Brussels, 1st March 2007
Competition: Commission warns Microsoft of further penalties over unreasonable pricing as interoperability information lacks significant innovation
The European Commission has sent a Statement of Objections (SO) to Microsoft for failing to comply with certain of its obligations under the March 2004 Commission decision (see IP/04/382). Part of that decision found Microsoft to have infringed the EC Treaty rules on 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. The SO indicates the Commission’s preliminary view that there is no significant innovation in the interoperability information, rejecting as unfounded 1500 pages of submissions by Microsoft from December 2005 onwards, and hence that the prices proposed by Microsoft are unreasonable. Microsoft has four weeks to reply to the SO, after which the Commission may impose a daily penalty for failure to comply with the March 2004 decision. The issue of whether the interoperability information is complete and accurate is still under consideration by the Commission.
Competition Commissioner Neelie Kroes said, “Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative. The Commission's current view is that there is no significant innovation in these protocols. I am therefore again obliged to take formal measures to ensure that Microsoft complies with its obligations.”
Microsoft provides two separate licensing arrangements to companies wishing to obtain the interoperability information as foreseen by the 2004 Decision's remedy. The first is a 'No Patent Agreement', allowing licensees to use the protocols which together comprise the interoperability information, but without taking a licence for patents which Microsoft claims necessary, a claim disputed by some third parties. The second (the 'All IP Agreement') combines this first licence with a licence for these disputed patents. Companies therefore have a choice of agreement, depending on whether they consider they need a patent licence. Both licences confirm that an assessment of the reasonableness of Microsoft's prices depends on whether there is innovation in the protocols, and, if there is, what is charged for comparable technologies in the market.
For both licences, Microsoft divided the protocols into Gold, Silver and Bronze price categories based on the claimed degree of innovation. Microsoft has already agreed that there is a fourth category of protocols, not necessarily innovative, for which there will be no royalty.
The Commission's preliminary view is that there is virtually no innovation in the 51 protocols in the 'No Patent Agreement' where Microsoft has claimed non-patented innovation, and that Microsoft's current royalty rates for this agreement are therefore unreasonable. This takes into account the advice of both the Monitoring Trustee (see IP/05/1215) and the Commission's technical advisors, TAEUS, who both consider that there is no innovation in any protocol in the Gold and Silver categories. These protocols represent more than 95% of the price of the total Technical Documentation. The Trustee considers that of the total of 160 claims, only four, relating to relatively minor Bronze protocols, represent even a limited degree of innovation.
As regards each of the other claims, the Trustee advised that:
"all of the described features were considered either to have been Microsoft implementations of prior developments by others, or to have been anticipated by prior developments and to be immediately obvious minor extensions to that prior work."
TAEUS, which examined the main Gold and Silver protocols, reached the same conclusions as to lack of innovation.
For the 'All IP Agreement', the Commission has assumed that the existence of patents indicates some associated innovation, although third parties remain free to challenge Microsoft's patent claims before an appropriate court or to implement software that, in their view, does not infringe the patented technology. In any event, the Trustee's analysis is that most of the information relates only to solving problems specific to Windows, and will not improve the functionalities of the licensee's own operating systems. The Trustee has also provided evidence to the Commission that comparable technologies to these were provided royalty-free.
In a very limited number of cases, the Trustee's analysis suggests that patented technologies may go beyond merely solving interoperability problems specific to the Windows environment. But in such cases, he has again provided evidence that comparable technologies, including technologies offered by Microsoft itself, are available royalty-free.
In light of these elements, the Commission takes the preliminary view that Microsoft's current royalty rates for its 'All IP Agreement' are also unreasonable.
For further information see MEMO/07/90 and