EU rejects Microsoft's licence offer

The European Commission has rejected Microsoft's proposed server interoperability licence, saying that it contained a number of serious flaws including unjustifiably high royalty fees and the exclusion of open source vendors.

A spokesman for the antitrust commissioner told ZDNet UK on Friday that after consulting the industry the EC has decided the licence is unsatisfactory. If Microsoft is unable to resolve these issues it could be fined very heavily by the Commission.

"In light of the results of the market testing the Commission has strong doubts about Microsoft's compliance with the interoperability remedy," said the spokesman. "Microsoft now has the opportunity to get back to us to explain their point of view and if we're still not happy we can adopt a decision fining them 5 percent of their global turnover each day that they are not compliant. Of course we hope it won't come to that."

In its last fiscal year, the twelve months up to 22 July, 2004, Microsoft achieved revenues of $36.84bn — the equivalent of around $100m dollars a day.

Following last year's EC antitrust ruling against the software giant. Microsoft agreed to create a server interoperability licence that would allow rival makers of server software to write applications that can "achieve full interoperability" with Windows client and server operating systems on "reasonable and non-discriminatory terms".

The spokesman said the Commission has four concerns with the licence produced by Microsoft, including the proposed royalties. "The level of royalties would appear to be unjustified," said the spokesman.

This is an issue that Jeremy Allison, the co-founder of Samba, recently highlighted. He said the fees that Microsoft is charging are "monstrous" and are so high that they are unlikely to encourage competition .

The commission is also concerned that open source vendors are "excluded" from the licence agreement. The spokesman said it is only asking Microsoft to provide the protocols necessary to build products that are interoperable with its servers and is not asking for it to reveal its source code. "It's not as if their source code would be handed out to all and sundry in the open source world," said the spokesman.

The licence agreement is also not flexible enough, according to the commission. "Those taking out a licence are obliged to take out an all-in-one licence," said the EC spokesman. "They can't pick and chose so they potentially have to pay for things they don't need."

Companies need to be provided with more information by Microsoft prior to signing the agreement so they can gauge the value of the protocol information, said the spokesman. "It is very difficult for potential beneficiaries of the remedy to have access to the technical documentation necessary for them to assess whether it is worth their while to take out a licence," said the spokesman.

A Microsoft spokesman said it received the Commission views on Thursday and hopes to resolve the issues raised "promptly". "Microsoft remains fully committed to complying with the Commission's decision," said the spokesman.

The spokesman was unable to comment on the specific concerns of the commission. "I think it's a bit too early to go into detail on the feedback," he said.

In a statement, Microsoft also said that it is important to strike a balance between the "private interests of Microsoft" and the "public interests of Commission with respect to implementation of the [antitrust] decision".

Carlo Piana, a partner at Milan law firm Tamos Piana & Partners, which represents the Free Software Foundation Europe, said the Commission has echoed the FSF's concerns on the matter. "The Commission has confirmed our concerns on Microsoft's offer and has shown that our criticism was well founded," said Piana.

He said that all it wants from Microsoft is "basic information on what they have done with the protocols." He pointed out that many companies have made their proprietary standards publicly available, including Adobe, which has provided information on its PDF document standard.

For a more detailed look at the details and implications of Micrososft's proposed licence, read our FAQ.