Brad Smith

Microsoft's tradition of building just about any piece of software into Windows has repeatedly put the company in hot water over the years. Microsoft has scaled back that practice, but this morning's decision from the European Commission means it can keep Internet Explorer a part of Windows, while offering a browser "choice screen" to Windows users in Europe in an attempt to level the playing field.

So how will Microsoft decide what to bundle with Windows now?

"The most important question that we look at is whether a feature has APIs, or application programming interfaces, that are going to be important to the developers of Windows applications," explained Brad Smith, Microsoft's general counsel, in an interview with TechFlash this morning. "The browser is such a piece of software today. It has APIs that other applications call. That's one reason we included the browser as part of Windows in the late 1990s. I think there was a recognition of the value that this creates for the industry as a whole by the courts in the United States and now the European Commission, in effect, today, because an important part of the announcement today is that Internet Explorer will remain a part of Windows, including in Europe."

Smith also talked about what the EU ruling could mean for others with "high market share," without referring to Google or anyone else by name. And he explained new requirements for Microsoft in interoperability, aimed in part at helping competing application developers make their programs work smoothly with Windows.

Continue reading for excerpts from the interview.

Q: European Competition Commissioner Neelie Kroes in her comments this morning referred not just to this browser case but more broadly to the long-running disagreements with Microsoft over the years, and how she hopes this decision today brings those to a close. Do you see this decision doing that?

Smith: I think today is an important milestone for Microsoft and for our relationship with the European Union. The agreement is very comprehensive. We have one set of decisions that affects the browser. We have another undertaking to which the company has entered that addresses a broad array of interoperability issues. All of this follows very lengthy and very comprehensive discussions with the European Commission. So we certainly feel that we have addressed all of the issues that were considered important.

Looking at this from an even broader perspective, I do think that this gives us an opportunity to bring a long-standing and important chapter to a close. That chapter is one that has been marked by a wide array of antitrust issues in Europe. It's a chapter that started over 12 years ago. It gives us the opportunity now to turn to a new chapter. We always have to keep in mind that antitrust scrutiny and regulation is part and parcel of the landscape for every significant company.

So it's not as if the need to stay focused on antitrust obligations goes away. But at the same time, I think that we now have the opportunity to open a new chapter that can be much more positive. I think we have the opportunity to work with government officials in Europe and elsewhere on a wide array of issues that go well beyond antitrust. There are major opportunities for Microsoft and our entire industry, for example, to move forward and use information technology to address economic opportunities and societal needs, whether we're talking about improvements in health care or cleaner energy, or steps that will improve productivity and accelerate economic growth.

So we naturally welcome today's announcement. We've been working to reach this milestone for a long time, and we get to look forward to a new year and a new agenda.

Q: How were you able to avoid a fine in this particular case?

Smith: We started more intensive discussions with the European Commission in April of this year. I think we both recognized that it might make more sense if we could come to an agreement on the way forward on the browser issue and the like. We both recognized that an approach based on agreement would give us the opportunity to really hammer out the details in a way that would work better for everybody involved. Given the way the commission's processes would work, that would also increase the likelihood that there would not be a fine, and indeed there is no fine today, so I think that's an important part of today's announcement.

Q: Over the years Microsoft has gone through varying levels of including ancillary programs in Windows. Windows Media Player, Internet Explorer. Obviously that approach has gotten the company into antitrust trouble. What is Microsoft's current philosophy on that practice of bundling?

Smith: The most important question that we look at is whether a feature has APIs, or application programming interfaces, that are going to be important to the developers of Windows applications. The browser is such a piece of software today. It has APIs that other applications call. That's one reason we included the browser as part of Windows in the late 1990s. I think there was a recognition of the value that this creates for the industry as a whole by the courts in the United States and now the European Commission, in effect, today, because an important part of the announcement today is that Internet Explorer will remain a part of Windows, including in Europe.

