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Microsoft accused of squeezing PC makers on patents

Microsoft is benefiting from the proposed settlement with the US Department of Justice (DoJ) and nine US states by using it to impose onerous licensing terms that squeeze PC makers out of their patent rights, according to several of the states who have not reached a settlement with the software giant.

In a filing with the US District Court for the District of Columbia, seeking rejection of the proposed settlement, the states cited testimony from a Microsoft executive to prove their claim that the settlement "has fostered new monopolistic practices and fettered the market with new anticompetitive practices."

Based on the 8 February deposition of Richard Fade, a Microsoft senior vice-president, the states charge that the proposed settlement "has provided a sword for Microsoft to gather additional fruits and to reap a net gain."

Microsoft, by referring to the proposed settlement, was able to impose licensing terms on PC makers that gives it free access to their patents. These customers were precluded from enforcing their patents against Microsoft because of a "nonassertion of patents" provision in the licensing terms, the states said.

"Microsoft took advantage of the opportunities presented by the language [of the proposed settlement] to adopt significantly more onerous licensing terms and to impose those on the [PC makers]," the states said in the filing. Microsoft told PC makers that the patent provision was required by the settlement, the states said.

PC makers might have reasonably expected a net benefit in their relationship with Microsoft following a consent decree with the government, but every one of the top twenty PC makers in the world believes that Microsoft has benefited from the proposed settlement at their expense, the states said. The court filing cites specific examples from Hewlett-Packard and Gateway. Both PC makers complained to Microsoft about the licensing terms, the states said.

Furthermore, the states say there is "significant evidence" that Microsoft did not simply take advantage of language that was included in the proposed settlement, but that the software company negotiated the language of the proposed settlement with the intent of profiting from its terms.

Having free access to these patents would allow Microsoft to expand its hardware business and compete directly with the PC makers. Previously, Microsoft had been limited in its ability to produce its own hardware based on the patents owned by the PC makers, the states said.

"The [proposed settlement] has provided the licence by which Microsoft can expand its hardware production to present a real threat to the [PC makers], using the [PC makers'] own intellectual property," the states said.

According to Fade's testimony, Microsoft has long sought a waiver from the PC vendors of their patent rights, the states said. Up until now the major PC vendors have always managed to keep the patent provision out of their contracts with Microsoft, the states said.

California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Utah, West Virginia and the District of Columbia asked US District Judge Colleen Kollar-Kotelly to allow them to present the evidence gathered in Fade's deposition at a 6 March hearing on the proposed settlement.

Nobody at Microsoft was immediately available for comment.

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