Microsoft Discounts Raise Concerns

Microsoft Corp. is offering large discounts on its products and has set aside funds for a battle against the license-free Linux operating system, measures that may run afoul of European competition rules.

But the company declined to comment on a report that its previous sales chief had sent an e-mail a year ago authorizing executives to offer steep discounts as a way of steering customers away from Linux.

The disclosure of the discounts may put further pressure on the world’s largest software maker, which is under investigation by European regulators for possibly abusing its market dominance.

Redmond, Wash.-based Microsoft said it used two funds as part of its Linux strategy. One was earmarked for governments and the educational sector, and a second was aimed at enabling its sales force to undercut competitors who sell Linux software.

“The primary objective is to make technology available to customers at low prices,” Microsoft spokesman Jim Desler said of the fund for governments and educational institutions. “We believe that this program makes good business sense.”

The news that Microsoft has set up funds to compete against Linux first emerged in the International Herald Tribune, which said it had obtained internal Microsoft e-mails.

“Under NO circumstances lose against Linux,” Orlando Ayala, chief sales executive, was quoted as saying by the paper.

A spokeswoman for European Union competition commissioner Mario Monti declined to comment. But Thomas Vinje, a competition law attorney at Morrison & Foerster in Brussels who is involved in cases against Microsoft, said the behavior appears to violate European law.

“If it’s true, the discounts would constitute an abuse,” Vinje said.

Microsoft shares rose 16 cents Thursday to $25.79 on Nasdaq.