EU Court Holds the Antitrust Line Against Microsoft, but May not have Stemmed its Dominance Tide

Yes, I am a bit late on this one. I had a couple items on the blog TODO a bit longer than I anticipated. I’m working my way through those now, but will still post the items I think are especially important.

So, as you’ve surely heard by now, the EU dismissed the Microsoft anti-trust appeal. From Andy:

In what the New York Times is calling a “stinging rebuke,” the European Court of First Instance issued a much-awaited judgment at 9:30 AM today in Luxembourg affirming almost all of the March 23, 2004 holdings by the European Commission that Microsoft had abused its dominant position to further expand its market share. The Court also affirmed the remedies against Microsoft, including fines of approximately US $1 billion. Only those parts of the original decision that would appointed a trustee to monitor Microsoft’s compliance with the EU’s orders were rejected, as exceeding the powers of the Commission. But while the victory is a significant one for the European Commission, how great a defeat is this in fact for Microsoft? Perhaps less than first meets the eye, on which more below.

Today’s decision is but the latest event in an almost 10 year history of investigations, trials, appeals, and new allegations that initially focused only on Microsoft’s activities involving server software, but eventually grew to involve allegations of abuses in the office software marketplace as well. All of these accusations involved contentions that Microsoft was limiting the ability of its competitors to create products that would interoperate with its own, thus further entrenching itself. With time, open source advocates and trade associations filed lodged complaints as well, as Linux gained market share and greater vendor interest, and OpenDocument Format (ODF) compliant products, such as OpenOffice, gained greater credibility.

In the decision announced today, the Court found that Microsoft had abused its dominant market through two types of conduct, and ordered Microsoft to remedy the situation as follows:

The first type of conduct found to constitute an abuse consisted in Microsoft’s refusal to supply its competitors with ‘interoperability information’ and to authorise them to use that information to develop and distribute products competing with its own products on the work group server operating system market, between October 1998 and the date of adoption of the decision. By way of remedy, the Commission required Microsoft to disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems.

The second type of conduct to which the Commission took exception was the tying of Windows Media Player with the Windows PC operating system. The Commission considered that that practice affected competition on the media player market. By way of remedy, the Commission required Microsoft to offer for sale a version of Windows without Windows Media Player.

At first you probably thought, wow – $1B! Andy puts that in perspective though:

While today’s judgment is significant, it is worth noting that the penalties that Microsoft has incurred to date – roughly $1 billion, plus an obligation to reimburse a far smaller amount of legal fees – are minute in comparison to the magnitude of the profits it has garnered over the ten-year investigative period. During that time, its market share in both of the subject markets has grown dramatically. As a result, while Microsoft has nominally lost in court, it continues to win at the bottom line, given that the only impact on its products to date has been more symbolic than effectual – the requirement to offer a version of Windows that does not bundle a free copy of its media player.

Stated another way, a billion dollars spread over ten years is $100 million a year. During the same period, Microsoft revenues have grown enormously, to over $50 billion a year, fueled primarily by the continuing growth of its operating system and Office products. It has been a tiny cost of business to pay, and a shrewd and cynical business decision to incur, a liability to pay one fifth of one percent of annual gross revenues to retain the freedom to dominate so lucrative a market in spite of the 2004 judgment.

Suddenly it doesn’t sound like all that much money, does it. That aside, it’s good to see some follow though from the EU. The Microsoft PR machine is in full swing, warning other US companies of the dire impact of this ruling. Two items on that note:

“Obviously, law that is made for Microsoft is going to apply to other market leaders as well. IBM, Google, Apple and others would have to look very carefully at the implications for their business models,” — Brad Smith, Microsoft General Counsel

“What this ruling will do is send a message to companies that if they establish a good market position with a successful product, they will be forced in Europe to essentially give up that product to their competitors.” — Robert Kramer, a vice president of public policy for CompTIA, [a Microsoft ally]

Of course, they are confusing marketing leading with market dominant && anti-competitive. Stephe and Mark explain and expand on that point better than I’d be able to.

In the end, while it’s good to see this ruling it may not have much material impact. Windows without Media Player is not what we need. If history is any guide, Microsoft may be able to convince the courts that it’s complying and being more open, while still stifling competition and innovation with unfair practices. One place this ruling may make a difference is on the recent OOXML ISO/IEC JTC1 proceedings. If OOXML is adopted and with some of the Microsoft actions in Europe during the process that have come to light, this ruling could come into play.

