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May 9, 2008 1:16 PM

Microsoft Appeals €899M Fine



News Analysis. Microsoft is seeking clarity about its most recent fine. What's not clear about dollars and cents? The exchange rate?

The company is being pretty tight-lipped about the appeal, filed today in Europe. The official statement: "We are filing this appeal in a constructive effort to seek clarity from the Court. We will not be saying anything further."

The statement is surprisingly scanty for a company that has been fairly transparent in its legal dealings with the European Union's Competition Commission. Why not now?

After pressing further, based on a different statement given to Reuters, I got acknowledgement that Microsoft has filed an "application to annul" the fine. I guess the drama with the Competition Commission is far from over. But Microsoft wants closure on one act. The company's appeal is more than about money. Microsoft is seeking a precedent that could forestall future fines related to protocol disclosure.

The Competition Commission issued the record-setting fine—€899 million, or $1.35 billion—in late February. The fine would be $1.39 billion at today's exchange rate. This was the third fine from the antitrust case, the second post-judgement, for a total of about $2.5 billion.

I can guess what would be Microsoft's argument for annulling the fine. About a week before the fine's issuance, Microsoft announced "Interoperability Principles" that supposedly embraced and extended the information disclosure demanded by the European Commission. Since then, Microsoft has made available protocol and other information for Windows Server and Office 2007. Microsoft could say that it has more than complied with the Competition Commission's disclosure requirements.

I viewed the Interoperability Principles then, and still do now, as being purposely announced ahead of the fine. Microsoft's lawyers aren't stupid. They know how to read between the lines of communication from European regulators. The timing wasn't coincidental. The announcement now gives Microsoft a position that lets it go back and cry foul. "Hey, we announced that we planned to do more than asked, then days later they slapped us with this record fine. Unfair!"

But is it? Microsoft's Interoperability Principles don't go as far as the Competition Commission demanded—and I'm not surprised. There is an ongoing philosophical and licensing disagreement between the two entities. European regulators want open-source developers to be freely able to use Microsoft protocols. While the company has now gone further than asked in terms of access, restrictions remain regarding commercial usage. Microsoft's Interoperability Principles let open-source developers use the company's published protocols and other information for free only for noncommercial purposes. If developers release commercial products, either they pay Microsoft a royalty or their customers do. But somebody pays.

I've been saying for nearly four years that Microsoft would never concede on open-source licensing. The company is culturally predisposed against open-source principles, even though it openly reaps benefits from open-source development. Microsoft's cultural intellectual property ethic goes back to the sometimes forgotten "An Open Letter to Hobbyists." In the 1976 document, Microsoft Chairman Bill Gates wrote:

"As the majority of hobbyists must be aware, most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid? ... There is very little incentive to make this software available to hobbyists. Most directly, the thing you do is theft."

Microsoft and the Competition Commission will never reach agreement on protocol licensing as long as the company's intellectual property can be used in free software. Microsoft isn't going to let third parties take technology it developed at great expense and use it for free. Never willingly. In that sense, beyond the PR benefits of timing, the Interoperability Principles are Microsoft's best effort at being civil, at cooperating. The company has given up pretty much all it's willing to—and that is much more than I would have expected four years ago.

That's why the the application to annul is an important gambit for Microsoft. The €899 million fine is Microsoft's second related to protocol disclosure. More fines could yet come, particularly as the squabble over open-source licensing and usage continues. Annulment could act as a precedent, or at least temporary legal stopgap, against future fines related to protocol information disclosure.

The appeal is a calculated risk, but sensible if Microsoft really has conceded as much as it's willing to. The appeal could put the brakes on the European Commission, at least for this case. With other Microsoft investigations underway, the European drama is far from finished.

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Comments (12)

Nice lead, Joe. This kind of euphemistic language is typical of monopolists unmoved by Cluetrain.

The EU will now come up the 10 new initiatives with bigger & bigger fines.

This is a very very big mistake for Microsoft.

Hans :

You made the comment "they slapped us with this record fine". The problem is, this is a fine they had previously been slapped with, and the EU was "invoicing" Microsoft days after their announcement. The fine was a done deal prior to Microsoft's announcement. In order for Microsoft's appeal to make any sense, they would have to prove the fine was unfair in light of their past actions, not in light of their then current actions.

and...

