Microsoft Ends Fight With EU, Daily Fines Stop

Microsoft has agreed to make certain parts of its Windows source code available for distribution to developers under revised terms that European Commissioner for Competitiveness Neelie Kroes called "compatible with the open source business model."

"I told Microsoft that its royalty rates were too high for the patents they claim are applicable to the interoperability information," Comm. Kroes said in a morning press conference in Brussels. "I told Microsoft that it had to make interoperability information available to open source developers. Microsoft will now do so, with licensing terms that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model."

Presumably beginning immediately, Microsoft will begin offering to prospective licensees two options, either of which grants them access to what the EC believes to be all the code they would need to produce competitive software.


In the first option, the licensee is granted access to see potentially patented material and to model their own work around it or to interface with it, but not to duplicate it. This is being called the "No Patent option," for which Microsoft had originally offered to charge royalties of 2.98% of revenues derived from the sale of the licensee's products.

"I told Microsoft that the royalties for access to its secret interoperability information were unreasonable and had to be reduced," Kroes stated this morning. "Microsoft has now abandoned its demand for a royalty of 2.98% of revenues from software developed using licensed information. That percentage royalty has become a nominal, one-off payment of €10,000 [$14,146 USD]. This is all that has to be paid by companies that dispute the validity or relevance of Microsoft's patents."

In other words, should a licensee not believe Microsoft has any right to claim patentability of certain elements of its interoperability information, it could pay Microsoft the one-off fee, and both companies would agree to disagree. Based on our read of other documentation released this morning by the EC, it would appear a licensee may retain the right to legally challenge that validity; BetaNews still awaits comment from Microsoft on this and other issues.

The other option would be for a licensee to accept Microsoft's claim of patentability, and then purchase a patent license. Rather than pay the ten thousand euros up front, a licensee would agree instead to pay Microsoft 0.4% of revenues from products derived from that code. This is a drastic reduction from the 5.95% Microsoft had been seeking.

"The Commission's 2004 decision set a clear precedent against which Microsoft's anti-competitive behavior could be judged," Kroes continued. "Now that Microsoft has agreed to comply with the [EC's] 2004 Decision, the company can no longer use the market power derived from its 95% share of the PC operating system market and 80% profit margin to harm consumers by killing competition on any market it wishes."

While an EC statement this morning went to great lengths to make clear the agreement was not a settlement - to establish that the Commission made no concessions to the company or any agreement to reduce its pre-existing penalties - an interesting new wrinkle has emerged: It will now be incumbent upon licensees of Microsoft's interoperability code to determine for themselves whether the work they produce with knowledge of that code infringes upon Microsoft's patents.

"Open source software developers use various 'open source' licences to distribute their software," reads an FAQ published by the EC this morning. "Some of these licences are incompatible with the patent licence offered by Microsoft. It is up to the commercial open source distributors to ensure that their software products do not infringe upon Microsoft's patents. If they consider that one or more of Microsoft's patents would apply to their software product, they can either design around these patents, challenge their validity or take a patent licence from Microsoft."

While licensees may retain the right to challenge Microsoft in the future, it technically appears that Microsoft could also retain its rights to challenge others who make commercial products that appear to infringe its patents.

But the EC stated this morning that right will not extend to non-commercial developers. "In addition to the two licences," the statement reads, "Microsoft will publish an irrevocable pledge not to assert any patents it may have over the interoperability information against non-commercial open source software development projects."

"I told Microsoft that it should give legal security to programmers who help to develop open source software and confine its patent disputes to commercial software distributors and end users," said Comm. Kroes. "Microsoft will now pledge to do so."

As a result of this pledge, the Commission stated it has discontinued its tally of daily fines against the company, effective today.

Update ribbon (small)

2:06 pm ET October 22, 2007 - This afternoon, Microsoft spokesperson Jack Evans issued this response to BetaNews, which confirms that Microsoft will not appeal the European Court of First Instance's decision last month, upholding the EC's findings that Microsoft abused its dominant power in Europe.

"At the time the Court of First Instance issued its judgment in September, Microsoft committed to taking any further steps necessary to achieve full compliance with the Commission's decision," Evans said. "We have undertaken a constructive discussion with the Commission and have now agreed on those additional steps. We will not appeal the CFI's decision to the European Court of Justice and will continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world."

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