Microsoft Will License Windows Source Code

BRUSSELS (Dow Jones) — Microsoft Corp. (MSFT) said Wednesday it will license its Windows source code in order to comply with a European antitrust punishment.

Speaking at a press conference in Brussels, the company's chief counsel, Brad Smith, called the move "a bold stroke." The source code provides the building blocks of the operating system that competitors need to make products compatible with Windows.

In the past, Microsoft has refused to license this code. Software developers still will have to pay for the code, which open source advocates will not be allowed to "publish for free," Smith cautioned.
The company had "just started to provide this information on both sides on the Atlantic" and regulators "want to see all the details," Smith added.

In a statement, the European Commission said it "will study carefully the announcement made by Microsoft." It added Microsoft must give a full response to its charge by Feb. 15.

Speaking later on CNBC, E.U. spokesman Jonathan Todd said it was "unclear" whether the source code offer satisfied the E.U.'s concerns.

The Commission only received news of Microsoft's offer in a letter from its CEO Steve Ballmer 10 minutes before the public announcement, he added.

The move comes as regulators increase pressure on the software company.

In March 2004 the European Commission fined the company EUR497 million and ordered it to change some of its business practices. On Nov. 10, the commission sent Microsoft a 'statement of objections' formally accusing it of obstructing its punishment.

Microsoft faces fines of up to EUR2 million a day if it can't explain its failure to provide information needed by rivals to write programs that will mesh with the company's ubiquitous Windows operating system. Wednesday's move to license the source code is designed "to put that issue to rest," Smith said.

In addition to its European antitrust woes, Microsoft faces regulatory tension with Washington. Although the company has signed a deal with the U.S. government, a Justice Department lawyer complained to a judge this week the software giant had provided inaccurate information and failed to meet deadlines.

Microsoft has appealed the European antitrust punishment to the European Union's second-highest court, the Luxembourg-based Court of First Instance. The court rejected Microsoft's initial demand to stay the judgment pending the appeal. But on Wednesday, the court said it would hold a full hearing on the case from April 24 to April 28. A verdict will come about six months later, a court official said.

This is the year "when we have our opportunity to stand in court," Smith said. "If anything, we are more confidence in substance" of our defense.

As evidence, Smith pointed to increased competition in the market place since the E.U. ruled two years ago. He pointed out Apple Computer Inc.'s (AAPL) renaissance, saying "it is impossible to avoid thinking of success of the iPod, iTunes and services Apple has brought to the market." "Integration into Windows is not a barrier to their success," Smith argued.

The concessions on source code comes after the E.U. complained that the 12,000 pages of technical documents submitted by Microsoft were insufficient to meet its worries. Chief Counsel Smith called the debate of documentation "arcane" and said Microsoft was acting on source code in an "attempt to put that issue to rest."

Under the E.U. ruling, he said the company wasn't obliged to release the code. But Microsoft had determined "that the source code is the ultimate documentation, it is the DNA." In addition, he said the company was offering 500 hours of "free technical support" to help software developers decipher the code.

Microsoft did put some limitations on the offer. The source code would be offered at the same price as other previously offered licenses for communications protocols. And perhaps crucially, not all Windows source code will be offered.

"What we are talking about licensing is source code for Windows workgroup operating system" and the "source code for Windows desktop operating system," he said. This was the code needed to implement the part of the E.U. decision about interoperability between competitors' servers and Microsoft-run machines.

Earlier, the E.U. repeated its complaints that Microsoft was not complying with its demands.

"Microsoft is not disclosing complete and accurate interface information to allow non-Microsoft workgroup servers to receive full interoperability with Windows PCs and servers," said spokesman Jonathan Todd.

The U.S. government was facing the same difficulty as E.U. regulators, he said. "The Department of Justice is also stating that Microsoft is failing to provide requisite technical information," Todd said.

The Commission spokesman said the final word on whether Microsoft is meeting the terms of the E.U. antitrust order "rests in the first place with the Commission and not Microsoft."