Microsoft, Get Some Backbone Against The EU

Former Digital Equipment Netherlands supervisory board member Neelie Kroes, the arbiter of fair and unfair competition in the EU, last week brought the vast technical knowledge she gained at DEC to bear on Microsoft (MSFT). On second thought, maybe it was her Corio gig or one of the other 25 or so boards she served on prior to the EU appointment that provided her technical expertise. Incredible. I cannot even remember whether this is the week to put out the recyclables. But there is a reason behind her ruling and I haven’t seen anyone talking about it yet.

This all involves Sun’s complaint of 10 December 1998 that Microsoft did not tell Sun certain things about its desktop operating software needed to let it interoperate with Sun’s server operating software. This was separate from the EU’s own complaint that it didn’t think its citizens wanted a free bundled media player with their PC operating software. On April 21, 2004, the EU Competition Commission (signed by Mario Monti by the way, not Neelie) ordered Microsoft 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.” This week’s announcement involves the terms, not the completeness and accuracy of the 8000 pages Microsoft has produced for the protocols. EU fines against Microsoft are building up related to both issues because the Neelie hasn’t decided whether the 8000 pages are complete and accurate.

Since April 2004, the Microsoft and the EU have been discussing how to accomplish the objectives outlined in the order even as Microsoft continues to appeal it. Microsoft made its most recent suggestion in August 2006 including pretty complex Gold/Silver/Bronze pricing algorithms and market analysis. On March 1, 2007, still working in EU time (it’s like daylight savings time but you leap back a year rather than an hour forward), the EU (now with Neelie) said it is the Competition “Commission’s preliminary view that there is no significant innovation in the interoperability information (provided by Microsoft), rejecting as unfounded 1,500 pages of (pricing) submissions by Microsoft from December 2005 onwards, and hence that the prices proposed by Microsoft are unreasonable.”

To be fair, it wasn’t really Neelie who made this latest finding (nor did Neelie likely do much at the 25-plus companies where she was a director other than show up at a meeting). What Neelie did do according to Microsoft, is handle the process very unprofessionally, simply putting a press release out over the wire without first telling Microsoft what its objections to the August 2006 proposal were. The EU says “No, not true, it FAXED it over this morning” FAXED it over? Really? In 2007 they sent an important document like this by fax? Could this be part of the problem?

The objections really come from ex Bull employee and current college professor Neil Barrett who in fact was recommended by Microsoft as Trustee Monitor of the April 2004 decision. Barrett has a PhD and is an external fellow at the University of Glamorgan and visiting professor at RMCS Cranfield University. He founded a UK computer security company called Information Risk Management in 1999 after leaving Bull and working for the UK government. Barrett seems to have more expertise in finding “back doors” than in opening doors as required in computer marketing. I would think it would take a little old-fashioned marketing to determine if the Microsoft “protocols” are priced correctly. Barrett is assisted by two technical advisors: Professors David Lorge Parnas and John McDermid. Professor Parnas is the Director of the Software Quality Research Laboratory in the Faculty of Engineering's Computing and Software Department of the University of Limerick. He is the author of more than 200 papers and reports on computer system design and is said by the EU to be a world-renowned specialist in issues of software documentation. Professor McDermid is a Professor of Software Engineering and the leader of the High Integrity Systems Engineering Group [HISE] within the Department of Computer Science at the University of York. He has published over 300 papers, and written or edited 6 books and produced many research reports on software engineering.

I am not hearing a lot of marketing expertise in these credentials. Should the protocols be priced to value (Barrett says there are valueless) or priced to the market (Microsoft says an analysis by PricewaterhouseCoopers found that its proposed prices were at least 30 percent below the market rate for comparable technology and Microsoft says that IBM prices its protocols two or three times higher)? What does the market say (Microsoft says it already has 25 paying customers in the U.S.)?

But Microsoft reaps what it sowed in recommending Barrett so it shouldn’t complain.

But it did anyway. Microsoft said: “We do have a different perspective on the underlying facts and the proposed findings (some commentary in parens after each of Microsoft’s points):

“First, we believe we have been fair in setting proposed protocol prices (they said 25 companies were already participating in the U.S.—suckers!).

“Second, other government agencies in both the United States and Europe have already found considerable innovation in Microsoft’s protocol technology (awarded Microsoft more than 36 patents for the technology in these protocols, with another 37 patents are pending—but we all know what patent office are like).

“Third, the proposed findings suggest that unless our intellectual property is innovative and patentable, it has to be made available royalty free (here is the hidden agenda; see below).

“Fourth, the findings appear to attempt to regulate the pricing of our intellectual property on a global basis and not just within the EU (we should all get to use products like those provided by the late great EU-subsidized Unidata).

“And fifth, we’ve always said we are willing to entertain any reasonable price offer from any potential licensee, and that we are willing to be flexible to meet any unique business needs of potential licensees.”

So what is the hidden agenda? I believe it is buried in a couple of aspects of the original decision and in a sidelight to this week’s announcement. Oddly, the original April 2004 302-page decision, right after the usual description of fact finding and user surveying about Media Player and Solaris’ failings, on page 12 under the heading “Specifications and Implementations” began by explaining the difference between closed and open source software, describing Red Hat’s business model, and describing the GNU license.

Why not Berkeley or Apache or ??? Why anything about open source at all? Because buried in this week’s release, the EU says “The Commission has previously stated that it is committed to ensuring that the open source community has access to the non-innovative protocols if the Court of First Instance rules in its favor in case T-201/04 (the action brought by Microsoft against the 2004 Decision).” Separately, in June of 2005, Neelie said (see IP/05/673) “there will be a category of interoperability information that will be disclosed royalty-free. The Commission remains committed to ensuring that in due course it will become possible to use certain interoperability information from Microsoft in software products distributed under an open source license.”

She is determined to make Microsoft give the stuff away. But to do so, the EU has to first determine that Microsoft’s technology is not innovative. And the EU describes GNU licensing rather than Apache or BSD because that’s the license of the Free Software Foundation fringe movement within OSS. Microsoft has to get some backbone over this and stop tiptoeing through the tulips with Neelie.

Disclosure: Author has no position in MSFT