Microsoft to Self: Get Back to Business

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.

Beyond that, Microsoft’s decision to forego high royalty rates and disclosing interface information is likely to spur more development on the Windows platform, which means more sales for the company over time.

“Microsoft loses a few pennies [in royalties] but they could end up making a few pounds by being perceived as a friendly giant rather than an arrogant one,” Gardner added.

Yet competitors, long inured to Microsoft hijinks, remain cautious.

“We … congratulate the Commission on the improvements announced today,” Michael Cunningham, executive vice president and general counsel at Linux vendor Red Hat, said in a statement e-mailed to InternetNews.com. “Our enthusiasm is somewhat tempered, however, by concerns that the patent arrangements may have not been made compatible with open source licensing, especially given the pro-competitive effects to consumers of the open source model.”


Déjà vu All Over Again

Meanwhile, Monday’s announcement is just the latest in a string of Microsoft moves to close out nagging litigation, which in itself could help the company’s image — if only because it’s one less lawsuit to be constantly trotted before the public.

Just last week, for instance, the company dropped a similar appeal in a case involving the South Korean Fair Trade Commission.

In late August, Microsoft settled a long-running patent lawsuit with the University of California, and spin-off company Eolas, for an undisclosed sum.

Similarly, in 2004, the same year that the EC first ruled against Microsoft, Sun Microsystems settled patent and antitrust litigation with Microsoft for $1.95 billion. Also that year, Microsoft settled an antitrust suit with Novell for $536 million, from charges stemming from that company’s NetWare network operating system.

However, Novell got the green light last week to move forward with another antitrust suit against Microsoft regarding Novell’s WordPerfect word processor and Quattro Pro spreadsheet program. That suit has origins dating back to the mid-1990s, when Novell owned both pieces of software. Since then, it sold both to software vendor Corel.

A Novell spokesperson said last week that it hasn’t yet decided whether to litigate the current case or settle it out of court. However, if recent behavior is any indication, the odds seem good that a settlement is in the cards.

Microsoft still faces a Nov. 6 hearing on whether Federal Judge Colleen Kollar-Kotelly will let most of the oversight conditions of its U.S. antitrust settlement be allowed to expire next month — or whether they will be extended for another five years. That may prove harder to put to bed than the EC case.

Attorneys general from two groups of states, including three states that had previously agreed to let most oversight lapse, petitioned the judge last week, urging her to continue government oversight of Microsoft’s 2002 consent decree until 2012.

“The states are saying that the software [still] isn’t very open [and] therefore we think the government should continue to watch Microsoft,” said Endpoint Technologies’ Kay. “It’s part of being ‘king of the hill.'”

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