January 25, 2006

Microsoft license offer to avert EU fines

By David Lawsky and Sabina Zawadzki

BRUSSELS (Reuters) - Microsoft Corp. will license some of
its secret software blueprints in an effort to avert fines of
up to 2 million euros ($2.5 million) a day for failing to
comply with European antitrust penalties, the U.S. company said
on Wednesday.

"We are putting our most valuable intellectual property on
the table, so we can put technical compliance issues to rest
and move forward with a serious discussion about the substance
of this case," Microsoft general counsel Brad Smith said.

The European Commission said in a response three hours
later that it would "study carefully the announcement" by

Microsoft's offer to license a small amount of its source
code, relating to server software that helps manage tasks like
printing within a group of desktop machines, would help
proprietary software makers but not the so-called "open source"

Smith said he was telling a news conference, rather than
the Commission, about the plan because "it now is a public
issue" as the EU executive had revealed publicly its intention
to impose the fines.

The Commission decided in March 2004 that Microsoft had
violated European Union antitrust laws by exploiting its
dominant position to compete unfairly against other companies,
and fined it 497 million euros.

Microsoft appealed against that decision to the Court of
First Instance (CFI) in Luxembourg. Earlier in the day, the
court announced a hearing on the full case would be heard
before a 13-judge panel on April 24-28.

As part of the Commission's decision, Microsoft was also
supposed to offer rivals so-called protocols, or rules of the
road, that would enable rival makers of server software to work
as well with Microsoft's Windows operating system as Microsoft
server software does.

But a Microsoft-nominated trustee said that documentation
to help rivals use its protocols was "fundamentally flawed."
Earlier this week, the U.S. Justice Department made similar
complaints about Microsoft software being licensed there.


Smith was critical of the European trustee's comments, but
said that in any event the company's offer would resolve all

"The Windows source code is the ultimate documentation of
Windows server technologies," Smith said. "With this step our
goal is to resolve all questions about the sufficiency of our
technical documentation."

Microsoft shares were up 0.2 percent at $26.45 by 1732 GMT.

Smith said all source code related to protocols in the
Commission remedy would be made available, but only for
inspection. It may not be used by licensees.

He said Microsoft would charge no extra money for the code
beyond what it was already planning to charge for the protocol

At this point, however, the price Microsoft wants others to
pay for licensing is itself an issue before the EU executive.

Critics of Microsoft contend that protocols are standard
software and that Microsoft has used what is essentially a
digital combination lock to make them inaccessible.

A Commission spokesman said if that turns out to be true
then Microsoft has no right to charge for them.

However, Microsoft says that the protocols include valuable
patents and that it should be able to charge for their use.

The Commission is examining the Microsoft argument.

The price that Microsoft charges for licensing and the
clarity of its protocols documentation are the two issues which
could lead to the daily fine of up to 2 million euros.

At least one of the groups affected rejected Smith's

A lawyer for some "open source" software developers, who
reveal their source code openly, said the offer was of no
interest to his clients.

"It doesn't solve any problems for us," said Carlo Piana in
Milan, Italy. During his news conference, Smith said the
proposal was specifically not meant as an open source solution.

Piana, who is the lawyer for the Free Software Foundation
Europe and Microsoft competitor Samba, said the licensing would
be useful for non-open source developers.

"This demonstrates that Microsoft doesn't fear very much
competition from proprietary developers but rather from free
software developers," he said.