EC threatens Microsoft with more fines

Antitrust case rumbles on, with the EC claiming that Microsoft's interoperability protocols 'lack significant innovation'
Written by Tom Espiner, Contributor

The European Commission has warned Microsoft that it could impose further penalties in its ongoing antitrust case against the software giant.

The EC claimed on Thursday that Microsoft wants to charge too much for interoperability protocol licences that enable third-party software vendors to develop software compatible with Windows servers. In a damning statemement, the EC claimed that the protocols "lack significant innovation", even though Microsoft has been awarded patents on much of the technology in question.

"Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative," said EU competition commissioner Neelie Kroes. "The Commission's current view is that there is no significant innovation in these protocols. I am therefore again obliged to take formal measures to ensure that Microsoft complies with its obligations."

This dispute dates back to the landmark EC antitrust ruling against Microsoft in 2004. Under this, Microsoft was ordered to hand over server interoperability specifications for work group server operating systems so that rival software makers could ensure full compatibility with Windows. 

Microsoft submitted the specifications in a 1,500 page document in July 2006. After six months of examination the EC has concluded that they lack innovation, and that as such Microsoft's proposed pricing is excessive.

'Unreasonable rates'
Microsoft proposed two basic licences for companies which want interoperability with Windows servers. One, the "No Patent Agreement", was for organisations that didn't want to license various patented information within the interoperability protocols. Another, the "All IP Agreement", was for companies prepared to pay for everything.

In each case, Microsoft also created a three-stage pricing formula (gold, silver and bronze), depending on just how much innovation Microsoft claimed companies were getting for their money.

The Commission said on Thursday that there is virtually no innovation in the 51 protocols in the "No Patent Agreement" where Microsoft has claimed non-patented innovation, as the described features were Microsoft implementations of prior developments by others, or were "immediately obvious minor extensions of prior work".

"Microsoft's current royalty rates for this agreement are unreasonable," said the Commission.

For the "All IP Agreement", the Commission said that most of the information relates only to solving problems specific to Windows, and will not improve the functionalities of the licensee's own operating systems. The Commission said it has also seen evidence that comparable technologies to these are provided royalty-free.

Microsoft rejected the EC statements, claiming that it had been fair in setting the protocol prices, and an analysis had found the proposed prices "were at least 30 percent below the market rate for comparable technology".

Microsoft general counsel Brad Smith responded that other government agencies had found "considerable innovation" in Microsoft's protocol technology.

"US and European patent offices have awarded Microsoft more than 36 patents for the technology in these protocols, which took millions of dollars to develop, and another 37 patents are pending, so it's hard to see how the Commission can argue that even patented innovation must be made available for free," said Smith in a statement.

Some organisations, such as the Electronic Frontier Foundation, have attempted to overturn patents which they claim are not truly innovative.

The EC said that it was not for it to challenge Microsoft patents on the grounds of innovation, but that "third parties remain free to challenge Microsoft's patent claims before an appropriate court".

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