UPDATE: Microsoft to license code to avoid EU fines

Microsoft has agreed to license the source code for communications protocols in its Windows server software in a bid to avoid being fined $2.43 million a day by the European Commission, the company’s top lawyer said Wednesday.

“I don’t believe any decision to implement a fine is warranted,” Brad Smith, Microsoft’s general counsel, told reporters in Brussels following the announcement that it would license the code to third-party vendors.

The Commission, which is the European Union’s anti-trust enforcement arm, has threatened to hit the company with the hefty fines unless it comes into compliance with the Commission’s March 2004 anti-trust decision against it.On Monday it agreed to extend the deadline for the company to comply to Feb. 15.

As part of that decision, Microsoft was ordered to license the communications protocols for its workgroup server software so that other vendors can develop products that interoperate smoothly with Windows. The Commission’s goal is to create a more level playing field for competition in the server software market.

Smith said by offering the source code for the communication protocols the company would fully address “any doubts” the Commission had that it had not yet fully complied with the ruling requiring it to provide enough information to ensure interoperability. He said he believed the company was already in compliance by offering around 12,000 pages of documentation and 500 free hours of technical support. But the company is prepared to go a “substantial step” further and offer access to the source code so that developers could answer any questions they had by looking at the code. “The source code is the ultimate documentation,” he said.

In December, the Commission has issued a fresh set of complaints against Microsoft for failing to comply with the part of the ruling that relates to workgroup server interoperability. The Commission said the documentation the company had provided was “fundamentally flawed” and would not allow developers to create products that could successfully interoperate with Microsoft’s server software.

However, Smith challenged the conclusions of the independent trustee on which the Commission based its decision to issue a new set of complaints. The trustee is a computer science expert, Neil Bartlett, who is monitoring the company’s compliance with the 2004 ruling. Focusing on Bartlett’s comments that developers would not be able to develop new products in four days using the documentation, Smith said Microsoft’s own engineers would not be able to do it in so short a time either.

Smith acknowledged, however that the Commission would continue to review the prices of the licensing agreements under which Microsoft offers access to the communications protocols. He pointed out that the source code would be provided to licensees at no additional cost.

Smith also confirmed that the company was not offering to change the licensing terms as such, and that this also continued to be an issue for the Commission.

The Commission said in December that “non-innovative” protocols should be made available to the open source community but has asked the European Court of First Instance to decide this issue.

“We have said we are in favor of developing hybrid models but we are not happy about open source developers publishing to the world. We are not permitting open source publishing of Windows,” Smith stressed.

Under a so-called “reference licensing” terms Microsoft is offering, developers would get the right to study and analyze the underlying source code but not copy it or use it directly in their products.

However, Microsoft’s leading open source rivals and chief complainants in the European case said the offer would make no difference to their position, although they conceded the company had made a “huge step.”

Carlo Piana, a lawyer who represents the Free Software Foundation Europe (FSFE) and the Samba team of open source software developers, said it was “unprecedented” for the company to be prepared to give away its “crown jewels” in the form of the source code.

“This shows that Microsoft is more scared of free software than proprietary developers,” he said. Piana stressed that the offer of the source code was “useless” to free software developers unless it was offered under general public license terms. Groups such as FSFE and Samba team have complained that Microsoft, by refusing to offer access to the communications protocols under GPL terms, is imposing conditions that would prevent them from developing competing products in the spirit of free software.

Piana added that it showed the Commission’s measures were “very effective” and were having a far greater impact on the company than similar steps taken by U.S. antitrust authorities against Microsoft.

Smith also explained that Microsoft would be offering the source code for the communication protocols for its Windows desktop PC operating system in the United States. He explained that the company was already offering access to these protocols under a reference licensing agreement following the U.S. Department of Justice’s decision but would match what it was doing in the E.U. by extending the terms of these licenses to cover the underlying code itself. There are around 20 approved licensees, according to Microsoft.

The European Commission is currently studying Microsoft’s proposal and is expected to give a reaction on Wednesday.