Endgame for Europe's Microsoft Case

The European Commission finally gets the software giant to agree to its 2004 interoperability ruling. But the open-source sector isn't celebrating quite yet

by Jennifer L. Schenker

On Sept. 17, the day that the European Commission (EC) won its sweeping court victory against Microsoft (MSFT), Neelie Kroes, Europe's tough competition cop, was asked when she would like Microsoft to comply in full with the EC's 2004 antitrust decision. "The sooner the better," was her terse reply. "Let them start this afternoon."

It took several more weeks of negotiations, including breaking bread with Microsoft Chief Executive Steve Ballmer in a small restaurant near Kroes' hometown of Rotterdam and almost daily follow-up phone calls with him, before she finally got her way. On Oct. 22, a beaming Kroes announced closure to Europe's nine-year-long battle with the U.S. software giant. Microsoft, she explained, agreed to three substantial changes in its business practices that will bring it into compliance with the EC's 2004 ruling. She called the agreement "a victory for consumers."

"It is regrettable that Microsoft has only complied after a considerable delay, two court decisions, and the imposition of daily penalty payments," Kroes said in a press statement. "However, the measures that the Commission has insisted upon will benefit computer users by bringing competition and innovation back to the server market."

Adhering to Regulations

In its strongly worded September decision, the Luxembourg-based European Court of First Instance ordered Microsoft to obey (BusinessWeek, 9/17/07) the European Commission's March, 2004, order to share networking interfaces with rivals and to offer a version of Windows without a built-in copy of the audio and video Media Player.

The court also upheld the EC's record $613 million fine levied against Microsoft. On Oct. 22, Microsoft said it will not appeal the court ruling, marking an end to its showdown with the European Union (EU). The software giant played down what was widely seen as a major defeat, saying only: "We have undertaken a constructive discussion with the Commission and have now agreed on those additional steps."

The agreement announced Oct. 22, after a final, early-morning European time phone call with Ballmer, has three key parts. First, Microsoft agreed that developers of open-source software will have improved access to information from Microsoft regarding interoperability with its networking protocols. Secondly, the royalties for this information will be reduced to a nominal one-off payment of €10,000 ($14,308). Third, the royalties for a worldwide license, including patents, will be lowered to 0.4%, a significant reduction from the 5.95% originally claimed by Microsoft. "I have always said that open-source developers must be able to take advantage of this remedy, now they can," Kroes said in her statement.

Kroes said Microsoft's concessions mean that "we can close this dark chapter in our relationship and move on." She said no fines will be applied to Microsoft after Oct. 22, but declined to say how much more Microsoft will have to pay the EU for its noncompliance to date. Estimates are that the U.S. software maker could end up paying a total of around $1.5 billion.

Legally Interoperable?

The EU decision could be costly for Microsoft in other ways as well. With a powerful legal precedent on the books in Europe, the company may face a future in which its product design decisions and licensing policies (BusinessWeek, 9/14/07) are subject to scrutiny by governments around the world. That could limit Microsoft's ability to add features to Windows, or force it to disclose some of its newer technologies to outside developers.