Microsoft announces additional improvements to Protocol Licensing Program: changes include simplified, low cost royalty structure and new license terms.

Microsoft Corporation (NASDAQ:MSFT) announced that improvements to its Communications Protocol Licensing Program are now available to existing and prospective licensees. In response to industry and government feedback, Microsoft has established a simplified, low-cost royalty structure and adopted new licensing terms that are more favorable to prospective licensees.

The new royalties and licensing terms will be posted on the Microsoft Communications Protocol Program (MCPP) website and are effective immediately. Existing licensees may convert to the new MCPP terms and pricing at their option any time. The prior MCPP license terms will also be available through September 30, 2003 as an option for new licensees.

Microsoft established the MCPP in accordance with the final judgment in Microsoft's antitrust case with the Department of Justice and a number of State Attorneys General. Under the program, third party developers can obtain licenses to protocol technology developed by Microsoft as part of its Windows family of client and server operating systems. Developers can implement Microsoft's protocol technology in their own server products to improve interoperability with Windows. The MCPP was released in August 2002. To date, EMC Corporation, Network Appliance Inc., VeriSign Inc., and Starbak Communication Inc. have taken licenses to implement Microsoft's protocols in their products.

"Given the unprecedented scope of the program and complexity of the technology, we knew it would be important to obtain feedback from government and industry on ways the program might be improved. The changes announced recently should make the program more appealing to software developers," said Microsoft Senior Vice President and General Counsel Brad Smith.

Changes to the MCPP include the following.

--New licensing terms that address industry feedback relating to licenseereview of Microsoft's technology at the outset of the licensing process, the timing of updates under the program, licensees' rights regarding independent development of protocols, and logistical aspects of the program.

--A new royalty structure, calculated as a simple percentage of the licensee's revenues from products incorporating Microsoft's protocol technology. Depending on the functions they wish to enable, licensees can elect to license some or all of the protocols supported in Windows 2000 Professional and later client operating systems. For many functions, royalties are set at 1% of the licensee's revenues from the software product incorporating the protocol technology. All of the more than 100 protocols available under the MCPP can be licensed at a royalty of 5% of the licensed product revenues. Royalty rates on Microsoft protocol technology used in embedded hardware products range from 0.5% to 2.5%. All royalty rates are subject to minimum and maximum fees per licensed unit, except certain embedded products, which are not subject to a minimum fee.

--Reduced royalty prepayments--down from $100,000 to $50,000. The prepayment, standard in industry for protection of intellectual property and trade secrets, is required only upon signing a license agreement, which occurs after a company has had an opportunity to review significant disclosure of technical information concerning Microsoft's protocol technology.

--The scope of the license has been extended without any increase in the royalty rate. In addition to Windows 2000 and Windows XP and future operating systems, the license will now cover communications with any Windows legacy client such as Windows 95 and Windows 98.

Microsoft also announced that it is generally willing to provide even broader usage rights for the company's protocol technology than is required by the final judgment in the antitrust case or is reflected in standard MCPP license agreements. Microsoft has already voluntarily granted usage rights to a number of licensees under the MCPP that exceed the requirements of the final judgment, and Microsoft encourages other developers who may be interested in licensing the company's protocol technology to discuss their technical requirements with Microsoft's protocol licensing team.

The changes announced recently are in addition to ongoing improvements the company has made throughout the past year, including several announced in April 2003. Those changes included eliminating an industry-standard nondisclosure agreement, publishing all program license terms for the program on a publicly accessible website, and providing an opportunity for developers to evaluate the protocol technology prior to entering into a license agreement. Through the Department of Justice and the States and directly from prospective licensees, Microsoft received additional feedback and has made the additional adjustments announced recently.

"While we believe our original terms were commercially reasonable given industry licensing practices and the considerable investment we made in developing these protocols, we understand the importance of listening to and acting on constructive feedback," says Smith. "Microsoft remains committed to working collaboratively with the Department of Justice, the States and others in the industry in our continuing effort to meet fully our obligations under the final judgment."

Microsoft also announced additional steps it will take to help promote the protocol licensing program. The company will step up its evangelizing efforts by reaching out both to individual companies and broadly to industry and potential interested parties to educate them on the licensing changes and overall aspects of the program. Founded in 1975, Microsoft is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software--any time, any place and on any device.