EC threatens Microsoft with daily penalties in antitrust case

The European Commission has threatened further big fines against Microsoft for not complying with the Commission’s March 2004 antitrust judgement.

The European Commission has threatened further big fines against Microsoft for not complying with the Commission’s March 2004 antitrust judgement.

The Commission says Microsoft has again failed to adequately share information with rivals concerning the protocols of its workgroup servers.

Microsoft had to disclose complete and accurate interface documentation on "reasonable and non-discriminatory terms", allowing non-Microsoft work group servers to interoperate with Windows PCs and servers.

The Commission’s preliminary view is that “there is no significant innovation in the interoperability information” provided so far, and it has rejected 1,500 pages of submissions by Microsoft from December 2005 onwards.

The Commission says the prices proposed by Microsoft for the information are “unreasonable”.

Microsoft has four weeks to reply to the Commission, after which the Commission may impose a daily penalty for failure to comply with the March 2004 decision.

As well as the original anti-trust fine in 2004, Microsoft was fined for a second time for not complying last year.

The issue of whether the interoperability information is actually complete and accurate is still under consideration by the Commission.

Competition commissioner Neelie Kroes said, “Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative. 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.”

Microsoft general counsel Brad Smith said, “Microsoft has spent three years and many millions of dollars to comply with the European Commission’s decision. We submitted a pricing proposal to the Commission last August and have been asking for feedback on it since that time.

"We’re disappointed that this feedback is coming six months later and in its present form, but we’re committed to working hard to address the Commission’s statement of objections, as soon as we receive it.

He said, “We have a different perspective on the underlying facts and the proposed findings. We believe we have been fair in setting proposed protocol prices, and an analysis by PricewaterhouseCoopers found that our proposed prices were at least 30% below the market rate for comparable technology.”

Microsoft provides two separate licensing arrangements to companies wishing to obtain the interoperability information.

The first is a "No Patent Agreement", allowing licensees to use the protocols which together comprise the interoperability information, but without taking a licence for patents which Microsoft claims necessary, a claim disputed by some third parties.

The second (the "All IP Agreement") combines this first licence with a licence for these disputed patents. Companies therefore have a choice of agreement, depending on whether they consider they need a patent licence.

Both licences confirm that an assessment of the reasonableness of Microsoft's prices depends on whether there is innovation in the protocols, and, if there is, what is charged for comparable technologies in the market.

For both licences, Microsoft divided the protocols into Gold, Silver and Bronze price categories based on the claimed degree of innovation. Microsoft has already agreed that there is a fourth category of protocols, not necessarily innovative, for which there will be no royalty.

The Commission's preliminary view is that there is virtually no innovation in the 51 protocols in the 'No Patent Agreement' where Microsoft has claimed non-patented innovation, and that Microsoft's current royalty rates for this agreement are therefore unreasonable.

The Commission has also taken the preliminary view that Microsoft's current royalty rates for its 'All IP Agreement' are also unreasonable.

Related article: Microsoft sweats over EU fine

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