The European Commission wants Microsoft to license its server protocols to rivals for nothing according to the Financial Times, which says it saw a "confidential document" saying so.

According to the paper Microsoft wants a maximum of 5.95% of a licensee's server revenues as a royalty but the EC's technical expert Professor Neil Barrett calculates that even a royalty rate of 1% would be unacceptable to potential licensees and that zero percent would be "better."

Barrett apparently ran the numbers and concluded that Microsoft's terms would mean a licensee wouldn't recoup its development costs for seven years.

The potential licensees that are believed to have reviewed and objected to Microsoft royalty structure include IBM, Sun and Oracle.

The EC's stance means the open source Samba Project has gotten what it wanted from the agency, which last month in its opening gambit hit Microsoft with an apparently surprise Statement of Objections (SO) - which was what was evidently leaked to the FT - accusing it of setting unreasonable royalties for the protocols that it was ordered to make available to its competitors in the EC's 2004 antitrust order.

The EC claims, as Samba has, that there's "no significant innovation" in the protocols to justify Microsoft's royalties structure although the protocols are protected by 36 patents with another 37 patents pending.

The gun that the EC is holding to Microsoft's head to force it to submit is another round of draconian billion-dollar fines.

Microsoft is saving its formal response for its April 23 rebuttal to this SO but in the meanwhile its spokesmen have been charged to say that the company believes "the terms on which we have made the protocols available are reasonable and non-discriminatory" - which is all that was demanded of it by the EC's 2004 order - and it seems logical to conclude that any move by the EC to expropriate the protocols is likely to touch off something of an international incident.

Former House majority leader and economics professor Dick Armey took the first shot at the "invasive economic management practiced by old Europe."

In a piece run Monday on Cnet, Armey laid out Microsoft's position: its entry into the server market increased competition, introduced innovation - as memorialized in the patents - drove down the cost of server operating systems, served the consumer and the reason it's being punished is because its competitors failed to succeed.

Armey says, "It sounds a whole lot like the EC is bent on redistributing technological wealth instead of fostering the creation of new innovative products and services," and he anticipates a "stern diplomatic shot across the bow…to let the old fogies of Europe know that we take innovation seriously."

BusinessWeek then weighed in Tuesday with Pat Cox, the former president of the European Parliament, conjuring up visions of the old Soviet Union's property confiscation and saying, "The European Commission has declared war on accepted international and European conventions regarding intellectual property rights, applying instead its own test (determined by the Directorate General for Competition) of what constitutes innovation and novelty as a measure of both value and worth."

Cox says, "For the EU to threaten the value and fate of assets - located anywhere in the world, not just inside the EU…is a unilateral application of administrative law unaccountable to and unapproved by the European Parliament and European Council."