EC Weighing Microsoft Compliance with Sanctions

Officials at the European Commission (EC) say Microsoft is falling short of its pledge to cooperate fully with sanctions against it meant to boost competition among software makers in Europe, raising the prospect of additional penalties being levied.

In addition to paying the equivalent of US$600 million in fines, Microsoft faced two technology sanctions: It was forced to release a version of Windows that does not contain the Media Player and to offer server software makers access to parts of the Windows blueprint code so they can make products more compatible with that dominant operating system.

Feedback from Competitors

In recent months, Microsoft has said repeatedly that it is moving to comply, preparing a stripped-down Windows version and readying a licensing agreement scheme that could give competitors a look at its closely guarded code.

However, the EC said that feedback from competitors on the continent leads it to believe that what’s been done to date has fallen short.

“Based on the market tests, it doesn’t seem to be working at all,” EU spokesman Jonathan Todd told reporters in Brussels.

If the EC’s claims are accurate, it might underscore that there are limits to Microsoft’s willingness to settle legal and regulatory claims against it. In recent years, the software giant has made a concerted effort to put antitrust and intellectual property litigation to rest, signing huge settlements with once vicious rivals such as Sun Microsystems and Netscape parent America Online.

Part of the current problem appears to be that Microsoft is requiring that vendors buy licenses in order to view the code being made available, Todd said. As a result, competitors can’t accurately assess the potential value of the license.

That Microsoft would seek to guard its code is far from a surprise, given that the code forms the foundation for its software empire. The company might also have security concerns about letting even pieces of its code circulate in public.

Protecting Intellectual Property

Though the fine the EC set against Microsoft was the largest ever, the financial penalty has always been the least of the company’s concerns.

“Being forced to reveal its code was probably the element of the initial ruling that Microsoft is most uncomfortable about,” Yankee Group analyst Laura DiDio told the E-Commerce Times.

Even the stripped-down Windows requirement, once seen as a sore point for Microsoft, is largely seen as a non-issue since the Commission’s ruling did not require that the software be priced differently or otherwise made attractive to buyers.

Microsoft has been somewhat more willing to open its code in limited circumstances of late. In the past couple of years, it offered foreign governments — many of whom were weighing a jump to Linux — a chance to look under the hood of Windows as a way of reassuring them of its security and enabling interoperability with other programs.

Still, turning that same code over to competitors is another matter, DiDio said. “They consider their code intellectual property to be protected,” she added.

Wait and See

Analysts said the drama might play out a couple of different ways. Microsoft might agree to other changes to satisfy the EC. Or it might take the position that it’s doing all it needs to and hope to hold off further action pending the hearing of its appeal of the original antitrust ruling, which is likely not to happen until early next year.

That approach could leave it facing additional fines from the Commission, penalties that will likely quickly jump into the millions.

While Microsoft has entered into discussions with the EC about how to make the Media Player requirement work — including such minor details as what the alternate version will be named — the code revelation requirement might well prove more difficult to overcome.

The initial language of the ruling left Microsoft plenty of leeway in building its stripped-down Windows version, noted Forrester Research analyst Paul Jackson. “That ruling has always represented, at best, an annoyance to Microsoft, not a genuine barrier,” he told the E-Commerce Times.

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