Following a 1998 competitor complaint about Microsoft’s refusal to supply certain interoperability information, the European Commission opened an investigation and later extended it to cover allegations of software bundling. The investigation resulted, over five years later, in Microsoft being fined over €497m for two separate infringements of article 82 of the EC Treaty, which prohibits abuse of a dominant market position. The Court of First Instance (CFI) has now upheld the findings of abuse in full and Microsoft has two months to decide whether to appeal the decision, which it may do on points of law only.
The 2004 Commission decision
In its 2004 decision the Commission fined Microsoft for abuse of its dominant position in the PC operating systems market. The two forms of abuse found were: Microsoft’s refusal between 1998 and 2004 to supply its competitors with information necessary for them to produce work group server operating systems competing with Microsoft’s own systems; and contractual and technical bundling of Windows Media Player (WMP) with the Windows operating system.
To remedy the abuse the Commission ordered Microsoft to:
- disclose and license, for a reasonable royalty to the extent that IP rights were involved, interface information that would allow full interoperability between competing work group server products on the one hand and Windows-based PCs and servers on the other; and
- offer PC manufacturers an unbundled version of Windows, without WMP.
Microsoft appealed the decision and also requested interim measures to suspend these remedies. In 2006 interim measures were refused and the Commission subsequently imposed an additional fine of over €280m for Microsoft’s failure properly to implement the remedy concerning interoperability information.
The CFI’s judgment
The CFI upheld all the Commission’s findings in relation to both types of abuse and annulled only the part of the decision relating to the appointment of the trustee (see below).
Refusal to supply interoperability information
In respect of the refusal to provide interoperability information, the CFI applied existing case law that recognises that refusal by a dominant company to license a third party to use a product covered by an intellectual property right is an abuse only in ‘exceptional circumstances’. It found that the criteria for exceptional circumstances were satisfied in the case of Microsoft and that it was therefore unnecessary to decide whether the information in fact constituted intellectual property or whether other factors may constitute exceptional circumstances. The CFI found that:
- the information was indispensable to allowing a competitor to supply work group server operating systems;
- the refusal excluded effective competition in that market: the maintenance of effective competition required more than the marginal presence of competitors in certain niche areas;
- the refusal prevented the creation of new products for which there was potential consumer demand: this ‘new product’ criterion was met where the refusal had the effect of limiting technical development to the prejudice of consumers; and
- there was no objective justification for the refusal.
Bundling Windows Media Player
In relation to bundling WMP with the operating system, the CFI reiterated the classical position on tying abuses and agreed with the Commission’s application of four factors in its assessment:
- two separate products are involved: the tied product (streaming media players) and the tying product (client PC operating systems). The Court did observe that the fast-moving nature of technology markets means that ‘what initially appear to be separate products may subsequently be regarded as forming a single product’ but did not find this to be the case on the facts;
- Microsoft is dominant in the market for the tying product;
- customers could not obtain the tying product without the tied product; and
- this foreclosed competition from other media players.
Use of trustee
The CFI annulled the decision only to the extent that the Commission had delegated certain enforcement powers to a trustee and required Microsoft to bear the associated costs. It held that the Commission had no authority to delegate the far-reaching investigative and enforcement powers to a trustee or to require Microsoft to pay the fees. The judgment may also have implications for the Commission’s use of trustees in merger control.
Broader implications of the judgment
This judgment is of considerable importance in that it validates the Commission’s approach to enforcing article 82 in an extremely complex and high-profile case. The Commission’s detailed effects-based investigation emerged unscathed from the CFI’s scrutiny.
The judgment is also likely to influence the Commission’s article 82 review, first mooted in 2003 and still to reach its conclusion. The Commission now finds itself in a position of strength from which to decide whether and how to formalise guidance on this difficult area of the law. The judgment is also likely to increase Commission confidence to pursue individual article 82 cases energetically in future.