EU: Microsoft Must Charge Rivals Little or Nothing
The Financial Times reports (via MSNBC) that they have seen the confidential Statement of Objections Microsoft recently received (we blogged about it here). The SO charges that Microsoft must license technical information about the Windows operating system for next to nothing to rivals. A three-year-old ruling requires Microsoft to make this information available to competitors (see IP/04/382) to remedy Microsoft’s abuse of a dominant position (Article 82) by leveraging its near monopoly in the market for PC operating systems onto the market for work group server operating systems. Microsoft therefore had to disclose complete and accurate interface documentation on “reasonable and non-discriminatory terms”, allowing non-Microsoft work group servers to interoperate with Windows PCs and servers. Recently EU Commissioner Nellie Kroes commented that Microsoft’s intended fees were too high. (Microsoft intended to charge up to 5.95% of rival’s server revenues.) Now it appears that in the Commission’s view “reasonable” means next to nothing:
[T]he confidential statement of objections from the Commission in the long-running dispute makes clear that Microsoft will at best be allowed to levy a tiny fraction of the royalties it is demanding.According to calculations by the Commission’s technical expert, Prof Neil Barrett, Microsoft’s demands would mean that rivals could recoup their development costs after seven years.
The Commission’s expert, who was suggested for the post by Microsoft, goes on to calculate that even an average royalty rate of 1 per cent would be unacceptable for licensees. Prof Barrett states that a 0 per cent royalty would be “better” and adds: “We can only conclude on this basis that the Microsoft-proposed royalties are prohibitively high […] and should be reduced in line with this analysis.”
Three Microsoft rivals that have reviewed the group’s pricing scheme extensively – understood to be IBM, Sun and Oracle – come to the same conclusion: “The prices charged by Microsoft are prohibitive and would not allow them to develop products that would be viable from a business perspective,” the Commission charge sheet says.
Microsoft’s General Counsel commented on March 1 that
“Microsoft has spent three years and many millions of dollars to comply with the European Commission’s decision. We submitted a pricing proposal to the Commission last August and have been asking for feedback on it since that time. We’re disappointed that this feedback is coming six months later and in its present form, but we’re committed to working hard to address the Commission’s Statement of Objections as soon as we receive it.”
More on Microsoft’s reaction here. Financial Times today also reports that
A spokesman for the US group said: “Microsoft will respond to the latest statement of objections in full by April 23. We believe we are in compliance with the March 2004 decision and that the terms on which we have made the protocols available are reasonable and non-discriminatory.”
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April 6th, 2007 at 8:25 am
Didn’t the FTC find in the Rambus case that it had the power to order royalty-free licensing as a remedy (but that the evidence and circumstances did not justify it in that case)? The opinion is available at here (page 8 in particular). I mention this as it appears the FTC and the EU Commission have, within weeks of each other, both found that, at least in certain circumstances, a “reasonable” royalty rate can be zero.