Microsoft v EU Commission

As has been widely reported, on 17 September the Grand Chamber of the Court of First Instance has upheld the fines and vast majority of rulings against Microsoft. We provide a summary of the decision, a link to the full judgment and various comments here.

As the Court’s own (remarkably verbose) press release initially states ‘The Court of First Instance essentially upholds the Commission’s Decision finding that Microsoft abused its dominant position. However the Court has annulled certain parts of the decision relating to the appointment of a minitoring trustee, which have no basis in Community law’.

 

The Decision under Appeal

 

On 23 March 2004 the European Commission adopted a decision finding that Microsoft had infringed Article 82 of the EC Treaty by abusing its dominant position by engaging in two separate types of conduct. The Commission also imposed a fine of more than EUR 497 million on Microsoft.

The first type of conduct found to constitute an abuse consisted in Microsoft’s refusal to supply its competitors with ‘interoperability information’ and to authorise them to use that information to develop and distribute products competing with its own products on the work group server operating system market, between October 1998 and the date of adoption of the decision. By way of remedy, the Commission required Microsoft to disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems.

The second type of conduct to which the Commission took exception was the tying of Windows Media Player with the Windows PC operating system. The Commission considered that that practice affected competition on the media player market. By way of remedy, the Commission required Microsoft to offer for sale a version of Windows without Windows Media Player.

In order to assist the Commission in monitoring Microsoft’s compliance with the decision, the decision provided for a monitoring trustee to be appointed by the Commission from a list of persons drawn up by Microsoft. All the costs associated with the monitoring trustee, including his remuneration, were to be borne by Microsoft.


On 7 June 2004 Microsoft brought an action before the Court of First Instance for annulment of the decision or for annulment or a substantial reduction of the fine imposed on it.

Refusal to supply the interoperability information

The Court of First Instance has confirmed that the necessary degree of interoperability required by the Commission is well founded and that there is no inconsistency between that degree of interoperability and the remedy imposed by the Commission.

The Court rejected Microsoft’s claims that the degree of interoperability required by the Commission is intended in reality to enable competing work group server operating systems to function in every respect like a Windows system and, accordingly, to enable Microsoft’s competitors to clone or reproduce its products.

As to the question of the intellectual property rights covering the communication protocols or the specifications, the Court saw no need to adjudicate on that question in order to determine the case.

As regards the refusal to supply the interoperability information, the Court ruled that, although undertakings are usually free to choose their business partners, in certain circumstances a refusal to supply on the part of a dominant undertaking may constitute an abuse of a dominant position. It found that the Commission did not err in considering that the relevant conditions were indeed satisfied.

The Court considered that the Commission was correct to conclude that the work group server operating systems of Microsoft’s competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably. The absence of such interoperability has the effect of reinforcing Microsoft’s competitive position on the market and creates a risk that competition will be eliminated.

The Court observes that the circumstance relating to the appearance of a new product must be assessed under Article 82(b) of the Treaty. It considers that the Commission’s finding that Microsoft’s refusal limits technical development to the prejudice of consumers within the meaning of that provision is not manifestly incorrect.

Arguments to the effect that the refusal is objectively justified because the technology concerned is covered by intellectual property rights were rejected and the Court noted that such justification would render ineffective the basic competition principles. established in the case-law which are referred to above. Microsoft failed to show that if it were required to disclose the interoperability information that would have a significant negative effect on its incentives to innovate.

Bundling of the Windows client PC operating system and Windows Media Player

The Court restated well known principles and stated that the factors on which the Commission based its conclusion that there was abusive tying are correct and consistent with Community law. Those factors are: first, the undertaking concerned must have a dominant position on the market for the tying product; second, the tying product and the tied product must be two separate products; third, consumers must not have a choice to obtain the tying product without the tied product; and, fourth, the practice must foreclose competition. In respect of each of those factors, the Court considers that the Commission’s decision is well founded.

The Court therefore upheld the part of the decision concerning the bundling of Windows Media Player.

