Microsoft Makes Changes to Ease EU Competition Fight

Feb. 21 (Bloomberg) — Microsoft Corp., bowing to pressure from European regulators, will take steps to make top-selling software including Windows and Office work better with competing products and limit lawsuits against some rivals.

Microsoft will publish the so-called protocols used to connect its most popular software to other programs, eliminating an advantage its products had over rivals. It will license some patents at low royalty rates and put out 30,000 pages of Windows documentation that had only been available under a license.

The decision makes it easier and cheaper to license and obtain the information needed to write programs that work with Microsoft’s flagship software. The world’s biggest software maker had come under fire because its own products knew more about how to hook up and work with Windows, limiting competition.

“It’s not in my mind something they would do without the EU pushing them a little bit,” Cowen & Co. analyst Walter Pritchard said in an interview with Bloomberg Television. “People had sort of resigned to the fact that Microsoft was going to have to do something to placate the European Union.”

The Redmond, Washington-based company said in a statement today it will provide information to the European Commission to evaluate the changes it is making. The commission, the EU’s antitrust regulator in Brussels, said in a statement today the effort doesn’t address one of two open investigations and that it will verify “whether or not the principles announced today are in fact implemented in practice.”

Microsoft also will make changes to its Office 2007 word processing, spreadsheet and slideshow programs. The changes will enable software developers to plug their file formats into Office, allowing users to save files in a competing format.

EU Spat

Microsoft last year agreed to make information available for open-source programs such as the Linux operating system, where developers can download code and change it for free, in order to settle a three-year-old EU antitrust case. The EU fined Microsoft a record 497 million euros ($735 million).

The software maker’s plans don’t relate to the question of whether it has been complying with antitrust rules in the past, the commission said. On March 1, 2007, the commission threatened millions of euros in daily fines backdated to December 2005 for charging “unreasonable” fees for licensing the protocols. Microsoft said in a Jan. 24 U.S. regulatory filing that the penalty could be as much as 1.5 billion euros.

“Microsoft’s principles address a number of issues that the commission has been worried about, but I also see this as a business decision,” said Nicholas Economides, a law professor at New York University. “Some part of the market demands interoperability.”

Heads Up

The company, whose Windows software runs 95 percent of the world’s personal computers, gave the commission a “heads up” on the plans and didn’t discuss the specifics with regulators, Senior Vice President Bob Muglia said.

Microsoft is defining the high-volume products whose protocols will be released as Windows Vista, including the .Net framework that helps run it; Windows Server 2008; the database program SQL Server 2008; Office 2007; and server software Exchange Server 2007 and Office SharePoint Server 2007.

These protocols will be offered without licenses or royalties. Developers will have to pay if they want to use some of the patents behind them, and Microsoft said the royalties on those will be “low.” Microsoft is guaranteeing it won’t sue makers of open source software for using these protocols to develop non-commercial products.

Going Further

“Microsoft’s long-term success depends on our ability to deliver a software and services platform that is open and flexible,” Chief Executive Officer Steve Ballmer said today at a press conference. “We think this announcement is entirely consistent with our legal responsibilities around the world.”

Microsoft, down 21 percent this year, fell 12 cents to $28.10 at 4 p.m. in Nasdaq Stock Market trading.

The commission said Microsoft’s announcement doesn’t deal with claims that the company uses its market position to prevent consumers from using Internet browsers made by competitors.

Last month, EU regulators opened new investigations into whether Microsoft is using its dominance in word processing and spreadsheets to thwart rivals and whether the company illegally tied an Internet browser to its Windows operating system.

The European Committee for Interoperability Systems, a group that includes rivals International Business Machines Corp. and Oracle Corp. that has lodged complaints with the EU, said that it has “yet to see any lasting change” from Microsoft.

“The world needs a permanent change in Microsoft’s behavior, not just another announcement,” the group said in an e-mailed statement.

Microsoft General Counsel Brad Smith declined to “characterize anything the commission has said.” He said today’s actions go further than any past step by Microsoft.

“We view this as having little near-term impact on business fundamentals,” Goldman, Sachs & Co. analyst Sarah Friar wrote in a note to clients. “Generally, the move is likely more important for Microsoft’s relations with the European Commission.”