At the same time, the European Commission obviously wanted to take additional steps to promote competition in the browser space. We've looked at other features in Windows. As you know, there are some features that were in Windows in the past that are in Windows Live today. The Windows Live Messenger is an example of that. It's an important tool for users, it's widely used by people around the world, but it doesn't play the same role in supporting third-party applications developers that a browser does. So I think that is an important aspect of the kinds of decision-making that we've been focused on as a company and will need to stay focused on in the future.

Q: In this case, there was an initial ballot screen proposal that was made, and now this new ballot screen that was announced today is different -- but in what ways?

Smith: We first published a proposal with the browser screen on July 24, and we then had a second draft, if you will, that became public on Oct. 7. Then we have the final version today. So in effect, this has gone through three drafts, if you will. It has been the subject of literally unprecedented transparency and industry comment, as all of our competitors in the browser space have had the opportunity to provide input to the European Commission.

There have been changes that have been made, especially if you look back at what we published in July. Our competitors wanted to see the downloading process simplified. That has happened, while at the same time maintaining important consumer safeguards relating to security, which is something that we believe was important. Our competitors were very focused on the order in which the competing browsers would be displayed, so that has gone through a few different iterations. In July, the proposal displayed browsers based on their market share, even among the top five. In October, the proposal displayed them on the basis of alphabetical order, by the name of the vendor. Today, the final product is going to take the browsers and display them randomly in terms of order. Certainly our competitors looked at the alphabetical order that was proposed in October, and for the four companies that weren't in the top slot -- namely, everybody other than Apple -- there was a strong statement that they expressed that they didn't want to see Apple in the No. 1 slot, and so that's one of the changes that was announced today.

Q: The other component of today's announcement is the interoperability commitments that Microsoft has made. But you've made those kinds of commitments over the years. How are these different?

I think today's interoperability commitments are easily the most sweeping that any company has made in our industry. Not surprisingly, you don't get to something that is this broad in a single step. We've taken a number of steps over the last few years, in particular. In truth, these steps have frequently been informed by the discussions we've been having with the European Commission, as well as conversations we've been having with many others in our industry, and our customers.

We took one significant step in February 2008, when we voluntarily announced a set of interoperability principles to which we would adhere. No other company in our industry has anything remotely similar in terms of a set of principles that they apply to their various products that have significant market share.

Today's announcement builds on that and in some important respects takes them even farther. The interoperability announcements really have three significant parts. First, it commits Microsoft to providing a wide array of interoperability information specifically with respect to communications protocols, which have been an important part of the conversations in Europe over the last decade. Second, it commits us to support a number of industry standards. This is particularly important in the Office productivity application space. Today's announcement commits us both to support OpenXML, the standard that comes from technology that we've developed and ODF, the standard that comes from technology that other people have developed.

There's a third aspect of today's announcement, which is that we'll be offering warranty agreements, starting with the new year, so that others in the industry that wish to do so can purchase and obtain these warranties from us, and that in effect makes these obligations enforceable. That was something that the commission was quite interested in. Commissioner Kroes gave a speech about this last year. I think the commission wisely sought a path that would ensure that the industry would have a new approach, but that it would be an approach that wouldn't require massive amounts of bureaucratic overhead. So today's announcement really reflects that and achieves that.

Q: More broadly, in terms of antitrust enforcement actions, how are you feeling at this point?

I do think that this gives us an opportunity to close a chapter that opened in 1997. It was on Sept. 15, 1997, that Sun Microsystems really started this chapter by initiating action and taking issues to the European Commission. It has been a very broad set of issues. It has been a sometimes uneasy relationship -- I think that's certainly fair to say. Commissioner Kroes commented about that in her press conference in Brussels earlier today.

It has been a longstanding goal of ours to establish a regulatory framework that would be clear, that would be feasible, and that would be applicable to the entire industry. We certainly do believe that competitors with high market share should have to follow the same rules that we do when we have high market share. I do think that today's agreement is very broad. It does give us an opportunity to bring this chapter to a close. As a result, it does represent something of a realization of that longstanding objective we've pursued.

[Editor's Note: This interview was conducted before news that the U.S. Federal Trade Commission has filed an antitrust action against chip-maker Intel, one of Microsoft's key industry partners. Details in this New York Times story. ]