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Some History - the MS-oldSCO EU Antitrust Complaint
Saturday, December 24 2005 @ 11:29 AM EST

I was researching something else, and I stumbled on to this official EU Commission version of the Microsoft-Santa Cruz Operation 1997 antitrust dispute. It's a publication called "Antitrust: Articles 85 and 86 of the EC Treaty - Articles 65 and 66 of the ECSC Treaty," [PDF] and it lists a number of what they call Case Summaries. One is the MS-oldSCO case.

I also found an EU summary of the case, in a document titled The European Commission, Summary Enforcement of EU law [PDF], which sums it up like this: Information technology

Santa Cruz took over AT&T’s activities relating to the UNIX system for high-capacity microcomputers. In doing so, it also succeeded to an agreement between Microsoft and AT&T concluded ten years earlier which provided that Microsoft would produce a single version of the UNIX system (both partners produced the system at the time). Under the terms of the agreement, the parties were required to design any new version of the UNIX system on the basis of Microsoft’s primitive version and to make it compatible with software developed by Microsoft and AT&T before 1987. This meant that Santa Cruz would have to use Microsoft’s obsolete technology for any new product. However, Santa Cruz and Microsoft are competitors on this particular market for UNIX systems. Such provisions were thus regarded as restricting competition insofar as they hindered a competitor’s capacity to innovate. After receiving the Commission’s statement of objections, Microsoft unilaterally and irrevocably decided to release Santa Cruz from its contractual obligations relating to utilisation of the primitive version of the UNIX system. Consequently, Santa Cruz decided to withdraw its complaint.

I've mentioned the case on Groklaw before, and of course it is listed on our permanent Microsoft Litigation page, but we had only press coverage describing it, and you never want to rely on that if you have something better. This is better, so I'm adding it to the Groklaw archives, so future historians will be able to easily find it.

I also found it interesting that an oppressive contract was of interest to the EU Commission, because they felt it hindered innovation by a competitor. Of course, my brain started thinking about SCO's oppressive claims about the IBM contract, and while I don't think they will prevail with their broad interpretation, it's academically intriguing to think about possibilities if they ever did.

Here's the more detailed description of what happened, from the "Antitrust: Articles 85 and 86 etc." document I stumbled upon.


Microsoft/Santa Cruz Operation

On 31 January The Santa Cruz Operation Inc. (Santa Cruz), a US software company with extensive operations in the EEA, complained to the Commission accusing Microsoft of breaches of EC competition laws in a contract between it and Santa Cruz. The contract at issue was a 1987 contract between Microsoft and AT&T which provided that Microsoft would produce a version of UNIX for microcomputers by merging the versions of UNIX for microcomputers then offered by Microsoft and AT&T. Santa Cruz had succeeded to AT&T’s side of this contract by acquiring the UNIX business of AT&T. The main restrictions identified in the contract at issue, and their effects, were as follows:

(1) The contract required that if either party produced a version of the UNIX operating system for a microcomputer it be derived from the first version of UNIX produced by Microsoft as a result of the 1987 agreement.

(2) As any version of UNIX produced by the parties to the contract had to be based on Microsoft’s initial merged product, the contract required that AT&T, and by extension Santa Cruz, pay Microsoft a set royalty per copy for any UNIX product for microcomputers that it produced and sold.

(3) The contract also had the specific requirement that any version of UNIX produced by either party support a list of application programs which were supported by the UNIX versions offered by Microsoft and AT&T prior to the agreement, which list was attached to the agreement.

In addition the contract was drafted in such a way that unless both parties agreed to end it, it could easily continue indefinitely.

On 26 May the Commission sent a statement of objections to Microsoft arguing that the above features of the contract complained of were restrictions of competition affecting trade between Member States, of the type prohibited by Article 85(1) of the EC Treaty, and did not qualify for an exemption from the Commission under Article 85(3) of the EC Treaty and so were void. Microsoft was given the opportunity to make written and oral comments on the statement of objections. Written comments were received and a date for an oral hearing was set for 13 November.

On 4 November Microsoft wrote to Santa Cruz unilaterally and irrevocably waiving the “rights” under the clauses at issue to which the Commission had objected. On 5 November Microsoft provided a copy of this letter to DG IV. Microsoft has waived all of the obligations on Santa Cruz as to the type of UNIX product that it can produce, including the requirement that versions of UNIX be backward compatible with the applications programs specified in the contract. Santa Cruz’s royalty obligation has been changed, so that it now has to pay the set royalty only if it actually does use Microsoft intellectual property in a version of UNIX. The effect of the remaining parts of the contract for Santa Cruz will be that Santa Cruz will have the right but not the obligation to use Microsoft intellectual property to produce versions of UNIX, and if it does so will pay the set royalty per copy of its product. On 18 November Santa Cruz wrote to the Commission withdrawing its complaint.

The antitrust division of the US Department of Justice provided assistance in this matter.

The restrictions at issue harmed Santa Cruz’s ability to compete with Microsoft in the provision of operating systems, and in particular harmed its ability to compete in the field of operating systems for workstations and servers where there is vigorous competition between Microsoft’s Windows NT product and a variety of versions of UNIX. Microsoft’s waiver means that Santa Cruz can design its future UNIX products as it wishes, is not obliged to use any Microsoft intellectual property in future UNIX products and has the option, under the remaining parts of the contract, to use the Microsoft intellectual property involved at a set royalty.

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