1994 EC undertaking - EC press release

[James Love <love@cptech.org>]

This is a press release issued by the EC in 1994, describing the EC's only
undertaking with Microsoft.  I'm getting a copy of the undertaking itself, but
not in digital format.  (Volunteers for making it digital?).   Jamie


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FOLLOWING AN UNDERTAKING BY MICROSOFT TO CHANGE ITS LICENSING 
PRACTICES, THE EUROPEAN COMMISSION SUSPENDS ITS ACTION FOR 
BREACH OF THE COMPETITION RULES. 


 DN: IP/94/653     Date: 1994-07-17


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Mr. Karel Van Miert, the Commissioner responsible for competition policy,
has obtained an undertaking signed 15 July 1994 from Microsoft to modify
its licensing practices. This followed a period of intense negotiations
involving Microsoft and a team of senior officials drawn from the European
Commission and the United States Department of Justice. These negotiations
also resulted in Microsoft settling charges brought by the United States
Department of Justice by signing a consent decree.

This undertaking is very significant at least in two respects. It is the
most important case in the software industry until now. It opens up the
market for the operating system software which is at the heart of the
estimated 150 million computers in use worldwide and is of strategic
importance to the development of some of the fastest growing sectors of the
Information Technology industries.  Furthermore, the negotiation of the
undertaking was a historic and unprecedented piece of co-operation between
the EC Commission and the United States Department of Justice. It serves as
an important model for the future, as it shows how the two authorities can
combine  their efforts to deal effectively with giant multinational
companies. The success of this joint approach sends a strong signal to all
multinational companies, including those in other sectors.

Background

Microsoft, founded in 1975 and based in Redmond, Washington, has become the
largest developer, manufacturer and supplier of PC software in the world,
with a worldwide turnover of US $ 3.7 billion and a net profit of almost
US $ 1 billion in 1993, a third of which was derived within the European
Union. Microsoft supplies the MS-DOS and Windows operating systems used in
more than 120 million personal computers and therefore enjoys a virtually
unchallenged leadership in this market.

The Commission launched an investigation of Microsoft's licensing practices
following a complaint dated 30 June 1993 from Novell, the world's second
largest PC software company based in Provo, Utah. Novell is mainly known
for its networking software, but also supplies operating system software in
competition with  Microsoft. Novell alleged  that Microsoft  blocked
competitors out of the market for PC operating system software by certain
anticompetitive practices. In particular, the structure of Microsoft's
standard agreements for licensing software to PC manufacturers was said to
exclude  competitors from selling their products. Manufacturers were
required to pay royalties to Microsoft based on the number of PCs shipped
regardless of whether such PCs contained preinstalled Microsoft software, a
competitor's software, or no software at all.

After investigating the complaint, the Commission was concerned that:

- the use of "per processor" and "per system" licences,  i.e. clauses
requiring payment of a royalty on every computer produced by a PC
manufacturer either containing a particular processor type or belonging to
a particular model series designated by that manufacturer, regardless of
whether a particular computer is shipped with preinstalled  Microsoft
software;

- the use of "minimum commitments" in these contracts, ie requirements that
licensees pay for a fixed minimum number of copies of a particular product
regardless of actual use; and

- the duration of Microsoft's licence agreements,

had the effect of foreclosing the European market for PC operating systems
software, thereby infringing Articles 85 and 86 of the EC Treaty .

At the same time the United States antitrust authorities were investigating
similar concerns. Investigations had been launched by the Federal Trade
Commission. When, in early 1993, this body was split on the issue on

whether or not to take action, the case was continued by the Antitrust
Division of the US Department of Justice. During these investigations,
Microsoft consented to the exchange of information between the Commission
and the US Department of Justice by waiving its right to secrecy with
respect to both authorities. A number of contacts between DG IV and the DoJ
followed in which a coordinated approach was prepared. However, this type
of joint action was independent of the Cooperation Agreement in competition
matters concluded in 1991 between the EC Commission and the US Department
of Justice whose validity is still under scrutiny by the Court of Justice.

At the time when the Commission was about to open the formal procedure and
to issue a statement of objections, Microsoft indicated its willingness to
reach a settlement with the authorities concerned. In order to reach such a
settlement, the Commission and the US Department of Justice agreed to
negotiate jointly with Microsoft. To this end, trilateral talks were held
both in Brussels and in Washington DC. They resulted in an Undertaking from
Microsoft to both authorities.

The Undertaking

The Undertaking obtained by the European Commission and the US Department
of Justice provides that Microsoft will not enter into licence contracts
with a duration of more than one year, will not impose minimum commitments
on licensees and will not use per processor clauses any longer.

Per system licences will be allowed only if licensees are clearly given
flexibility to purchase non-Microsoft products and to avoid payment of
royalties to Microsoft in such instances.

In addition, any provisions of existing licence contracts which breach
these provisions will not be enforced, and licensees have an option to end
existing contracts. 

This Undertaking has a duration of six and a half years.

-----------------------

A similar press information was issued by the US Department of Justice for
immediate release on Saturday, 16 July 1994.