Microsoft Corp is asking for unreasonable fee royalty fees in exchange for information that would allow rival systems to interoperate with Windows, according to the European Commission, which has once again threatened to fine the company.
Microsoft has denied the claim, and has been given four weeks to respond to the EC’s statement of objections to its royalty licensing terms or face a potential 3m euro ($4m) per day fine after the Competition Commission decided its interoperability information lacked significant innovation.
Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative, said competition commissioner Neelie Kroes in a statement. 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.
In response, Microsoft’s senior vice president and general counsel, Brad Smith, stated: 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.
Microsoft was fined 280.5m euros ($369.5m) in July 2006 for failing to comply with the Commission’s 2004 antitrust ruling and was threatened with increased fines if it failed to provide complete information regarding its interoperability protocols by November 23.
Microsoft met that deadline and has supplied 1,500 pages of submissions since December 2005 but has failed to convince the EC that its protocols represent significant innovation for which it would be able to charge a non-nominal fee.
The protocols provided by Microsoft are split between two licensing arrangements, the All IP Agreement that provides a license for patents claimed by Microsoft, and the No Patent Agreement that does not.
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 Competition Commission stated.
For the ‘All IP Agreement’, the Commission has assumed that the existence of patents indicates some associated innovation, although third parties remain free to challenge Microsoft’s patent claims before an appropriate court or to implement software that, in their view, does not infringe the patented technology, it added.
Either way, the trustee’s analysis found that most of the information only relates to solving problems with Windows, and that comparable technologies are available royalty-free.
Microsoft rejected the competition commission’s conclusion, noting that it had a different perspective on the underlying facts and the proposed findings, according to a statement from Smith.
In its defense Microsoft pointed out that analysis by PricewaterhouseCoopers found its proposed prices were at least 30% below market rate. It also pointed out that it has been granted 36 US and European patents for the protocols in question, while a further 37 are pending.
It also challenged the Commission’s reading of the agreement that unless its protocols are innovative they should be made available free, challenged the Commission’s right to regulate intellectual property pricing on a global basis, and maintained that it is open to negotiation on pricing.
In coming to its decision the EC took the advice of the monitoring trustee, as well as its technical advisors, patent analysis and brokering firm, TAEUS. It noted that a decision as to whether the interoperability information is considered complete and accurate is still to be taken.
Microsoft is currently appealing against Commission’s 280.5m euro fine, as well as the initial 497.2m euro ($654.9m) fine delivered after it was found guilty of breaking European Union competition law in March 2004. Separately, Microsoft is also appealing demands that it should have to share the interoperability information with open source rivals.