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Microsoft appears ready to end nearly a decade of legal battles in Europe

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BRUSSELS, Belgium -- Microsoft Corp. (Nasdaq: MSFT) dropped a nearly decade-long legal battle with European regulators Monday, agreeing to key parts of an antitrust ruling that has already led to hundreds of millions in fines.

The world's largest software company will slash the royalty fees it charges rivals for critical interoperability information needed to make programs that work smoothly with Microsoft's ubiquitous Windows. It will broaden access for open source developers that the EU said are now "virtually the only alternative for users."

Microsoft said it would not appeal a EU Court of First Instance decision on Sept. 17 that turned down its challenge to a 2004 European Commission order three years ago that found it guilty of monopoly abuse.

"We will not appeal the Court of First Instance decision to the European Court of Justice and will continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world," it said.

Daily phone calls between EU Competition Commissioner Neelie Kroes and Microsoft CEO Steve Ballmer over the past three weeks -- and a dinner near her Dutch hometown -- culminated in a deal in the early hours of Monday.

"I sincerely hope that we can just close this dark chapter," Kroes said. "I feel a bit sad because it took so long, it took so many years, and during those many years consumers suffered from the fact that Microsoft didn't go along with what the Commission asked it to do."

She said the company could no longer use its leverage over the computing market from supplying 95 percent share of all desktop operating systems "to harm consumers by killing competition."

The major issues with Microsoft have been resolved, Kroes said, cautioning that Microsoft could still face penalties for overcharging royalties on interoperability information. Backdated daily fines would stop as of Oct. 22.

Kroes said the EU order set a precedent for Microsoft's future behavior for other areas -- such as its Office software and its new Vista operating system.

"Microsoft should bear this in mind," Kroes said. "The shop is still open, I can assure you ... there are a couple of other cases still on our desk."

EU officials last year cited possible problems with Vista's integrated security software, Internet search, digital rights management tools used to protect copyrights and software that would create fixed-document formats comparable to Adobe Systems Inc.'s (Nasdaq: ADBE) Portable Document Format, or PDF.

Microsoft has now agreed to substantial changes for server software, the EU said, giving greater access to data it previously said was secret and valuable.

Kroes promised that the changes would profoundly affect the software sector, especially workgroup servers where Microsoft has a 70 percent market share.

"The repercussions of these changes will start now and will continue for years to come," she said.

The company will now charge a one-time fee of 10,000 euros ($14,310) to any developer -- including those working on open source systems such as Linux -- for "complete and accurate" technical information to help make software compatible with Microsoft's Windows desktop operating system. It had previously demanded a percentage of future sales.

Developers -- such as IBM Corp. (NYSE: IBM) and Sun Microsystems Inc. (Nasdaq: SUNW) which sell software based on Linux -- will pay a worldwide patent fee of 0.4 percent of revenues for Microsoft's data. Microsoft's original rate was 5.95 percent.

Microsoft will now charge for only 31 server protocols under patent instead of the 154 originally offered for licensing.

Shane Coughlan of the Free Software Foundation Europe said Microsoft seems to have made "quite a large shift and quite a sudden one" but warned that the company had not made clear how much data it would hand over to open source developers, or how much it would allow them circulate freely.

"We need to see how it works in practice," he said.

If the software maker does not keep to the terms of the deal, competitors will be able to take the company to Britain's High Court to seek damages.

Regulators warned that Microsoft had "ongoing obligations to continue to comply" with the 2004 ruling that found it guilty of monopoly abuse, ordering it to share information with rivals, market a version of Windows without a media player and pay a fine of 497 million euros ($613 million).

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