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

Abstract

In 2004, the European Commission held that Microsoft had abused its dominant position under Article 82 of the European Treaty by, among other actions, refusing Sun Microsystems' request for information Sun needed to interoperate with Windows workgroup server products. 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 services to Windows work group networks. In September 2007, the European Court of First Instance affirmed the EC's liability ruling and its remedial order. Last December, 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. The Microsoft-Samba license 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. The Samba agreement, however, is both significant and perilous for global antitrust policy. It provides critical protocols and documentation to Microsoft's most important rival in the server market, a rival, moreover, whose development methods are focused on the analysis of those very protocols. Samba is thus more likely to put the disclosures to effective competitive use than any other licensee. It is also possible that Microsoft will derive technical and competitive benefits from the interaction with the Samba team. The long-run peril is that the disclosures will go beyond the specifications that the CFI contemplated, and will allow Samba to clone Microsoft's proprietary algorithms. That result, although reducing prices in the short run, would inhibit dynamic competition by undermining the incentives of leading firms to innovate.