Microsoft Statement on European Commission Action on Protocol Pricing

REDMOND, Wash., March 1, 2007 — Microsoft Corp. issued the following statement, attributable to Senior Vice President and General Counsel Brad Smith, after the announcement today that the European Commission has issued a Statement of Objections regarding the royalties Microsoft has proposed for its protocol technology licensing program in Europe:

“Microsoft has spent three years and many millions of dollars to comply with the European Commission’s decision. We submitted a pricing proposal to the Commission last August and have been asking for feedback on it since that time. We’re disappointed that this feedback is coming six months later and in its present form, but we’re committed to working hard to address the Commission’s Statement of Objections as soon as we receive it.

“We do have a different perspective on the underlying facts and the proposed findings.

“First, we believe we have been fair in setting proposed protocol prices, and an analysis by PricewaterhouseCoopers found that our proposed prices were at least 30 percent below the market rate for comparable technology.

“Second, other government agencies in both the United States and Europe have already found considerable innovation in Microsoft’s protocol technology. US and European patent offices have awarded Microsoft more than 36 patents for the technology in these protocols, which took millions of dollars to develop, and another 37 patents are pending, so it’s hard to see how the Commission can argue that even patented innovation must be made available for free.

“Third, the proposed findings suggest that unless our intellectual property is innovative and patentable, it has to be made available royalty free. That has never been the standard for software or other intellectual property, and it misstates the test agreed to by the Commission and Microsoft in June 2005, which has been available on Microsoft’s website since that time.

“Fourth, the findings appear to attempt to regulate the pricing of our intellectual property on a global basis and not just within the EU. We believe it’s unwise for governments to regulate pricing beyond their borders and that if other authorities all took similar views of their power, companies would be unable to comply with contradictory rulings.

“And fifth, we’ve always said we are willing to entertain any reasonable price offer from any potential licensee, and that we are willing to be flexible to meet any unique business needs of potential licensees. Currently, we’re in negotiations with a number of potential licensees.”

Information on the pricing principles agreed to by the Commission and Microsoft is available for download from at the following link:

WSPP Pricing Principles, Scenarios Royalty Table, and Available Protocols:

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