Microsoft to Self: Get Back to Business

By Stuart J. Johnston | October 23, 2007
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Microsoft's announcement Monday that it will not appeal the European Commission's (EC) antitrust ruling against it shows just how much has changed in the nine years since the case began -- not the least of which is the company's own priorities.

Seasoned Microsoft watchers say that the company for several years now has been working to get out from under a panoply of lawsuits and judgments -- in order to concentrate on its real business: building software. Its acceptance of the EC's demands, they say, is just the latest step as it moves to eliminate legal distractions.

"Clearing the decks is exactly the way to look at it," Tim Bajarin, president of consultancy Creative Strategies told InternetNews.com. In recent years, the company became enmeshed in litigation from all sides and has been in danger of losing focus on what is most important, which is to "drive innovation around their platform," he added.

The EC's Commissioner for Competition Policy, Neelie Kroes, announced Monday in Brussels that "Microsoft has finally agreed to comply with its obligations under the 2004 Commission decision." The EC's March 2004 ruling against the company was upheld last month by the European Union's (EU) Court of First Instance (CFI).

Microsoft had the option to appeal the CFI's decision to the European Court of Justice -- the EU's highest court -- but only on questions of law. With Monday's announcement, Microsoft decided to cut its losses, and announced it would not appeal further. Instead, the company will comply completely with the EC's original decision.

"The CFI didn't leave them much room to appeal," Matt Rosoff, legal affairs analyst at researcher Directions on Microsoft, told InternetNews.com.

As a result, Microsoft's decision may have just been a matter of simple business pragmatism.

"I think Microsoft made a clear call that they couldn't win an appeal," Roger Kay, president of research firm Endpoint Technologies, told InternetNews.com. "Microsoft has been on the defensive commercially and the smart thing is to get down to competing.

Let's Make a Deal

By accepting the EC's earlier decision, Microsoft has slashed royalty rates for use of its patents to 0.4 percent of the products' revenues. In the area of interoperability information, it also agreed to limit royalties to a one-time payment of €10,000 ($14,167.50).

Additionally, Microsoft agreed to "licensing terms that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model," Kroes said.

Finally, she said, Microsoft has "substantially" complied with the EC's requirement that it provide "complete and accurate" technical documentation to enable competitors' software to interoperate with Windows. Monitoring of the company's compliance will continue going forward, because of the constant evolution of those technologies, she added.

These examples of Microsoft's acquiescence strengthens the EC's clout. "It's big news over here," said Bajarin, who was in Rome attending a conference when the news broke.

Rosoff at Directions on Microsoft agrees that it's an important precedent. "The EC can tell Microsoft what should be in the Windows client and the EC can tell them what they have to disclose," he said.

How to Market Lemonade

The longer view is that Microsoft has come to realize that fighting a plethora of lawsuits is not in the company's -- or customers' -- best interests.

"This is the latest in a long-term trend toward getting out of the legal tussle business," Dana Gardner, principal analyst at Interarbor Solutions, told InternetNews.com.

However, Gardner views the deal as a potential boon for Microsoft: After having been trying to change its image for some time, Microsoft gains some ground in the public arena by giving in.

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