To meet demands by European antitrust regulators and avoid further fines, Microsoft has offered to change its licensing terms for communications protocols and has released an updated version of Windows XP without the Windows Media Player.

In other legal news, Microsoft has received a preliminary injunction against including a networking feature in upcoming versions of Windows and was ordered to pay an inventor US$9 million for infringing on a patent covering the ability to link Excel with Access.

Terms, OS Revised in EU Case

In early 2005, the European Commission (EC), the body that handles antitrust law for the European Union (EU), complained that Microsoft was not adhering to its Mar. 2004 antitrust ruling. Specifically, the EC said that Microsoft's licensing terms for protocols used by Windows Server to communicate with other Windows machines were too expensive and prevented open source competitors from using these protocols. In addition, although Microsoft began offering a version of Windows without the Windows Media Player to OEMs in Jan. 2005, the EC had some complaints about its branding and features.

In June, immediately before a deadline that could have resulted in fines of up to 5% of Microsoft's global sales (approximately US$5 million) per day, the company submitted a revised compliance plan to the EC, including the following measures:

• Allowing the protocols to be used in open source products, but subject to a Microsoft license rather than an open source license
• Lower licensing fees and more granular licensing terms for the protocols, allowing developers to mix and match 40 different sets of protocols and pay only for those they need
• Allowing products that incorporate the protocols to be distributed worldwide
• A slightly modified version of the OS without the Windows Media Player, now dubbed Windows XP N, with some Registry settings altered to allow third-party media players to work with applications (such as Word) and some Web sites, as well as other minor changes.

The EC expressed satisfaction with the plan, but will submit it to Microsoft's competitors before final approval. Further conflicts could arise over Microsoft's proposed licensing terms for using its protocols in open source products. For instance, the GNU General Public License (GPL), under which Linux is licensed, requires that the source code for all modifications be published without royalties or restrictions. However, Microsoft does not want open source vendors to publish the source code they use to implement the Microsoft protocols.

Windows XP N is unlikely to cause further disagreements, and the company will begin distributing it to OEMs and retail stores in covered countries in June and July. However, many major OEMs, including Dell, Fujitsu, Hewlett-Packard, and Lenovo, say they have no plans to ship PCs with it, due to low customer demand.

Meanwhile, even while Microsoft adheres to the EC's Mar. 2004 antitrust ruling to avoid further fines, it is also appealing that ruling—a process that will take several years. In May, the EC agreed to let the European Committee for Interoperable Systems (ECIS), a trade group consisting of IBM, Nokia, Oracle, RealNetworks, and Red Hat, intervene in the case, allowing these companies to gain access to court documents and participate in hearings. The appeals court expects to rule on the case in summer 2006, after which either party can appeal to the European Court of Justice.

Patent Losses

Also in spring 2005, Microsoft faced setbacks in two of the more than 30 patent infringement cases it is currently facing.

TCP offloading injunction. In April, a judge in the District Court for Northern California issued a temporary injunction preventing Microsoft from developing or marketing a technology code-named Chimney, slated for future inclusion in Windows Server. Chimney enables TCP offloading, which improves server performance by allowing another component (such as an integrated circuit on a network interface card) to handle TCP networking tasks, thereby leaving more processing power for applications. Alacritech, which creates networking equipment, sued Microsoft over Chimney in 2004, alleging that it infringed on two Alacritech patents.

In granting the injunction, the judge emphasized that it was not based on any findings of fact. Rather, the judge merely agreed that Alacritech has a "reasonable likelihood" of proving its case, and that allowing Microsoft to go forward without resolving the case could cause irreparable harm to Alacritech. Microsoft is still considering whether to appeal the injunction, wait for trial, or settle with Alacritech.

Access-Excel payment. In June 2005, a jury in the U.S. District Court for Central California ruled that Microsoft violated a 1994 patent held by Carlos Amado and ordered the company to pay him nearly US$9 million. The patent covers an Access feature that allows data to be displayed in an Excel spreadsheet. Amado had hoped to win damages of approximately US$400 million, but the jury dismissed nine of his ten claims. Microsoft has not yet decided whether to appeal the order.