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December 22, 2004

Microsoft likely to slap NDA on opened specs

Microsoft Corp will open certain server protocol specifications to competitors and release a version of Windows with the media player removed early in 2004, following a European Union court ruling.

By CBR Staff Writer

But the company seems likely to impose confidentiality restrictions, with penalties for breaches on its protocol disclosures, so that any harm the company suffers over the next four or five years can be reversed if it wins its EU antitrust appeal.

The EU Court of First Instance has denied Microsoft’s request that antitrust remedies imposed by the European Commission be delayed pending appeal. Microsoft said it will start complying with the ruling immediately.

After examining the circumstances of the case, the President [of the Court, Bo Vesterdorf,] finds that Microsoft has not shown that it might suffer serious and irreparable damage by implementing the remedies, the court said.

Microsoft general counsel Brad Smith said: We have to do an excellent job of implementing and complying with the court’s order and we will do that. We are starting immediately to comply with the court’s order and with the Commission’s decision.

The remedies have two main features. First, Microsoft must sell in Europe a version of Windows XP that does not include Windows Media Player. The company will be able to offer a version with WMP included, but must not unfairly promote that version.

This remedy is designed to protect companies including RealNetworks Inc, which Microsoft threatens to sideline in the media player market with a combination of bundling and a more user-friendly experience.

Smith said that the second version of Windows will be made available to PC makers in January. We expect that resellers in Europe will have this version available to them by February, he said in a press conference.

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Second, the company must disclose proprietary protocols used in Windows client-server and server-server communications. The idea is that rival software makers will be able to make products that better interoperate with Windows.

This is designed to help out companies including Sun Microsystems Inc, which complained that Microsoft tries to leverage its desktop operating system dominance to push its server OS products, because they work better together.

Microsoft had argued that once this proprietary knowledge has been disclosed, it cannot be undisclosed at a later date, should the company win its appeal. The firm said this constituted irreparable damage that should delay the remedy pending appeal.

But Vesterdorf wrote: Microsoft does not explain what irreparable damage might be caused to it by the simple fact that third parties had knowledge of data disclosed by it, as opposed to the developments resulting from the use of that knowledge.

To comply with this part of the remedies, Microsoft launched a web site that Smith said competitors will be able to go to, to start getting information and start going through the process of licensing the communications protocols.

But Smith said that Vesterdorf’s ruling seemed to permit Microsoft to put safeguards in place essentially non-disclosure agreements so that any harm caused by the licensing of the protocols would be reversible.

The court noted that it would be appropriate for us to have safeguards in place with respect to the compulsory licensing of our communications protocols, he said. That’s helpful, I think, to the company.

Vesterdorf’s ruling says confidentiality clauses, together where necessary with penalty clauses, can be inserted in the licence agreements to prevent the specs being leaked and becoming public domain knowledge.

He said that reasonable contractual safeguards could be inserted into protocol licensing contracts, so that if the EC remedies are overturned on appeal Microsoft could then prevent licensees from using the technology in question.

Vesterdorf even suggests that Microsoft and its licensees could appoint an independent third-party monitor to check whether competitors continue to use Microsoft’s specs in their products, if the EC decision is overturned on appeal.

It is also open to Microsoft, moreover, to include in those licensing agreements penalty clauses which, in the event that the Decision is annulled, would prevent its competitors from marketing products containing the interoperability information, Vesterhorf wrote.

Microsoft’s appeal of the EC antitrust decision could last four or five years. During that time, licensees of Microsoft’s protocols may find themselves having to strictly monitor how the protocols are implemented, in case they have to un-implement them in future.

On the WMP remedy, Microsoft has to make two versions of Windows available in Europe. PC makers could choose to continue pre-installing the current version, which has WMP bundled, so customers don’t have to download it themselves.

The EC remedies are designed to stop Microsoft bundling WMP. There’s nothing to stop Microsoft making customers download WMP if they want to play content in Microsoft proprietary codecs or wrapped in Microsoft rights management protections.

Microsoft can also appeal the ruling to the European Court of Justice. Smith said the company has two months in which to do so, but has yet to decide whether it will. In the meantime, the firm is obliged to start implementing the remedies.

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