Microsoft's reluctance in licensing protocols has nothing to do with development costs.
Those are minimal with respect to their profit margins, and gross profits. They are reluctant to license protocols to open source software, because they see open source software as the only current credible threat (albeit currently small) to their core monopolies. Interoperability is what scares them, not theft.

Regards,

Hans

Ralph :

Wait till the E.U. finds out about MSFT allegedly making some "back room" deal of sorts to sell the Asus laptop cheaper with XP than with Linux.

That alone stinks to high heaven. Under cutting the "competition" with the goal of eliminating them in the future has been done before. Except Linux can't be killed...unlike other "companies".

What about the MSFT "deal" with Novell and Suse and the five year "agreement". The EU would have a field day with that alone.

Maybe someone at the E.U. needs to read what the Linux Journal had to say in a article called ...

A five year deal with Microsoft to dump Novell/SUSE


"Wake up little SUSE, Wake up. No, that's not good enough. Wake up SUSE customers, wake up. Novell is jeopardizing the future of Linux for its own short-term rewards. If you want to see Linux flourish, let alone survive after Novell's five year deal with Microsoft expires, I suggest we make an alternative five year deal with Microsoft. In this case, our part of the deal is to spend the next five minutes, months, or years migrating away from every shred of Novell/SUSE software in our home, office, or enterprise.

The controversial agreement between Microsoft and Novell stinks to high heaven. Look, for example, at the contradictory statements.

Take this quote from the Novell FAQ on the agreement:

Novell makes no admission that its Linux and open source offerings infringe on any other parties' patents.

How does that jibe with the following quote from Microsoft General Counsel Brad Smith?

"We addressed the proprietary issues through the net up-front payment. The open-source we addressed through the percentage of revenue."

The "percentage of revenue" to which Brad Smith is referring is Novell's payment to Microsoft so that Microsoft will not sue SUSE customers for patent infringement.

Wait. Didn't we just read that no such infringements exist? If Novell is paying Microsoft a percentage of its revenue from sales of SUSE Linux as part of a covenant from Microsoft not to sue SUSE customers for patent infringement in open source code, then is this not a tacit admission that Novell's Linux and open source offerings infringe on other parties' patents, particularly Microsoft's patents? How can one interpret this any other way? Why would Novell pay Microsoft not to sue its customers over patent infrigements Novell says do not exist? "

I-Man :

Microsoft is missing another train. Why? Because they "want to"? In other words, is this another brilliant business move by Ballmer? That guy's a genius. Don't do anything until everybody gets a huge head start on you and STILL fart around at the starting gate.

Wow.

http://blogs.zdnet.com/microsoft/?p=1385


Microsoft was pointed to as VCSY's only competition years ago. Microsoft is the target for litigation by VCSY.

Microsoft has a demonstrated and adjudicated history of squashing small companies and stealing intellectual property.

Why should we not pinpoint Microsoft with information that shows precisely how poorly Microsoft does in the intellectual property department and just how far behind Microsoft is in the current technology disruption wave?


Can anyone detail what is holding Microsoft back when the specific areas they are holding back on are the areas covered by the claims in VCSY's two patents 6826744 and 7076521?

Some kind of coincidence, isn't it? Especially when the claims in both those patents would allow Microsoft to step up to par with the likes of Yahoo and Google.

sam (the original one, with the little s) :

Joe says;
"The appeal is a calculated risk, but sensible if Microsoft really has conceded as much as it's willing to. The appeal could put the brakes on the European Commission, at least for this case. With other Microsoft investigations underway, the European drama is far from finished."

Can only think of two reasons to appeal, one is if MS has now greased the right palms for a positive outcome, or in order to delay paying, or delay complying to interoperate. Otherwise, just makes those in the EU court system madder, and the fines will start to snowball soon.

But this does say something important to governments all over the world, with tax revenue problems. Here is (MSFT) a company that has exploited users like a 19th century robber baron, with enough money to buy Yahoo at 44 billion, with cash on hand, and is a big fat target for these kinds of EU like cases, all over the world. Basically, anywhere where MS software is sold.