–jeremy

Microsoft Fails to Gain Approval for OOXML

There are so many posts flying around about this that it’s been difficult to keep up (and I’m still digesting a lot of it), but the bottom line is that the OOXML is not an ISO standard. Well, at least not yet. A bit oddly, Microsoft has spun this in a positive way with their “Strong Global Support for Open XML as It Enters Final Phase of ISO Standards Process” press release. The reality is that this is just the beginning. Things now move to the next step, which should get really interesting. Microsoft is pulling out all the stops on this one. Andy Updegrove, who is not only extremely knowledgeable on the subject buy also extremely balanced in his observations, went as fas as to say:

As someone who has spent a great part of my life working to support open standards over the past 20 years, I have to say that this is the most egregious, and far-reaching, example of playing the system to the advantage of a single company that I have ever seen. Breathtaking, in fact. That’s assuming, of course, that I am right in supposing that all of these newbie countries vote “yes.”

I guess we’ll just have to wait and see a few more days to learn whether that assumption is true. Want to place your bets?

Looking at other sources, allegations range from ballot stuffing to nearly straight up coercion and bribery. That should be an indication of just how important this is to Microsoft and just how important it should be to you. It’s fascinating to see one part of Microsoft make what appears to be a sincere effort to join the Open Source community and then see another part act like this. I’ll be doing some additional reading/research and will certainly have more to say on the topic. For now, here’s some good additional reading for you:

Once More unto the Breach
Once More unto the Breach
consortiuminfo.org
consortiuminfo.org
consortiuminfo.org
All about Microsoft

–jeremy

Microsoft to its hosting partners: Get ready. Here we come

From a recent Mary Jo Foley blog post:

At its Worldwide Partner Conference in Denver this week, Microsoft officials are trying to walk the tightrope when it comes to explaining Microsoft’s plan to get into the managed services business in a major way.

Microsoft officials have made no bones about the fact that Microsoft is planning to offer a Microsoft-hosted version of services around all of its major products. Already, it’s out there selling desktop-management, Exchange, SharePoint, CRM Live and other managed services.

At its gathering of 12,000 partners, company officials are attempting to assuage fears that Microsoft will simply steamroll partners who already are selling hosted Microsoft services.

Microsoft’s message: Partners need to change. (The unwritten part: Or get the heck out of the way.)

Some hosting partners are counting on Microsoft targeting only the largest customers and leaving them the mid- and smaller-sized businesses. If history is any indicator, however, Microsoft won’t limit itself.

Will hosting partners buy into Microsoft’s messaging? Or will Microsoft’s managed-services rollout be the straw that breaks the camel’s back?

This is interesting for a couple reasons. The first is that it should serve as a reminder that Microsoft has historically been a good partner only as long as the relationship is beneficial to them. Sure, when things are going well it seems like a fantastic setup. After all, you have an industry behemoth behind you. That’s the funny thing about being taken under the wing of a dragon: it’s warmer than you think. The problem is, when that dragon gets hungry, it’s often the cozy partners that end up burnt. I keep hoping the Microsoft will change. I want them to – I think we all do. I think they will, in fact… it will just take time. This should still serve as a warning to other partners and potential partners.

Now, while this move is not good for current hosting partners, who may join the crispy remains of some previous partners, I think this may be the beginning of a new push for Microsoft. One that potentially leads to Open Source. You see, once Microsoft groks that when you are continually providing value via services (as opposed to providing lock-in as they currently do) that customers actually want to pay you, it could lead to the fundamental paradigm shift that will be needed to change the company culture. I still maintain that can’t happen with the current leadership, but this move could be the real beginning of the shift. A stretch? possibly. A chance? Most definitely.

