The Japan Fair Trade Commission (JFTC) has concluded that Microsoft license agreements with PC vendors violate the country's anti-monopoly code.

The JFTC said that the provisions under question restrict possible legal action should licensees believe Microsoft is infringing on their patents. Such a provision unjustly restricts the business activities of the licensees and thus violates section 19 of the Anti-monopoly Act, it said.

In a recommendation [pdf], it detailed the basis for its finding and issued a recommendation that the provisions be terminated in both current and previous agreements. Apart from its recommendations, the JFTC did not spell out any potential fines that may be imposed on Microsoft for violating JFTC rules.

Microsoft had been given until 26 July to accept or reject the JFTC recommendation, although the software maker said Tuesday it plans to reject the finding. "We respectfully disagree with the conclusions reached by the JFTC at this stage of the process, and will avail ourselves of the mechanism set out in the law and regulations to seek a review of this decision," the company said. "We look forward to explaining the operation of this provision in more detail during the next stage of this process before the JFTC."

The statement continued: "We believe that the provision at issue fairly balances IP protection and the need to create a stable environment for the development of the IT industry by avoiding disruptive IP disputes. The industry and consumers have benefited from this stability, and IP owners have always been empowered to raise and exercise their rights in a reasonable manner." Because the recommendation concerns Microsoft in the US and not the Japanese unit, the rejection won't be made until appropriate consultation has taken place between both sides, a spokesman said.

The JFTC expects to receive the rejection around the 26 July deadline after which a hearing process will begin that is likely to take between two and three years to complete, said Takujiro Kono, deputy director of the JFTC's First Special Investigation Division. "Normally, we issue an announcement about the commencement of hearings about one month after receiving the rejection," Kono said. "Another month later the first hearing takes place in the JTFC." Such a schedule would put the first hearing around the end of September or beginning of October.

The hearing, which Kono likened to a court hearing, will see Microsoft lawyers and experts, along with their counterparts from the JFTC, submit arguments and supporting documents to a hearing examiner, he said.Regular hearings will likely take place at intervals of around one month as part of the process, which usually takes at least one year to complete and averages two or three years, he said. Tuesday's ruling follows a raid of Microsoft's Japan headquarters in February by the JFTC.

Microsoft has come under much more stringent scrutiny from other countries for anti-competitive business practices. It is currently appealing a ruling by the European Union that it violated competition law by using its Windows monopoly to gain advantage in the server and media player markets. It was fined ?497 million and ordered that the company supply a version of Windows without its media player as well as reveal enough Windows code to allow rivals to build competing server software that can work properly with Windows.

The deadlines on those remedies are currently suspended pending a ruling by the president of the European Court of First Instance (CFI), the EU's second highest court.

In the US, Microsoft appears to be nearing an end to its long running anti-trust battle with the US Department of Justice (DoJ) and individual states, which found the company had used its monopoly in the PC operating systems market to overcharge customers for software. Over the past two years, Microsoft has paid over $1.5 billion to settle class-action suits in 12 states and the District of Columbia.

Last month, a US appeals court rejected a request by the state of Massachusetts and two IT industry groups that it overturn the November 2002 anti-trust settlement between the DoJ and Microsoft, as it did not go far enough in the public's interest in leveling the playing field in the software market.

Massachusetts had also called on the court to compel Microsoft to release the code for its Explorer browser and to separate the "commingling" of Explorer code and Windows. The court ruled that such anti-trust concerns were already satisfactorily settled by allowing OEMs and consumers to remove IE middleware from the operating system and install competing browsers.