Microsoft Responds as EU Considers Break-Up

Barely meeting a deadline to respond to the European Commission's Statement of Objections that was issued March 1, Microsoft today asked EU regulators what it should charge for Windows Server protocols, if they feel current prices are "unreasonable."

As previously reported by BetaNews, Microsoft divides its intellectual property in categories based on the degree of confidentiality of IP information licensees would be receiving. Certain protocols which may fall outside the realm of patentability are given a separate classification, and for those, Microsoft wants to charge a flat fee; but for technologies for which it claims patent rights, the company proposes either US dollar rates per server or percentages of revenue.

Some individual technologies within the premium tier, such as Kerberos authentication, are actually free of charge; though others, such as Base Authentication Services (used to grant authentication to clients accessing Windows Server resources) are relatively expensive - as high as $17.50 per server seat. (The complete proposed rate table is available in this PDF document.)

But the EU Commission said in March that Microsoft agreed to base Windows Server protocol pricing on innovation, not patentability, adding that some protocols are not innovative enough to warrant a premium charge. The Commission also said that those protocols which aren't patentable should not require a fee at all.

In acknowledging the work of its designated trustee, Dr. Neil Barrett, the EU said it examined 160 Microsoft claims to patented technologies, and concluded that among those, only four may only deserve to claim "a limited degree of innovation."

As BetaNews stated previously, the ramifications of this claim go far beyond whether the EC would impose new fines on Microsoft - which would be at a rate of 3 million euro per day retroactive to August 1 of last year. The EC now appears to be accumulating the interoperability information Microsoft has given it, to perhaps mount a challenge to the very originality of Windows itself, disputing the company's rights to exclusivity over its own operating system.

Although its initial public response to the Statement of Objections disputed such findings and warned the EU may be overstepping its bounds by assuming it can determine royalty rates that are in place in many countries outside Europe, Microsoft's response Monday was far more measured.

“We continue to seek to resolve these recent issues. We need greater clarity on what prices the Commission wants us to charge," Brad Smith, Senior Vice President and General Counsel of Microsoft, said in a statement.

Microsoft added that it would not seek an oral hearing on the matter, saying that it believed such clarity "is more likely to come from a constructive conversation than from a formal hearing." The EU Commission says it will "study" the Redmond company's response "carefully."

But the European Union is growing ever more impatient with Microsoft. In a transcript of remarks made by EU Competition Commissioner Neelie Kroes last week and provided to the media Monday, Kroes says it may be time to reconsider the penalties if monetary fines aren't working.

"It could be reasonable to draw the conclusion that behavioral remedies are ineffective and that a structural remedy is warranted," Kroes stated. While it may strike many as odd that the European Union could order a company located in the United States to split up or otherwise modify its structure, Kroes noted the possibility of such remedies is specifically mentioned in EU antitrust law.

In 2000, US District Judge Thomas Penfield Jackson ordered Microsoft to be broken up into two companies, but the decision was thrown out by an appeals court in June 2001, and Jackson was removed from the case. The US Department of Justice later dropped its efforts to split up Microsoft.