–jeremy

Comes vs Microsoft Petition Shows How Microsoft Blocked Linux Sales

Some people wonder why OEM Linux preloads like this didn’t happen sooner. Don’t forget that a couple companies did make small attempts, but were smacked down (PDF warning) by Microsoft:

Microsoft’s Predatory Response to GNU/Linux

142. GNU/Linux is an “open source” operating system that runs on Intel-compatible PCs. Microsoft has targeted the competing operating system by pressuring Intel, as well as various major OEMs such as Dell and Compaq, to boycott Linux. In late 2000, for instance, Microsoft executive Joachim Kempin described his plan of retaliation and coercion to shut down competition from Linux: “I am thinking of hitting the OEM harder than in the past with anti-Linux actions” and will “further try to restrict source code deliveries where possible and be less
gracious when interpreting agreements – again without being obvious about it,” continuing “this will be a delicate dance.”

143. LindowsOS (now known as Linspire), which is developed and marketed by Lindows.eom, Inc., is an Intel-compatible PC operating system based on Linux and which competes directly with Microsoft on the. PC desktop. On information and belief, Microsoft interfered with Lindows.com, Inc.’s ability to distribute its product through the OEM channel. Microsoft also initiated a lawsuit against Lindows.com, Inc. that adversely affected
Lindows.com, Inc.’s ability to exist, obtain; funding and conduct business.

Microsoft’s Anticompetltive Agreements With OEMs To Foreclose Competition

144. Microsoft Chairman and former CEO, Bill Gates, reportedly summarized the effects of the DOJ’s 1995 consent decree–which banned “per processor” licenses, among other exclusionary licensing terms as “nothing.” Microsoft was able to devise other restrictive OEM agreements to foreclose competition in the OEM channel, notwithstanding the consent decree

145. A “per system” license was the practical equivalent of the “per processor” license. Under the “per system” license, the OEM had to pay royalties to Microsoft for every computer of a particular “model” or “system” that it shipped–again, as with the “per processor” contracts, regardless of whether the PC contained Microsoft’s operating system. Microsoft defined “system” and “model” so broadly in its contracts that virtually all of an OEM’s production was subject to Microsoft’s “double tax” if the OEM wanted to give the consumer a choice of operating systems. Microsoft did not agree to give up its “per system” licenses in the 1995 consent decree, even though the Department of Justice warned the federal district court that “per system licenses, if not properly fenced in, could be used by Microsoft to accomplish anticompetitive ends similar to ’per processor’ licenses”–and in fact were.

146. Another way that Microsoft found to circumvent the federal court’s 1995 injunction forbidding its use of “minimum commitment/per processor” licenses was what Microsoft calls its “Market Development Agreements” (“MDAs”). Microsoft contrived the MDA as a device to evade the Court’s decree prohibiting Microsoft from requiring OEMs to adhere to “minimum commitments.” As Steve Ballmer (Microsoft’s current CEO) acknowledged: “We have always given better prices to customers who work with us to make the market. Those used to take the form of commits [i.e., minimum commitments] which we do not do anymore as a result of the [federal court’s] decree but we still believe in rewarding people who help us create demand. Hence the iMDA.” Under the MDAs, Microsoft granted large discriminatory price concessions to those OEMs that would agree to market and promote Microsofl’s Windows to the exclusion of any rival operating system. These discounts were calibrated so as to force the OEM to sell most of its computers with a Microsoft operating system in order to obtain the lowest price.

147. Because the OEM market is so competitive and profit margins are so thin, every OEM had to get the lowest price it could :from Microsoft in order to survive. In March 2002, a Gateway marketing executive (Anthony Fama) testified before Judge Kollar-Kotelly in State of New York et al. v. Microsoft, Case No. 98-1233 (CKK), about how Microsoft used its MDA program in order to force OEMs to market Microsot~’s operating system exclusively: “Given the substantial nature of these discounts, participation in the MDA, as a practical matter, is not optional. In other words, not receiving :these discounts would put Gateway at a substantial competitive disadvantage, and Gateway has communicated that self-evident proposition to Microsoft.” Microsoft also used its MDAs to lock OEMs in and competitors out by offering a discriminatory price to the OEM in a later year provided (a) the OEM reached Microsoft’s imposed goal of Windows sales over competitive sales in the prior year and (b) renewed its exclusionary contract with Microsoft for ,the later year. This placed the OEM on a perpetual treadmill, eliminating competition indefinitely. Microsoft continued these exclusionary terms at least past April 2002.