The Hand :

Joe says: The announcement now gives Microsoft a position that lets it go back and cry foul. "Hey, we announced that we planned to do more than asked, then days later they slapped us with this record fine. Unfair!"..............

The problem is, announcing, or saying you are going do something, in the future, is not the same thing as already having done it. Microsoft is famous for saying they will do something. The term "vaporware" comes to mind immediately when thinking about Microsoft and its products, wonder why.

The EU is looking for results, they don't care what Microsoft thinks, or don't think. Unless has corrupted the EU, with some fast bribes, they are going lose this one too. And if they do this and get caught, expect the penalties , to be very severe. Unlike in the USA, Microsoft has not been able, at least so far, to control or corrupt the court system.

I agree that the EU purpose is to create a level playing field with Open source software and others, specifically Linux/unix/BSD. To do this, Microsoft will have to open up so many of its protocols that it made with the express purpose of creating lock in. These protected patented protocols were really nothing more than basically "redesigned" software to do the same things others has already done, but with slightly different way, or with different file formats, so that Microsoft could get a patent on them, thereby locking out other systems. Microsoft used a loophole in the patent law to increase its monopoly basically.

It doesn't matter that Microsoft thinks it can get away from complying with the EU court orders on compatibility. The fines will keep growing.

Richard Chapman :

Microsoft's actions are becoming more and more indefensible. I've been noticing a change in the blogs lately. There's very little one can say to justify Microsoft's behavior without sounding ridiculous. I suspect the more intelligent people are remaining silent rather than sacrifice their own reputation for the sake of Microsoft. That leaves the podium to the Luddite fringe of the Microsoft faithful. And if that fringe thinks I baiting them, they're right.

Jay Jay :

"... but sensible if Microsoft really has conceded as much as it's willing to."

The company has not conceded a dime! The only exception were the SAMBA protocols and they were enforced to do it. Without court rules, their promises are equal to zero.. and even in that case...

"Microsoft has made available protocol and other information for Windows Server and Office 2007"

Office 2007? Where! No way! They have enforced OOXML format through ISO in a shameful way, and this spec IS NOT the format used by Office 2007 and is not possible to implement fully by third parties!

chips :

Next up: A Microsoft-Google antitrust fight?

http://blog.seattlepi.nwsource.com/microsoft/archives/138498.asp

Quotes from the link; "During its tussle with Microsoft, Yahoo tested a search-related advertising alliance with Google in an attempt to boost its profits and fend off Microsoft's unsolicited offer. Microsoft, itself no stranger to antitrust problems, objected to even the hint of a more permanent deal -- saying that such an agreement would "consolidate over 90% of the search advertising market in Google's hands,"
----------------------------------------------------
Now why is it that Microsoft objects to 90% of the search advertising market in Google's hands, when MS itself, at one time controlled as much as 95.3% of the desktop operating system market? MS just can't stand competition, especially good competition that blows them out of the water. And if Google, "does no evil," with this 90% of the search market, I say let them have it. And if for some reason, MS Live/MSN can't compete against 90%, too bad, cause its better MS just fades away anyhow. We will all be better off without all the Microsoft lock in.

chips :

Becta refers its interoperability complaint to the European Commission

http://news.becta.org.uk/display.cfm?resID=36594&page=1657&catID=1632

"In October 2007 Becta complained to the UK competition regulator – the Office of Fair Trading (OFT) - alleging:

* anti-competitive licensing practices by Microsoft in the schools software marketplace
* the existence of impediments to effective interoperability in relation to Microsoft's Office 2007 product."

Neil :

Chips
I see that you still have lots of time to scour the internet for anything info that goes against microsoft, and still bagging anyone who stands up to your rhetoric against microsoft.

James :

Open Source developers have purchased the EU court system. They are intent on stealing software and call it free development. They want everyone to work for free and hand over their work so that they don't have to do any work themselves. The EU court system is so corrupt, it is a wonder if any citizen in the EU is protected at all. The Monopoly case in the EU was brought up because Microsoft's competetors could not compete on a technology basis, or in a market basis. The sorry losers then went to the EU where they could bribe the court system there and purchased their results that they could not purchase from the US court system. All Open source code is suspect and should not be used by any educated programmer.

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