Brussels: European Union (EU) regulators threatened Microsoft Corp. with millions of euros in new fines, this time for charging “unreasonable” fees for patent licenses on Windows operating system software.
Microsoft is charging competitors “unreasonable” rates for the information needed to make network-server software that can work with personal computers running Windows, EU Competition Commissioner Neelie Kroes said on 1March. In its March 2004 decision, the European Commission said the charges for those licenses must be made on “reasonable and non-discriminatory terms.”
“We’re in somewhat unknown territory,” commission spokesman Jonathan Todd said in Brussels, when asked whether daily fines are the best way to make companies comply. “It’s the first time that we have been confronted with a company that has failed to follow an antitrust decision.”
The commission accuses the company of abusing its dominance of Windows, which runs almost 95% of the world’s personal computers, to crush competition in related markets. The EU levied a record 497 million-euro (Rs2,909 crore) fine in March 2004. Microsoft is appealing the ruling and a judgment by the European Court of first instance is expected by September.
Under the EU ruling, Microsoft is allowed to charge for its interoperability information as long as the data is innovative. “The vast majority of the information is not innovative, at all,” Todd said on 1March. “If there is no innovation, they must charge a nominal fee.”
Based on a study by the EU’s monitoring trustee, Neil Barrett, the commission found that most of the information relates to solving problems that are specific to Windows servers. The data doesn’t help rivals improve their own operating systems, the EU said.
Microsoft disputed the commission’s finding that its patents aren’t innovative. The US and European patent offices have granted Microsoft more than 36 patents on protocols, the company said. Those patents took “millions of dollars” to develop, it said.
“It’s hard to see how the commission can argue that even patented innovation must be made available for free,” Brad Smith, the company’s general counsel, said. “We believe we have been fair in setting proposed protocol prices.”
Smith said that the company “is on the verge” of signing a licensing agreement with a company, which he didn’t name.
A study by PriceWaterhouseCoopers found that Microsoft’s proposed prices were “at least 30%” lower than the market rate for comparable technology, the company said.
The commission said Microsoft’s royalty rates represent about 35% of the net operating profit on companies’ server software.
A Microsoft opponent, the European Committee for Interoperable Systems, which includes International Business Machines Corp. and Red Hat Inc., said the EU’s accusation “demonstrates that Microsoft is making it economically unviable for competitors to license the information to produce competing, interoperable products.”
In July 2006, the EU fined Redmond, Washington-based Microsoft 280.5 million euros for flouting the EU’s 2004 ruling. The July penalty was the first by the commission for failure to comply with an antitrust ruling. Microsoft has also appealed the additional fine.
The regulator also threatened to fine Microsoft an additional 3 million euros a day if the company continues to resist the decision. The company turned in the protocol data on 23 November 2006, and the commission hasn’t decided yet whether it’s “complete and accurate.”
In today’s case, the commission can fine Microsoft as much as 500,000 euros a day between 16 December 2005, and 20 June 2006, if it finds that Microsoft isn’t charging “reasonable royalty rates.” The daily amount may rise after that date, the commission said.
Microsoft has four weeks to reply to the commission.