Microsoft waves white flag, ends long conflict with EU

BRUSSELS, Belgium — Microsoft dropped a nearly decadelong legal battle with European regulators Monday, agreeing to key parts of an antitrust ruling that has already led to hundreds of millions of dollars in fines.

The world's largest software company will slash the royalties it charges rivals for interoperability information needed to make programs that work smoothly with Microsoft's Windows operating system.

It will make access to the data easier for open-source developers who the EU said are now "virtually the only alternative for users."

Microsoft said it would not appeal a Sept. 17 decision by the EU Court of First Instance, which turned down the company's challenge to a 2004 European Commission order finding it guilty of monopoly abuse.

"We will not appeal the Court of First Instance decision to the European Court of Justice and will continue to work closely with the commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world," Microsoft said.

Daily phone calls between EU Competition Commissioner Neelie Kroes and Microsoft CEO Steve Ballmer over the past three weeks — and a dinner near her Dutch hometown — culminated in a deal early Monday.

"I sincerely hope that we can just close this dark chapter," Kroes said. "I feel a bit sad because it took so long, it took so many years, and during those many years consumers suffered from the fact that Microsoft didn't go along with what the commission asked it to do."

She said the company could no longer use its leverage over the computing market from supplying 95 percent share of all desktop operating systems "to harm consumers by killing competition."

The major issues with Microsoft have been resolved, Kroes said, cautioning that Microsoft could still face penalties for overcharging royalties on interoperability information. Backdated daily fines would stop as of Oct. 22.

Kroes said the EU order set a precedent for Microsoft's future behavior in other areas, such as its Office software and its new Windows Vista operating system.

"Microsoft should bear this in mind," Kroes said. "The shop is still open, I can assure you ... there are a couple of other cases still on our desk."

EU officials last year cited possible problems with Vista's integrated security software, Internet search, digital-rights-management tools for copyright protection and software for creating documents in a format similar to Adobe Systems' Portable Document Format, or PDF.

Microsoft has now agreed to substantial changes for server software, the EU said, giving greater access to data it previously said was secret and valuable.

Kroes promised that the changes would profoundly affect the software sector, especially servers where Microsoft has a 70 percent market share.

"The repercussions of these changes will start now and will continue for years to come," she said.

The company will charge a one-time fee of 10,000 euros ($14,310) to any developer — including those working on open-source systems such as Linux — for "complete and accurate" technical information to help make software compatible with Windows.

It had previously demanded a percentage of future sales.

Developers — such as IBM and Sun Microsystems, which sell software based on Linux — will pay a worldwide patent fee of 0.4 percent of revenues for Microsoft's data. Microsoft's original rate was 5.95 percent.

Microsoft will now charge for only 31 server protocols under patent instead of the 154 originally offered for licensing.

After the Court of First Instance's ruling in September, the company "had no reason to believe that they would get anything different from appellate court," said Keith Hylton, a professor at Boston University School of Law.

"Even a deep-pocketed firm like Microsoft has to stop spending money on litigation at some point," he said, noting that the company also recently withdrew its appeal of a South Korean antitrust decision.

Microsoft's decision to drop its appeal was a "shareholder-friendly" move, in that it removed some uncertainty, said Charles DiBona, an analyst at Sanford Bernstein Co. He said the lower patent fees would not have a material impact on the company.

Shane Coughlan of the Free Software Foundation Europe said Microsoft seems to have made "quite a large shift and quite a sudden one. But he warned that the company had not made clear how much data it would hand over to open-source developers, or how much it would allow them to circulate freely.

"We need to see how it works in practice," he said.

If the software maker does not keep to the terms of the deal, competitors will be able to take the company to Britain's High Court to seek damages.

Regulators warned that Microsoft had "ongoing obligations to continue to comply" with the 2004 ruling that found it guilty of monopoly abuse, ordering it to share information with rivals, market a version of Windows without a media player and pay a fine of 497 million euros ($613 million).

Microsoft stock rose 34 cents to close at $30.51 Monday.

Information from Associated Press technology reporter Jessica Mintz in Seattle is included in this report.