MS ANTITRUST : Microsoft loosening contracts for PC makers

Amid mounting pressure from competition regulators, Microsoft Corp. will scrap a clause in its licensing contracts with PC manufacturers that prevents them from enforcing any hardware patents they have that may have implications for software.

The so-called non-assert clause will be removed from all licensing agreement renewals for the Windows operating system from August of this year, Microsoft spokesman Tom Brookes said Monday.

“We recently reviewed this provision again after receiving comments on it from some of our OEM (original equipment manufacturer) customers and have decided to delete the provision in its entirety from the next round of OEM contracts,” Brookes said.

He denied that simultaneous investigations of Microsoft by Japanese and European competition regulators led the software firm to scrap the clause. “It’s coincidental,” he said.

Last October the European Commission wrote to 22 OEMs asking them about the clause. Ten days ago the Japan Fair Trade Commission raided Microsoft offices in Tokyo in a similar inquiry. Regulators in both countries suspect that Microsoft may be abusing the dominance of Windows.

Hardware manufacturers such as IBM Corp., Dell Inc., Hitachi Ltd. and Toshiba Corp. have signed these non-assert clauses because they cannot afford to offer computers without Windows, said Thomas Vinje, an outspoken critic of Microsoft and a partner in the Brussels office of the law firm Clifford Chance LLP.

The clause acts as a big disincentive for OEMs to innovate, according to Vinje, whose clients include Dell and Fujitsu Ltd. For example, if IBM patented a method for speeding up the operations of a computer, the company would not be able to enforce that patent in order to prevent Microsoft or any other competing hardware manufacturer from using the technology.

“The Commission has looked at these clauses in the past but it has never issued a ruling,” Vinje said.

In 2001 the Commission closed an investigation of the non-assert clause after Microsoft reached a settlement with an unnamed British OEM that sparked the investigation by complaining to the European competition regulator.

“We briefly looked into the patent-related clause as a result of a complaint in 2000 by a company that had a patent-related dispute in the United States, but did not pursue the case as it was settled between the companies concerned,” Commission spokeswoman Amelia Torres said.

The Commission’s inquiry into Microsoft Windows licensing agreements with hardware manufacturers could still form the basis of a separate antitrust investigation, even if the non-assert clause is scrapped later this year.

The letters to the 22 OEMs also asks them about clauses in their contracts with Microsoft that the Commission suspects are designed to create obstacles to open source software.

“There are several provisions in the contracts that are designed to act as road blocks to open source software running on PCs,” Vinje said. “The Commission also asked about these.”

There is no timeframe for the Commission’s investigation.

The inquiry is separate from an ongoing antitrust lawsuit conducted by the Commission. The antitrust case focuses on Microsoft’s policy of bundling its audio-video Media Player software into successive versions of Windows.

The European Commission has accused Microsoft of abusing the dominant position of Windows in order to foreclose the market for multimedia software. The Commission also accuses the U.S. software giant of leveraging its dominance of PC-operating system software into the market for low-end server operating systems.

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