m (£337m). Since then, the Commission has continued to fine Microsoft, hitting the company again with a €280m (£190m) fine last year for failing to comply with the first fine.

Microsoft has until 23 April to respond to the latest royalty proposals.