EU eyes royalties squeeze for Microsoft

Software giant wants too much payback for the tech it must license to rivals under an antitrust order, an EU document reportedly says.

Microsoft could be forced to give rivals vital technical information in exchange for little or no royalties, according to a newspaper report.

The software company originally wanted 5.95 percent in royalty payments on software that uses certain Microsoft-patented routines that are sold by the company to its rivals as part of the settlement with the European Commission.

According to the Financial Times, which claims to have seen a confidential internal European Commission document, Microsoft was told it could have zero or 1 percent of the disputed royalty payments.

The document was written by Neil Barrett, the expert agreed on by Microsoft and the Commission. According to Barrett, at a 5.95 percent royalty rate, Microsoft's rivals would recoup their development costs within seven years. Barrett said in the document that this would be unacceptable, and that even a royalty of 1 percent was too much.

Microsoft's suggested remedy would be "prohibitively high...and should be reduced in line with this analysis," Barrett said, according to the Financial Times report.

Microsoft disagrees.

"We firmly believe the prices we proposed are fair," Microsoft spokesman Jack Evans said Friday in a statement to CNET News.com. According to Evans, analysis conducted for Microsoft by PriceWaterhouseCoopers found that Microsoft's "pricing is at least 30 percent below that of comparable technology in the marketplace." Evans added, "We also believe that this technology is innovative because it includes 36 patents issued by U.S. and European patent offices, with another 37 patents pending."

The Commission maintained that neither Microsoft's proposed solution nor the 1 percent figure is acceptable.

According to the Financial Times, the Commission believes that prices proposed by Microsoft would not "allow (rivals IBM, Sun Microsystems and Oracle) to develop products that would be viable from a business perspective."

All three of those companies have made no secret of their belief that Microsoft acts in an uncompetitive way and has consistently made it difficult for them to produce applications that are fully interactive with Microsoft software.

This phase of the antitrust dispute between Microsoft and the European Commission has been raging for three years now, since the Commission first fined Microsoft 497 million euros ($664 million). Since then, the Commission has continued to fine the software giant, hitting it with a fine of 280 million euros ($374 million) last year for failing to comply with the first fine.

Microsoft has until April 23 to formally respond to the latest royalty proposals.

Colin Barker of ZDNet UK reported from London.

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