Microsoft's draft licence, step by step

Microsoft is guilty of breaking EU competition law, and has come up with a way to make amends. We dissect the resulting licence and find a very peculiar world indeed

In last year's European Commission antitrust ruling against Microsoft, the software giant 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".

On Friday the EC rejected Microsoft's proposed server interoperability licence, saying it had concerns that the license excluded open source vendors and charged unjustifiably high royalty fees.

ZDNet UK examined a copy of Microsoft's proposed licensing agreement to see the source of the EC's concerns.

So first of all, why is this licence necessary?
Microsoft has been found guilty of breaking EU competition law by "leveraging its near monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players".

OK, so Microsoft broke the law and was found guilty. What's the punishment?
Well, a €497m (£345m) fine for a start. But the more important part of the punishment is the software giant has to open its protocols to competitors, to help them produce software that interoperates with Windows, both on the client and the server side.

No bird then?
No, nobody's going to prison. Let's call this community service.

Great, so I get a licence to use Microsoft's interoperability APIs in my software and go right ahead, right?
Not quite. Microsoft's draft copy of the licence requires you to pay royalties.

So they're asking to be paid for their community service?
Effectively, yes.

OK, so just what does the licence cover?
Implementation of the Microsoft Work Group Sever Protocol Program, or WSPP. This program comprises two types of software: operating systems that implement Microsoft Windows file and print protocols; and operating systems that implement Windows protocols for administration of users and groups, for things like directory services.

So any operating system that will let me access files on Microsoft servers, or provide file or printing services for Windows PCs or servers, or any operating system that will let me do any authentication, authorisation or directory services in an environment where I have Windows servers?
Right.

But surely this will only affect companies writing operating system software?
Directly, yes, but the royalties will be passed on.

You mentioned those. Just how high are they?
Well, if you're the one applying for a licence, Microsoft has proposed a royalty fee of 5 percent of your company's net revenue obtained from a software product that has used Microsoft's file and print protocols, and 2.5 percent if the protocols are used for an embedded product. The minimum royalty per server product sold or distributed is $80 (£42), with a maximum royalty of $1900. There is no minimum royalty payable for embedded products.

For the user and group administration protocols, Microsoft has split these into two categories: those that provide functionality equivalent to Microsoft's Domain Controller, which includes authentication, authorisation and the management of access to network resources such as applications and printers; and those that provide functionality equivalent to Microsoft's Global Catalog, which provides directory services.

Companies that use Microsoft's Domain Controller protocols for their product must pay a per-user royalty fee of $1.90 for every server sold. Companies that use Global Catalog protocols must pay a per-user royalty fee of $0.15 for every server sold. The minimum per-server royalty fee is $100, while the maximum is $600. If companies implement both Domain Controller and Global Catalog functionality they must pay royalties for both protocols.

That's a lot of money. Is Microsoft strapped for cash?
Well, in the 12 months to July 2004, it was making $100m a day.

And now it's looking to make more money for breaking the law? So surely Microsoft must be flush enough to give the open source guys a break? Do they have to pay royalties too?
No.

Well that's good, right?
Not really. The licence specifically excludes open source. Section 2.4 states: "The licenses granted in Section 2.1(a) do not include any license right, power or other authority to subject Licensed Server Implementations or derivative works thereof in whole or in part to any of the terms of any other license that requires such Licensed Server Implementations or derivative works thereof to be disclosed or distributed in source code form."

And this is the same Microsoft whose chairman Bill Gates recently lectured the industry that boosting interoperability "will be the only way for companies to make customers' lives easier"?
The very same.

OK, so what if I reverse engineer the protocols?
The licence does have a provision for 'independent software' which basically says that software entirely developed without any reference to Microsoft confidential information by those who have not had access to Microsoft confidential information for at least a year prior to development, is not covered by the licence.

That's nice of them.
Yes.

Presumably this licence refers to Windows Server 2003. What about future releases of Windows?
Microsoft says it will make WSPP documentation available in a 'timely manner'.

Oh yes? What's that then?
It doesn't say.

Are there any other surprises in there?
Yes, if Microsoft implements any content protection mechanism in the WSPP protocol (part of what it calls its System Integrity Specifications), then you must also build that into your software. You will have 120 days after Microsoft publishes these System Integrity Specifications to conform.

Content protection mechanism? What does that mean?
Microsoft says it could be anything from anti-piracy systems and antivirus technology to licence enforcement mechanisms, authentication security and intellectual property mechanisms (presumably digital rights management).

So how will Microsoft know what we've done with the WSPP anyway?
It will ask for an audit trail. You will have to keep copies of all EULAs, and other agreements such as non-disclosure agreements. Within 14 days of a request from Microsoft, you will have to provide these to a Microsoft-selected auditor.

How do I know Microsoft won't use this as an excuse to glean confidential information about my business relationships?
Microsoft says its auditor(s) will use all due care to guard confidentiality of the information.

Can I trust that?
This is Microsoft.

Good point. So anyway, is there anything else I'll have to provide?
Yes. Source code of your applications that implement the WSPP to an independent company designated by Microsoft, who will be able to compile the code and make as many copies as they like.

How do I know Microsoft won't look at the source code?
Because the company says so.

Sounds like Microsoft's version of open source is your source code opened for them?
Now you're just being cynical.

Can I trust that?
See above.

What if the audit finds anything wrong?
You'll have to pay the costs of the audit, up to $50,000.

And beyond that?
Take all commercially reasonable steps to correct that non-compliance. And then Microsoft may still take you to court.

So that covers my obligations. What will Microsoft do for all this money I'm expected to pay?
Send you a copy of the documentation. With the licence agreement, of course.

Wow. That's a lot of money for a piece of paper.
They will send it within ten days of receipt of a written request.

Is that all?
Oh, and you get 24 hours support.

Great, support around the clock.
Not quite. You'll get an automatic email receipt within 24 hours of logging a support call.

24 hours to get an automated email?
It will be sent through Exchange.

OK, so then what?
Then, Microsoft will try to fix any inaccuracies or omissions in the WSPP within a 'reasonable time'.

Not 24 hours then?
Probably not, no.

What if I have an implementation issue and Microsoft contends that the documentation is correct?
Microsoft can charge you at its standard rates.

And what happens when they update the WSPP?
You'll get a copy within 30 days of the commercial release of the product containing the updated specifications.

So what is to stop me passing the documentation on once I've licensed it?
Section six, which deals with confidentiality and which says you can only disclose the documentation to employees and contractors on a 'need to know' basis.

What happens if I do?
Don't. You'll end up in court.

Oh yes, which one?
The Southern District Court of New York.

Sounds expensive.
You ever tried to buy a house there?

So what is the EC's beef?
Well, aside from the level of the royalties and the specific exclusion of open source software, the EC also had concerns about the fact that the license does not have sufficient granularity. "Those taking out a licence are obliged to take out an all-in-one licence," said an 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, the spokesman added. "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."

Will the EC reject this?
We certainly hope so.

So where can I find a copy of the draft licence?
The full proposed server protocol licensing agreement can be found here.