Microsoft Fights Japanese Anti-Monopoly Watchdog Warning On Contract Clause

The Fair Trade Commission sent an official warning to Microsoft on July 13, demanding that the software giant drop the clause in licensing agreements that it suspects helps Microsoft unlawfully infringe patents.

The clause prevents makers from suing Microsoft or other licensees over suspected cases of patent and copyright infringement in which elements of manufacturers' own software technology may end up in the Windows system.

Microsoft has dropped the clause, although it believes the wording is lawful. But the Fair Trade Commission is demanding that the clause be dropped in contracts that were signed in the past.

"We do not believe there is any violation of the anti-monopoly laws in our contractual structure, and we have decided to reject the warning," Microsoft Japan said, adding that it gave its rejection to the commission Monday. "We plan to explain our view and continue to try to gain understanding."

The Fair Trade Commission received Microsoft's rejection notice, an official said.

Commission officials are not certain any patents have been violated by Microsoft, the world's dominant software company, or other companies who are partners with it. In February, the commission raided Microsoft's offices in Japan.

But several Japanese electronics makers have complained about suspected infringements of patents since December 2000, especially regarding multimedia technologies that are increasingly vital in the industry as audio and video become more widespread on the Internet, according to the commission.

Major Japanese consumer electronics companies that are partners with Microsoft include Sony, Toshiba and Matsushita Electric Industrial Co., which makes Panasonic brand products.

The contract clause, called the "non-assertion of patents provision," says companies that sign Windows licensing agreements will forgo the right to sue over suspected patent infringements linked to the licensing.

The commission says the clause is "restrictive" by making it difficult for Japanese electronics companies to obtain royalty fees even when rivals violate their patents. The commission did not levy a fine or issue other penalties.

Microsoft objected to the Fair Trade Commission's findings within hours when they were announced. It had until Monday to respond.

The commission now holds hearings to listen to Microsoft's view before issuing a ruling. If Microsoft decides to appeal, the case would move to a Tokyo court.

Analysts say Japanese authorities are trying to curb possibly monopolistic behavior in an effort to help its nation's manufacturers and give more opportunities to alternative operating systems such as Linux, an open source system developed in the public domain.

In 1998, the Fair Trade Commission ordered Microsoft to stop bundling software pre-installed in personal computers in a way that put competitors at a disadvantage. There were no fines.

In March, the European Commission found that Microsoft abused its "near monopoly" with Windows software, levied a fine of about $613 million and demanded changes in how Microsoft operates in Europe to improve competition globally. Microsoft is appealing.

In the United States, an appeals court last month approved an antitrust settlement Microsoft negotiated with the Justice Department that was far more gentle than the EU-ordered sanctions.

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