148. One method for encouraging competition in the operating systems market would have been the sale by OEMs of “naked machines” (i.e., computers that are sold without a predetermined suite of software forced upon the consumer). “Naked machines” would allow consumers to choose their computer’s software configuration from an array of competitive software products, either for preinstallation by the OEM or installation by the end user. Microsoft sought and obtained the agreement of the OEMs to refrain from selling “naked machines.” Instead, OEMs universally agree to “bundle” Microsoft applications and operating systems with their computer hardware, effectively depriving consumers of any competitive choices. These restrictive agreements exited before 2000 but, in 2000, Microsoft ratcheted the restriction up so that OEMs are forced to forfeit all discounts otherwise earned if they ship any “naked machines” to consumers. This heightened restriction, which (on information and belief) continues to the present, prohibits PC users and PC retailers from buying and installing lower priced or better quality operating systems of their choice.

It’s great to see that the grip on the industry is no longer as tight and companies are a bit more free to do what they feel is in the best interest of themselves and their customers. We’ve got a long way to go, but we’re making steady progress.

–jeremy

Red Hat CEO Says He Talked Patents with Microsoft II

A quick follow up on this post based on some questions/comments that I got via email. First, no – I absolutely don’t think Red Hat is currently in discussion with Microsoft to sign a Novell-style patent deal. Note the bolding. They may very well be in some kind of discussion, but that is not necessarily a bad thing. If Microsoft privately went to Red Hat with potential patent infringements, even silly unspecified ones, then Red Hat would be obligated to address the issue. That would require discussion. It’s very tough to be the CEO of a public company these days. “No comment” is very often the only answer you can give without the MSM twisting your words in all kinds of directions. Also note that Red Hat may be in talks about specific and valid patents or talks about something completely non-patent related. Who knows – speculation on this is mostly useless. I do remain confident though, that a Novell-esque deal will not come out of this. Don’t forget that RHT is fundamentally an Open Source company. It’s in their DNA and it’s reflected in their employees and culture. Novell had one or two key people leave after they signed the deal. Red Hat would have an exodus. The C-level execs at Red Hat know this. They get Open Source at a very fundamental level themselves, in fact. The following is the last official statement I could find from Red Hat on this topic. In the end, I have no reason to believe that sentiment has changed.

“Red Hat has only recently been able to see some of the terms of the original Microsoft/Novell deal, due to the belated and redacted SEC filings that were made. Based on what we have seen, the deal is not interesting to us. Red Hat continues to believe that open source and the innovation it represents should not be subject to an unsubstantiated tax that lacks transparency.”

–jeremy

More Microsoft Patent Dealings

So, Linspire is the latest company to sign a patent deal with Microsoft. They’ve even managed to wrangle some additional items they claim are not in the other deals:

Linspire Inc. has announced an agreement to license voice-enabled instant messaging, Windows Media 10 CODECs, and TrueType font technologies from Microsoft for its Linux distribution. Additionally, Microsoft will offer protection to Linspire customers against possible violations of Microsoft patents by Linux.

In his June 14 weekly Linspire Letter, Linspire CEO Kevin Carmony stated, “This agreement will offer several advantages to Linspire Linux users not found anywhere else, such as Windows Media 10 support, genuine Microsoft TrueType fonts, Microsoft patent coverage, improved interoperability with Microsoft Windows computers, and so on.”

Linspire has always been more willing than most to include proprietary codecs and drivers, so this is no surprise. While I may not agree with their stance, I do think they are legitimately trying to improve the desktop Linux experience, and you can’t fault them for that (or at least I don’t). I do find it odd that they’d choose to have a demonstrably inferior product in Live Search be the default, but I digress. What’s troubling once again is the inclusion of dubious patent protection. Now, Linspire (nee Lindows) and Microsoft have a tumultuous history. In that vein, this post has some interesting tidbits.

We now have three Linux distributions wrapped up in this patent debate. It was speculated that Mandriva may be next. Based on the profile of the latest two companies, it seemed a logical guess if you had to make one. It’s good to see that they have gone on the record saying that it’s not going to happen. Red Hat already rejected the idea and Mark made his feelings very clear in this post:

There’s a rumour circulating that Ubuntu is in discussions with Microsoft aimed at an agreement along the lines they have concluded recently with Linspire, Xandros, Novell etc. Unfortunately, some speculation in the media (thoroughly and elegantly debunked in the blogosphere but not before the damage was done) posited that “Ubuntu might be next”.

