Microsoft set for long battle with Japanese regulators

Microsoft Corp.’s Japanese unit is preparing for a potentially long battle with the Japan Fair Trade Commission (JFTC) in a case that will likely see three of Japan’s top electronics companies testify against the software giant, the company’s top lawyer in Japan said Wednesday.

The dispute, which is bogged down right now, could heat up in early 2006 when Sony Corp., Mitsubishi Electric Corp. and Matsushita Electric Industrial Co. Ltd. will probably be called by the JFTC, Japan’s competition regulator, to try to prove that Microsoft Co. Ltd. broke Japan’s Antimonopoly Act, said Takashi Hirano, Microsoft’s senior attorney.

The company’s legal battle with the JFTC began last October when it filed charges alleging that certain clauses in Microsoft’s Windows licensing agreements with Japanese PC vendors were illegal. Clauses that restricted the ability of vendors to sue Microsoft if they believed Microsoft had infringed on their technology patents were problematic, according to the JFTC.

Microsoft denied any wrongdoing at the time. On Feb. 21 last year — five days before the JFTC launched its investigation into Microsoft’s license agreements — Microsoft Corp. told PC vendors it intended to drop the provisions from future contracts, according to Kazunori Ishii, a Microsoft spokesman in Tokyo.

Microsoft removed the provisions from contracts signed on or after Aug. 1, and this policy was applied globally, he said.

But removing the clauses hasn’t helped Microsoft in Japan, where the company could face a protracted battle if the two sides can’t settle their differences in various meetings between now and the end of this year, Hirano said.

A settlement looks unlikely because Microsoft is having a hard time understanding the JFTC’s case, Hirano said.

Since October, the company has met with the JFTC multiple times, asking for clarifications about the allegations, and it is now in the final stages of preparing its counter-arguments, which it will submit around Aug. 5. Those arguments will likely run to 200 pages, of which about half will be evidence in the company’s defense, and half will be legal arguments disputing those of the JFTC, he said.

“We have spent one year clarifying many, many ambiguous points which [the JFTC] thinks are illegal. We can’t understand their arguments and we’ve asked them more than 100 questions, although I think we’re almost finished,” Hirano said.

The case is important for Microsoft because it involves the company’s licensing practices in Japan spanning a decade. Microsoft argues that it pursued a long consultative process with licensees and that vendors and OEMs (original equipment manufacturers) were in no way strong-armed into signing agreements. The patents situation also remains muddy as well, Hirano said.

“We just don’t accept that OEMs are compelled to accept non assertion of patent clauses. We say we fairly negotiate with them and make amendments in many cases. Sony, Mitsubishi and Matsushita say some of Windows infringe on their patents, and we’ve asked what kinds of patents they are, but the JFTC doesn’t say,” Hirano said.

Microsoft wants to settle the case quickly, but a ruling probably won’t be issued until around early 2007, he said.

If Microsoft loses, the company is prepared to battle all the way to Japan’s Supreme Court, which could mean a fight to the end of the decade, according to Hirano.

“It could take a long, long time,” he said.

The JFTC will issue its response to Microsoft’s answers on Aug. 29 and, on the same day, the date for another hearing will be set, according to Masayuki Yamaguchi, chief investigator of the JFTC’s First Special Investigation Division.

“We want to pursue this case with all possible expediency and efficiency,” Yamaguchi said.

Beyond that, the JFTC does not want to speculate on the next stages of the dispute, he said.