Microsoft has given up its nine-year fight against antitrust regulators in Europe, saying today that it would not challenge a court judgment there and would share technical information with rivals on terms the software giant had long resisted.
The agreement was struck in Europe, but the more generous terms for licensing Microsoft’s intellectual property will be extended worldwide. To the extent the new terms enhance competition, consumers could benefit from lower prices and faster innovation in software.
European regulators and some software groups in Europe hailed the deal as a breakthrough that should particularly enhance competition in the market for the server software that powers corporate data centers and the Internet.
The Microsoft deal also leaves untouched a ruling last month by Europe’s second-highest court that provides a strong legal foundation for the European Union’s power to force a dominant company to share its intellectual property with its rivals.
But just how much effect the pact will have on the world software marketplace remains uncertain, because many issues in the case have been addressed through technical projects or previous legal settlements, according to some industry analysts.
As part of its past efforts to settle its antitrust problems, Microsoft has reached costly agreements with competitors that were its most outspoken critics, including Sun Microsystems, I.B.M. and Novell. A complaint by Sun in 1998 began the European antitrust investigation.
The private settlements between Microsoft and competitors, analysts say, typically included cross-licensing and technology-sharing provisions.
What is clear is how much Microsoft’s legal room for maneuver was undermined by the ruling last month by the Court of First Instance in Luxembourg. The court reaffirmed that Microsoft, the world’s largest software maker, had abused its market power and said the company must obey a 2004 European Commission order to share confidential computer code with competitors.
After the courtroom setback, Steven A. Ballmer, Microsoft’s chief executive, wrote a conciliatory letter to Neelie Kroes, the European competition commissioner, according to a commission official who declined to be named. Mr. Ballmer later flew to the Netherlands, where Ms. Kroes lives, and they agreed on the terms of the deal.
The upper hand, legal experts say, was certainly held by Ms. Kroes. “She was really negotiating from a position of strength, which she did not have before the ruling by the Court of First Instance,” said Andrew I. Gavil, a law professor at Howard University.
The move by Microsoft, according to industry analysts, is a significant step that the company wants to remove the lingering cloud that the European antitrust has cast over the company’s business and its stock price.
“Financially, the antitrust issues have not had a material effect on Microsoft, and it’s not yet clear that this agreement will have much impact on the software market,” said Charles di Bona, an analyst with Sanford C. Bernstein. “But it does help to remove the European cudgel that has been hanging over the company’s head. It removes an element of uncertainty, which shareholders hate.”
Microsoft has paid nearly 1 billion euros, or $1.43 billion, in fines since the commission’s initial ruling and could face up to 1.6 billion euros more, which began accumulating in December 2005 after Microsoft failed to provide the protocols. Ms. Kroes said she would decide before the end of the year whether Microsoft must pay the additional fines.
Ms. Kroes cast the agreement as a big win for Microsoft’s rivals, especially companies that rely on open-source software like the Linux operating system, an increasingly popular alternative to Microsoft. Linux has done particularly well on server computers, where its main competitor is Microsoft’s server software.
To thrive in the marketplace, open-source software must work well with Microsoft’s desktop programs, notably the Windows personal computer operating system. More than 90 percent of all PC’s run on Windows.
The European order mandates that Microsoft share its technology information on fair terms, so that competing software can work smoothly, or interoperate, with Windows desktop software. It was those terms of interoperability that will be much more favorable to Microsoft competitors, so that the company’s dominance in product cannot thwart competition in another, closely related software market.
“These changes in Microsoft’s business practices, in particular towards open-source developers, will profoundly affect the software industry,” Ms. Kroes said in a statement. “The repercussions of these changes will start now and will continue for years to come.”
Microsoft said it would not pursue a final appeal to the European Court of Justice, which could have drawn the case out another two to three years. Microsoft said it would make the server protocols available for purchase through its Web site, www.microsoft.com/protocols.
Under the agreement, software developers will only pay a one-time fee of 10,000 euros, or $14,300, to gain access to Microsoft’s communications protocols, which specify how to exchange data between Windows and rival products. These protocols are trade secrets, not patents. If competitors want to license Microsoft’s patents, they must pay a per-unit royalty of 0.4 percent of the value of the product sold. Microsoft had originally demanded 5.95 percent of sales as royalties.
“This is a huge breakthrough,” said Georg Greve, president of the Free Software Foundation-Europe, a group that had challenged Microsoft’s practice of using confidential server protocols. “Microsoft is finally doing what the commission ordered it to do. This will level the playing field.”
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