The e-mail memo was sent last July but leaked this week and reported in the International Herald Tribune and New York Times.
According to the newspapers the head of worldwide sales, Orlando Ayala, sent the e-mail to fellow senior executives. It instructed that if a sale to a government or institution was falling through then executives could withdraw from a special fund in order to discount the software - or even offer it free if that was needed.
In particular the e-mail stated, “Under NO circumstances lose against Linux”.
Microsoft has long denied that Linux and the open source software community are a threat but according to The Register, Steve Ballmer finally came clean at a meeting in Berlin last week.
When asked about the attention Microsoft is now focusing on Linux as opposed to its earlier unconcerned attitude, The Register reports that Ballmer “simply smiled and responded that 'we were neither unconcerned nor unaware of Linux; we just tried not to show it!'”
Microsoft has admitted that it has two funds to support its approach on Linux. Microsoft spokesman Jim Desler told Reuters yesterday that one fund dealt with the government and educational market while the second was used to tackle rivals selling the Linux system.
Desler called this the “business investment funds." He said: "We use them in the case of a major competitor - in this case it was IBM - dropping prices for services consulting and Microsoft responding with a program to compete."
Discounting by companies in a dominant position can be a breach of EU competition law if it is carried out to exclude a competitor rather than on the grounds of sales generation. This may result in more action against the company from the European Commission which has been investigating Microsoft since 1998 with a ruling due later this year.