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FTC tells Microsoft to cut restrictive contract clause

The Fair Trade Commission slapped a warning against Microsoft Corp. on Tuesday, demanding that the U.S. software giant remove what it said was an unfair clause from contracts with Japanese personal computer makers.

The largely symbolic move, which targets a patent-related provision that the FTC says violates the Antimonopoly Law, will not be backed by fines or other penalties.

But the move is important for Japanese manufacturers that develop digital devices, cell phones and other products that can replace personal computers, FTC director Toshihiko Hara said.

At question is a controversial provision designed to protect Microsoft from patent-related lawsuits by PC manufacturers that sell products using Microsoft’s Windows operating systems.

Under the provision, Japanese makers would be unable to sue Microsoft even if the software giant’s technologies are deemed to violate their patents.

The antimonopoly watchdog said in a statement that the clause “damages incentive for technological innovation and prevents fair competition” by barring Japanese companies from royalties on their own patents.

A senior official of Microsoft’s Japan unit countered the FTC’s allegations by saying the company would reiterate during an FTC hearing its view that the practice in question is both a fair part of licensing agreements and lawful.

“We will urge the FTC to reconsider its position during a hearing or by other means,” Takashi Hirano told a news conference.

But he said Microsoft would drop the clause from all contracts signed from August onward. He said this decision was made following internal discussions over the past year.

Current contracts remain valid for Windows XP and earlier Windows versions.

Manufacturers have voiced concern that Microsoft could conceivably gain access to proprietary information about their cutting-edge products, and would be able to distribute their technology to competitors using the Windows operating system.

The FTC raided Microsoft’s Japan headquarters in February as part of its investigations.

Microsoft in May proposed a cross-agreement: Microsoft would not take legal action over patent violations by Japanese PC makers, as the PC makers cannot sue Microsoft under the current contracts.

A cross-agreement of this kind could solve the antimonopoly problem, but Japanese manufacturers have yet to reply to the offer, the FTC’s Hara said.

The FTC had thought Microsoft tried to establish a private monopoly through the deals, but later changed its approach based on its investigations.

This is the FTC’s second warning against Microsoft. In 1998, the FTC warned Microsoft to stop the unfair business practice of demanding that Japanese PC makers install the Excel spreadsheet and Word applications together.

Information from Kyodo added

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