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Microsoft(MSFT) Internal Mail on EC Decision

For those seeking additional clarity on Microsoft’s view of the EU decision, here’s Microsoft legal beagle Brad Smith’s own words in an internal email to employees.  He definitely sees the EC decision as being unjustified, and unfair.  The transcript of his press conference is also worth a read.

From: Brad Smith (LCA)
Sent: July 12, 2006 1:48 PM
To: Microsoft and Subsidiaries: All FTE
Subject: Background on the EU Fines and Microsoft’s Compliance Efforts

As you’ve probably seen, the European Commission today announced that it does not believe that Microsoft has fully complied with the technical documentation requirements of its March 2004 ruling, and therefore will fine Microsoft € 280.5 million (US $357 million).

I want to provide some perspective on today’s announcement, and let you know both how hard we have worked to comply and how we plan to proceed going forward.

That Commission’s 2004 decision required Microsoft to do two things. First, it ordered us to produce and sell a stripped-down version of Windows XP in Europe that does not include Windows Media Player. We complied fully, although there has been almost no consumer demand for this version. Second, the Commission required that we license some of our Windows server communications protocols and provide what it called “complete and accurate technical specifications” to assist licensees in implementing these protocols.

In our view, the issue here is not about a lack of compliance, it’s about a lack of clarity about what the Commission’s expectations were for “complete and accurate technical specifications.” We began work on the technical documentation immediately upon receiving the Commission decision, and delivered more than 10,000 pages of documentation in December 2004. We did not receive substantive feedback until last September, nine months later. When it became clear that the Commission had different expectations over how the technical documents should be written, we repeatedly pressed for greater clarity. Then we delivered revisions promptly, offered unlimited technical assistance, and even made our source code available to competitors in an effort to resolve the impasse. In short, I truly believe the company responded quickly and in good faith to a government order that was unclear and undefined – and that we have complied with our obligations.

Despite all this effort, we’ve had a very hard time trying to get a clear statement from the Commission on how they want the technical documents to be written. This spring, we finally made a breakthrough after a group of engineers from Microsoft met with Professor Neil Barrett, the trustee appointed last fall by the Commission. A great deal of progress was made during these face-to-face meetings and an aggressive work plan was put in place to deliver revised documentation through a series of seven milestones, beginning in April and ending on July 18.

To meet the demands of the schedule, a team of more than 300 employees was assembled, including some of the company’s most senior engineers. Many of those involved played a central role in writing the protocols covered by the documentation. This team has worked around the clock to successfully meet each of the six previous milestones. Their tireless and persistent efforts and the high quality of their work is a testament to the great things people can accomplish when they pull together in a time of need.

During the last few months, we’ve been encouraged by positive feedback we’ve received from the trustee. We had hoped that this effort would demonstrate to the Commission that we would be fully in compliance by their July deadline. The fact that the Commission decided to fine us despite our massive compliance efforts is disappointing. And it’s hard to understand why the Commission is imposing this large fine when the process is finally working well and the agreed-upon finish line is still nearly two weeks away. 

So what’s next? First, we will push ahead to finish the technical documentation work later this month to meet the deadline established by the Commission. We are 100 percent committed to compliance, and we will not allow this fine to distract us from meeting our responsibilities.

Second, we will appeal this fine. We have great respect for the Commission, but we do not believe any fine – let alone a fine of this magnitude – is warranted given the lack of clarity in the Commission’s original decision and our diligent, good-faith efforts to comply over the past two years.

Third, we will maintain our commitment to Europe. We will not allow this fine to affect our important relationship with the European Commission. We will continue to partner with the Commission on important issues like education, innovation, and economic development in Europe.

Finally, we will continue to move forward with our plans for breakthrough products and services. A lot of people are wondering what this fine means for Windows Vista and other future products.  The answer is that we have worked hard to ensure that Windows Vista is consistent with the requirements of European law. We began sharing early versions of Windows Vista code with the Commission more than a year ago, and we are working to ensure that any questions they have about Vista get answered and any concerns are addressed.

In closing, I want to convey my admiration and my thanks to the engineering and documentation teams that have worked so hard throughout this entire process to meet the Commission’s demands and the trustee’s schedule. I know that you have sacrificed weekends and holidays, and worked through many long nights. Regardless of the Commission’s decision, Steve, Bill, and the entire senior leadership team at Microsoft deeply appreciates your hard work. I thank you very much.

I hope this information helps to answer any questions you may have about the European Commission’s announcement today, or Microsoft’s strong record of compliance. Despite today’s negative news, we can take pride in how hard our company has worked to live up to our responsibilities. I am hopeful that we can put this documentation issue behind us very soon.

