Bargaining in the Shadow of the European Microsoft Decision: The Microsoft-Samba Protocol License (Part II)

By William H. Page[*] & Seldon J. Childers[**]

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III.  The Microsoft-Samba Agreement

On December 20, 2007, the Protocol Freedom Information Foundation[78] (PFIF) and Microsoft Corporation agreed (the WSPP/No Patents agreement) that Microsoft would license, on terms friendly to open source developers like Samba, all of the protocols disclosed under the ongoing American and European protocol licensing programs.[79]  The Software Freedom Law Center (SFLC)[80] created the PFIF as a nonprofit Delaware corporation to hold the master license and to license the documentation to free or open source developers.[81]  The PFIF paid Microsoft a one-time royalty fee of €10,000.[82]  The agreement provides a royalty-free[83] copyright and trade secret license permitting liberal use of the protocols and documentation, subject to confidentiality and non-disclosure restrictions.[84]  In this Part, we describe the negotiations and the terms of the agreement from the perspectives of both sides.

Bargaining in the Shadow of the European Microsoft Decision: The Microsoft-Samba Protocol License

By William H. Page[*] & Seldon J. Childers[**]

[download pdf]

[Editor's Note: This week, we are pleased to present Professor Page's and Mr. Childers's Article on the Microsoft-Samba Protocol License.  Part I appears today.  Part II of this Article will appear later this week.]

Introduction

On March 24, 2004, the European Commission (EC) held that Microsoft had abused its dominant position under Article 82 of the European Community Treaty[1] by, among other actions, refusing Sun Microsystems’ request for information that Sun needed to interoperate with Windows workgroup server products[2]  The EC ordered Microsoft to disclose “complete and accurate specifications for the protocols used by Windows work group servers in order to provide file, print, and group and user administration [i.e., directory] services to Windows work group networks.”[3]  On September 17, 2007, the European Court of First Instance (CFI) affirmed the EC’s liability ruling and its remedial order.[4]  About a month later, Microsoft’s CEO, Steve Ballmer, reached an agreement with the head of the EC’s competition authority, Neelie Kroes, on the terms under which Microsoft would license the protocols.[5]  In December 2007, with the active encouragement of the EC, Microsoft reached a licensing agreement for the covered protocols with Samba, an open-source development project that produces server software that emulates the behavior of Microsoft’s server operating systems.[6]  The parties have begun to implement the agreement.[7]

The Microsoft-Samba agreement is by far the most important tangible outcome of the European Microsoft case.  The EC’s other remedial order in the case, which required Microsoft to create a version of Windows without Windows Media Player, was an embarrassing failure.[8]  Immediately after the Ballmer-Kroes agreement, some anticipated a similar fate for the remedial order addressing Microsoft’s refusal to supply rivals in the workgroup server market.[9]  The Samba agreement, however, is significant because it requires Microsoft to provide, to its most important rival in the server market, detailed documentation of its communications protocols, under terms that allow use of the information in open-source development and distribution.  There is good reason to believe that Samba will be able to use the information to compete more effectively with Microsoft because Samba’s development methods depend specifically on analysis of communications protocols.  In a closely related development, Microsoft has now published all of the covered protocols on its website.[10]  While these actions will certainly enhance interoperability, they may also facilitate cloning and thus devalue Microsoft’s intellectual property. Thus, it remains unclear whether the license will enhance or inhibit dynamic, innovative competition in the long run.

In this short Article, we assess what the Microsoft-Samba license might mean, both for the market and for antitrust policy.  In doing so, we rely on published sources and on interviews with some of the key players in the negotiations.  On the Microsoft side, we spoke to David Heiner, Microsoft’s lead in-house antitrust counsel, and to Craig Shank, its lead negotiator for the Samba license.  On Samba’s side, we spoke to Eben Moglen, a professor at Columbia Law School, whose Software Freedom Law Center provided legal representation for Samba.  In Part I, we briefly describe the function of servers and communications protocols in computer networks. We then discuss the special significance of the Samba project in the server market.  Part II summarizes the reasoning of the EC and CFI in the workgroup server side of the European Microsoft case.  Part III describes the negotiations that produced the agreement and spells out the terms of the resulting license.  In Part IV, we consider the possible implications of the license and the disclosure process for Samba, Microsoft, and competition policy.