Microsoft: ‘Hard-up’ or ‘Witch Hunt’ Victim?

The European Commission sent Microsoft  a “Statement
of Objections” (SO) today and threatened to slap the software vendor with
fines that could total more than $1.3 billion.

Competition Commissioner Neelie Kroes said that she will take “formal
measures to ensure that Microsoft complies with its obligations” with
regards to how much it will charge for interoperability protocols. According
to a commission statement, Microsoft may be subject to fines of $4 million
per day, retroactive to Dec. 16, 2005.

The company has four weeks to respond to the SO.

Those obligations stem from the commission’s March 2004 decision, which found that Microsoft had leveraged “its near monopoly in the market
for PC operating systems onto the market for work group server operating
systems.” As a result of that decision, Microsoft agreed to license its
protocols to vendors of non-Windows-based systems at a nominal cost, except
for under certain conditions.

According to Kroes, “Microsoft has agreed that the main basis for pricing
should be whether its protocols are innovative.” The commission said there
is “virtually no innovation” in the protocols in question.

The commission further based its opinion on a report from Neil Barrett, a
computer science expert picked by the commission from a short list provided
by Microsoft, to oversee Microsoft’s technical compliance with the March
2004 decision.

Microsoft’s general counsel, Brad Smith, disputed the expert’s findings and the commission’s interpretation of the company’s obligations.

“We don’t think innovation is the sole litmus test for putting a price tag
on technology that is very expensive to develop,” he said during a
conference call with reporters.

Smith said that the pricing principles to which Microsoft agreed include at
least three other variables. A focus on “innovation and innovation alone would be a significant change in government policy,” he said.

Commission spokesman Jonathan Todd disputed Smith’s assertion, and said the
commission “simply want them to comply with their own pricing principles.” He said that those principles stipulate that “if there’s no innovation, they can only charge nominal prices.”

“They might argue with our assessment of the degree of significant
innovation, but to say that the basis of the objectives [of the pricing
principles] are not clear — I don’t understand that,” he told
internetnews.com.

Microsoft is also arguing that the commission is not being clear enough
about what it expects from Microsoft. “It’s sometimes very difficult to read
the tea leaves and know what to do,” Smith said.

In response to a question from internetnews.com, Smith implied that
Microsoft is being unfairly singled out by European regulators. “One has to step back and ask why.”

At least one prominent European jurist said Microsoft may be the victim of
anti-American bias.

Denis Waelbroeck, an expert on competition law who teaches at the College of
Europe in Brussels and practices with Ashurst, a Brussels-based law firm,
said Microsoft is being held to a “double-standard.”

“It’s a bit of a witch hunt,” he told internetnews.com.

He said that the commission is being inconsistent by saying that the
protocols are necessary to the survival of Microsoft’s competitors on the
one hand, but that they have no value because they represent no significant
innovation on the other. “Saying it has no value is difficult to believe.”

Waelbroeck noted that Microsoft has more than 30 patents proving that its
technology is innovative.

Todd found the idea that Microsoft is the victim of anti-American bias
laughable. Making that argument “demonstrates how hard up they are,” he said, adding that the companies complaining about Microsoft’s behavior are
American.

“Sometimes you just can’t win.”

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