Software Patents Could Reduce The Microsoft Antitrust Suit To Absurdity

Microsoft CEO Steven Ballmer is a wise man. In March, he spoke to a business magazine about the Free Software movement and conceded, "I'm not saying it's not real competition. Maybe the world has exactly what it wants. It has us moving fast and hard, keeping our prices down." To paraphrase: Competition from Free Software such as GNU/Linux helps keep Microsoft innovative and prevents it from increasing prices arbitrarily.

At the same time, Ballmer was honest enough to admit that he would litigate against Free Software if Microsoft weren't able to withstand the competition. In the same interview he said: "There are experts who claim Linux violates our intellectual property. I'm not going to comment. But to the degree that that's the case, of course we owe it to our shareholders to have a strategy." Reading between the lines, his message seems to be that competition with Free Software has become inconvenient to Microsoft, and that the company aims to regain control by whatever means.

Unfortunately, Ballmer is not as precise in his language as he could be. For one thing, "intellectual property" is not a legal term that exists, as such, anywhere in the world. Rather, lawyers work with legal structures such as copyrights, trademarks, and software patents. Given the circumstances, it's unlikely Ballmer is referring to copyrights and trademarks. So what he really means is software patents.

And Microsoft knows the problems which might be caused by software patents very well. Here is a quote from Microsoft founder Bill Gates in 1991: "If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete standstill today." Most interesting is Mr. Gates conclusion: "The solution is patenting as much as we can. A future startup with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high. Established companies have an interest in excluding future competitors."

Following this strategy, Microsoft applied for and was granted thousands of patents throughout the world, including in Europe. But since Europe still lacks a legal basis for regional software patents, the software giant has lobbied intensively in favor of such laws in recent years. The attempts have failed so far, but in the meantime, Microsoft spreads FUD -- fear, uncertainty, and doubt -- over Free Software by openly speculating about possible "intellectual property" concerns. The aim is simple: To prevent customers from exercising freedom of choice in software.

The European Commission will try to defend users' freedom by defending its 2004 antitrust decision against Microsoft before the Court of First Instance on April 24. But in the meantime, businesses small and large are choosing freedom by running a mixture of operating systems and application on their networks -- GNU/Linux, Unix, and Apple-based systems on one side, and Windows on the other. Communication works fine within these two worlds, but not between. There, cooperation falls down, not due to genuine technical constraints but simply because Microsoft has made it artificially difficult for Windows to interoperate with other operating systems.

In this way, the monopolist remains in control of individual machines as well as the corporate network. In 2004, the European Commission ruled that Microsoft had harmed competition in Europe, and ordered the company to restore fair market conditions by publishing interoperability information for Windows. This software "grammar" is akin to the rules humans use to speak common languages. (The Free Software Foundation Europe has been admitted as a third party to the trial and has supported the European Commission since the lawsuit started in 2001.)

Microsoft's resistance to complying with the Commission's demands make clear that the stakes in this battle are far greater than control of software markets such as network servers. Rather, the company's entire business model is at risk. Some 80% of Microsoft's revenues, and essentially all of its profits, derive from Windows and the Office suite of desktop applications. Can this possibly be because users are so happy with Microsoft software? Or are they "locked-in" to technology they acquired like crab lice in a careless moment?

Microsoft is clearly scared by the possibility of customer defections, and so are shareholders. Every time the European Commission reasserts its intention to force open secret Windows protocols, Microsoft's stock dips. Overall, its shares have been flat since the EC's decision in 2004. But management and investors obviously are counting on continued software lock-in as the linchpin of Microsoft's future success.

The problem is, with growing competition from Free Software and other alternatives, Windows and Office aren't likely to keep producing the enormous returns that Microsoft and its shareholders are used to. That's why the company is plunging into emerging opportunities such as security software, desktop search, RFID, and voice over IP (VoIP). But in typical fashion, the software giant aims to build those capabilities into Windows -- the very practice the European Commission faulted in its 2004 decision. For now, Microsoft seems willing to risk fines from the Commission amounting to at least $2.4 million per day to hold onto its business model. After all, that's a pittance compared to what it makes every day in profits from its twin software monopolies.

But here's the gotcha: Over the long term, Microsoft is counting on software patents in Europe for its escape hatch. Even if the company is forced to publish its secret software protocols or leave key features out of Windows, a European software patent law might eventually let it stamp out competition from Free Software. Though two previous attempts at enacting a European software patent were defeated, Charlie McCreevy, Europe's commissioner for Internal Markets and Services could well resurrect the project this year.

That would be the ultimate irony. The same Commission that is pursuing Microsoft on the one hand for antitrust violations is, on the other hand, sanctioning new patent laws that could give Microsoft the power to crush competition forever. If such rules go into effect across Europe, entrepreneurs angling to compete against Microsoft could be blocked at every turn by software patents that prevent them from innovating. For the EC's pro-competition efforts are to have any teeth, Europe must resist allowing software patents that would render its antitrust capacity moot.

Jonas Öberg
Vice President
Trollhättan, Sweden

Carlo Piana
Studio Legale Tamos Piana & Partners,
Milano, Italy

$Date: 2006-04-21 10:47:38 +0200 (Fri, 21 Apr 2006) $ $Author: reinhard $