For the record, let me state my position, and I think this is also roughly the position of Canonical and the Ubuntu Community Council though I haven’t caucused with the CC on this specifically.

We have declined to discuss any agreement with Microsoft under the threat of unspecified patent infringements.

Allegations of “infringement of unspecified patents” carry no weight whatsoever. We don’t think they have any legal merit, and they are no incentive for us to work with Microsoft on any of the wonderful things we could do together. A promise by Microsoft not to sue for infringement of unspecified patents has no value at all and is not worth paying for. It does not protect users from the real risk of a patent suit from a pure-IP-holder (Microsoft itself is regularly found to violate such patents and regularly settles such suits). People who pay protection money for that promise are likely living in a false sense of security.

I welcome Microsoft’s stated commitment to interoperability between Linux and the Windows world – and believe Ubuntu will benefit fully from any investment made in that regard by Microsoft and its new partners, as that code will no doubt be free software and will no doubt be included in Ubuntu.

He also goes on to state why he dislikes OOXML.

With regard to open standards on document formats, I have no confidence in Microsoft’s OpenXML specification to deliver a vibrant, competitive and healthy market of multiple implementations. I don’t believe that the specifications are good enough, nor that Microsoft will hold itself to the specification when it does not suit the company to do so. There is currently one implementation of the specification, and as far as I’m aware, Microsoft hasn’t even certified that their own Office12 completely implements OpenXML, or that OpenXML completely defines Office12’s behavior. The Open Document Format (ODF) specification is a much better, much cleaner and widely implemented specification that is already a global standard. I would invite Microsoft to participate in the OASIS Open Document Format working group, and to ensure that the existing import and export filters for Office12 to Open Document Format are improved and available as a standard option. Microsoft is already, I think, a member of OASIS. This would be a far more constructive open standard approach than OpenXML, which is merely a vague codification of current practice by one vendor.

The speculation as to what Microsoft’s end goals are with this remain all over the map. I maintain they themselves may not even be sure yet. One might think they are trying to fracture the Linux market – a sort of divide and conquer. As long as Ubuntu and Red Hat remain on the other side, however, that plan isn’t going to work. The only real loser in that scenario would potentially be Novell. It’s clear that smaller, desktop oriented companies are their current sweet spot, which says a lot in my opinion. Not sure where this is all going, but it’s getting more interesting to watch by the day. Stay tuned.

–jeremy

Linux leaders plot counterattack on Microsoft

This is from an article recently posted to Reuters about the Linux Foundation Collaboration Summit:

Dressed in the alternative software movement’s casual uniform of T-shirts and jeans, the group is coming to grips with internal divisions that sap at its success — Linux is now used to power desktop computers, major Web sites, mobile phones — since rival factions often create very similar products.

But as many of the world’s top tech companies and corporate customers demand ever more from Linux, open source devotees still fight among themselves with the fervor of a tiny monastic order seeking to root out theological error in their midst.

“Guys: Be seekers of truth, not finders of contradiction,” Jim Zemlin, executive director of the Linux Foundation, organizer of the event, only half-jokingly told the 150 attendees of what is billed their “Collaboration Summit.”

Collectively, the group is militantly opposed to Microsoft, which some attending the summit openly refer to as “the enemy.”

The thing I really don’t like about the article is the headline. It’s an attention grabber, meant to pull in readers. But, the fact is that nothing could be further from the truth. Having attended the event I can say the the subject of Microsoft was barely even broached. In fact, one of the panels included some of the best Open Source lawyers on the planet. The likes of Andrew Updegrove, Karen Copenhaver and Mark Radcliffe. The audience could ask this ridiculously prodigious group any questions they wanted. The recent Microsoft patent deals were not brought up a single time to my recollection. This summit was about how to better work together within our community, how to collaborate with each others in ways that make sense, how to improve freedom and how to build the absolute best products and services in the world. That’s a change from some events in the past, where it was about Microsoft. It’s good to see we’ve moved on to more important things. Yes, some people do disagree on some things. We’re able to rationally discuss those points as a community though, and through it all that makes us stronger. If 100% of the people in your organization agree on everything, you’re either not doing anything interesting or people are just scared to speak up. Both are bad.

–jeremy