Monitoring trustee

The Court found that the Commission had no authority to compel Microsoft to grant to a monitoring trustee powers which the Commission itself is not authorised to confer on a third party and exceeded its powers insofar as it makes Microsoft responsible for all the costs associated with the monitoring trustee. The Court therefore annulled the decision in so far as it orders Microsoft to submit a proposal for the appointment of a monitoring trustee.

Fine

Since the abuse of a dominant position is confirmed by the Court, the amount of the fine remains unchanged at EUR 497 million.

Further appeal

 

An appeal, limited to points of law only, may be brought before the Court of Justice of the European Communities against a decision of the Court of First Instance, within two months of its notification.

Statements

 

Microsoft released a statement from Brad Smith, Microsoft Corp. Senior Vice President and General Counsel, on 17 September after receiving the judgment. A transcript of the press conference on that day is also available. The statement included the following:

I would note that a lot has changed since this case started in 1998. The world has changed, the industry has changed, and our company has changed. We sought to underscore that over a year ago when we published what we described as our Windows.. Principles, principles intended to ensure that future versions of Windows, starting with Windows Vista, would comport not only with the principles of U.S. law but with the principles that are applicable here in Europe as well.

We’ve sought to be open and transparent, and we’ve sought to strengthen our ties with the rest of our industry. Indeed, it’s notable that just last week we announced a new agreement with Sun Microsystems, and the week before that we announced a new agreement with Novell, two of the companies that started out on the other side of this case almost nine years ago.

A lot has changed, but I will say that one thing has remained constant, and will continue to do so, and that is Microsoft’s commitment to Europe. When this case started, we published Windows in 24 European languages; today that number is 41, and it will continue to grow. When we started this case, we had 3,900 employees in Europe; today we have 13,000, and that number will continue to grow. When this case started, we were spending $3 million a year on research and development in Europe; today we are spending almost half a billion, and that number will continue to grow. Today we work with over 200,000 business partners, who employ almost 3 million people on the European continent, and that number too will continue to grow.

So, we look forward to continued efforts to implement and comply with today’s decision, we welcome the opportunity for continued discussion to adhere to our duties with the European Commission, and we look forward to hopefully continuing to move technology forward to create more jobs on this continent.

The Free Software Foundation Europe (FSFE) said the verdict was ‘a triumph for freedom of choice and competition’. Georg Greve, president of FSFE, said: ‘Microsoft can consider itself above the law no longer. Through tactics that successfully derailed antitrust processes in other parts of the world, Microsoft has managed to postpone this day for almost a decade. But thanks to the perseverance and excellent work of the European Commission, these tactics have failed in Europe. Secret manipulation of open formats and protocols has clearly been marked as unacceptable conduct’.

Jonathan Zuck, President of the Association for Competitive Technology, said: ‘The Commission just got a treat from the Court, but SMEs and consumers will actually foot the bill.  Microsoft did not win today, but it is European software developers and consumers that really lost. While there still may be a silver lining, it will take several hours and days to get a true assessment of the implications for SMEs. The Court does seem to acknowledge the need for Microsoft to protect its intellectual property.

On the Media Player Zuck said: “Following today’s judgment, consumers and developers are unlikely to see the technologies they are demanding – like voice recognition and multi-touch interfaces – integrated into Windows.  The result will be higher costs and more complexity for software developers and consumers alike. The decision on the Media Player opens a dangerous precedent for other companies and sectors. Airbus should start worrying about adding new features to their planes.”

Commenting on the interoperability issue Zuck added: “This decision marks the start of a dark period for ICT companies – large or small – with a high degree of uncertainty around the protection of their intellectual property. The precedent will threaten the ability of any successful company to protect its innovations. The conditions under which Microsoft will be obliged to give away its IP-protected information will be the key to gauging just how bad this is for the technology start-ups who depend on the value of their IP.”

 

To access the judgment, click here.

Published: 2007-09-20T00:00:00

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