European antitrust regulators on Thursday issued a formal warning to Microsoft, threatening further penalties against the software giant over its pricing of protocol licenses.
The European Commission alleges that Microsoft has failed to adhere to the EC's historic 2004 order, which in part calls for the software giant to share interoperability information with its rivals, at "reasonable and nondiscriminatory" terms, so that their products would work with Microsoft's operating system.
"Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative," Neelie Kroes, European Commissioner for Competition, said in a statement. "The Commission's current view is that there is no significant innovation in these protocols. I am, therefore, again obliged to take formal measures to ensure that Microsoft complies with its obligations."
Microsoft will have four weeks to respond to the Commission's allegations that its pricing is unreasonable because of a lack of innovation. Should the Commission find Microsoft's response lacking, it could initiate daily fines until the software maker comes into compliance with the March 2004 order.
The Commission's monitoring trustee, Neil Barrett, noted: "All of the described features were considered either to have been Microsoft implementations of prior developments by others, or to have been anticipated by prior developments and to be immediately obvious minor extensions to that prior work."
Microsoft, however, contends the technology in question is innovative.
"Other government agencies in the U.S. and Europe have awarded 36 patents for these protocols and another 37 patents are pending," said Brad Smith, Microsoft's general counsel, during a press conference. "These agencies have concluded that that there is substantial innovation."
Microsoft also contends that innovation was only part of the pricing principles it and the Commission agreed to in June 2005.
The two-tier pricing principles call for either a "no patent agreement" or an "all IP agreement."
The Commission's monitoring trustee considers four issues when reviewing the pricing principals, Smith said. One is the extent to which the protocols are based on Microsoft's own creation. Secondly, innovation is examined, as is comparable pricing and the equivalent of an "other" category, said Smith, who added that the Commission appears to have concentrated on only one of the four.