Brad

{ 6 comments… add one }

  • Jim Courtney July 12, 2006, 2:17 pm

    This only demonstrates the futility of government intervention in markets. First, they don't understand the market and business case for the underlying technology; then they don't understand what they want.

    1. They ask for a product that has no consumer demand. Can anyone demonstrate increases in, say, Real Networks' revenue as a result of the EU decision?

    2. They cannot define a basic business goal: what is the final deliverable?

    And, as you posted a while ago, they cannot sort out features from products. A classic example of "all the logical buyers had already bought".

    Sounds like "let's get revenge at any price" to me.

  • Alec July 12, 2006, 2:47 pm

    My take also, Jim.

  • Paul Jardine July 13, 2006, 8:16 pm

    The EU ruling focussed on a couple of areas, but those were really just examples. The bigger issue here is about separation of access and content (where have you heard that before?).
    To put this into telco terms, Microsoft owns the network (Windows OS) and delivers its own content (Office, IE, WMP, Outlook etc) on that network. Does it unfairly make sure that it's content has priority over other vendors content? I think it's pretty clear that it does.

    If the telcos implemented IMS and then did not make all the functionality of their IMS infrastructure available to 3rd party providers, we (in the internet industry) would be very upset about it and demand something like Network Neutrality or the separation of access from content. This is the SAME argument, only somehow, people seem to come down on the other side of the fence where Microsoft is concerned.

    If AT&T bundled their own VoIP software and Relevance Engine into the ADSL modem/router they deliver to the end customer, which used some undocumented hooks to ensure priority packet routing, would that be anti-competitive?

    I'm also mildly curious as to what Jim thinks the EU is trying to get revenge for?

  • Alec July 14, 2006, 2:26 am

    Paul, I think the issue is simply a timing issue. One cannot argue with a straight face that politics don't intrude into anti-trust. Anti-trust law, since the very beginning, has been political in nature, as governments have attempted to limit the power of corporations in the name of fairness.

    I am not apologizing for, condoning, or condemning Microsoft's behaviour. The company has, in the past, exhibited behaviour of the type that you describe, although one could argue rationally that Microsoft's platform asset (windows etc) is NOT the same as the internet. The internet is a public utility, whereas Microsoft's OS assets are a privately owned asset.

    I would observe, however, that the company does appear to be making substantial efforts, and delivering concrete results designed to comply with the EC ruling. The decision to fine the company (as opposed to the initial decision to regulate it), appears to be more politically motivated than anything else.

  • Paul Jardine July 16, 2006, 5:42 pm

    Alec, on digesting my own comment, and thinking about what would have happened if one telco owned the internet, I came to the same conclusion as you, Microsoft created it's own asset, and therefore it is not exactly the same situation. However, we are at the stage where it is essential to all types of industry to have an OS for their PCs, and Microsoft's dominant position in the OS market makes them an easy target for anti-trust legislation.
    Actually, I am not in favour of imposing the kind of anti-trust legislation on Microsoft that has been done by the EU, just as I am not in favour of any Net Neutrality legislation; in principle.
    The problem is that Microsoft is so dominant that I am not sure that market forces alone will force the separation of access and content. Perhaps, now that Bill is going, the new people will either open up Microsoft and make their applications more OS agnostic (in the case of AN Other) or close it up and belligerently try to build the wall higher around the garden (in the case of Ballmer), thus creating increased demand for alternatives.
    On the timing issue, MS had since 2004 to comply with the ruling and only in April, after the deadline had passed, did they start making any efforts (i.e. once it was apparent they were going to be fined). The new deadline of July 31st is when it will be decided if the penalties need to be ratcheted up in order to get Microsoft to comply. As I say, I'm not sure I agree with what is being asked, but the fact that MS are in breach and should be fined is not really debateable.

  • Alec July 16, 2006, 6:27 pm

    As always, the issue w.r.t. to opening up applications at Microsoft will boil down to two questions:

    1) Does targeting an application at a different OS appreciably increase the market for the application?
    2) Does building an application to target multiple OS's impair the experience of that application on the dominant OS?

    Example: Microsoft ships the office suite (except for Outlook) on the Mac. They enjoy 90+% share in the Mac market. This is a profitable place for them to expend effort. One cannot make the same case, for instance, for desktop Linux.

    Example 2: Outlook was built as a PC application, and turned out to be very difficult to port to the Mac without compromise. Solution: Entourage was built in it's place.

    You should expect them to make rational decisions. That's what the shareholders of the corporation pay them to do.

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