Microsoft v Commission of European Communities

03 March 2005

Katharine Stephens

Microsoft Corp v. Commission of the European Communities (President of the CFI; T-201/04; 22.12.04)

Summary

By the Commission’s decision of 24 March 2004 under Article 82 (Case COMP/C-3/37.792), Microsoft was fined almost €500m. The following remedies, amongst others, were also ordered:


  • By way of remedy for its abusive refusal to make the interoperability information available, i.e. certain communications protocols, but not source code, Microsoft was ordered to grant licences on reasonable and non-discriminatory terms to interested undertakings for the purpose of developing and distributing work group server operating system products
  • By way of remedy for abusive tying, Microsoft was ordered to offer a fully functioning version of the Windows Client PC operating system which did not incorporate Windows Media Player (previously it had made the former conditional on the simultaneous acquisition of the latter)

Microsoft have appealed the decision but, in these interim proceedings, also applied for interim measures to stay the above two remedies. The President of the CFI dismissed the application. In relation to both issues, the President held that Microsoft submissions could not be regarded as prima facie unfounded and, therefore, the prima facie case for granting the stay was satisfied. However, Microsoft did not prove that the stay was a matter of urgency in that it would cause the company serious and irreparable harm. Since the conditions for granting the stay were cumulative, the application was dismissed.

Interoperability issue

Microsoft’s attack on the Commission’s decision centred on the finding of the abusive nature of the refusal to make the interoperability information available, which in turn, raised a number of questions including whether the requirements laid down by the ECJ in IMS Health v. NDC Health [2004] All ER (EC) 813 were satisfied. Two issues in particular arose:

  • Microsoft denied that use of the interoperability information was indispensable for enabling potential competitors to gain access to the market in which Microsoft occupied a dominant position (which also raised issues of decompilation under Article 6 of the Directive on the protection of computer programs)
  • Microsoft submitted that its refusal to licence was objectively justified on the grounds of its IP rights. The company argued that by relying on its IP rights it did not have to disclose the interoperability information even if “exceptional circumstances” existed involving abusive conduct. Microsoft further submitted that the Commission had incorrectly weighed up the competing interests; its incentive to innovate versus the impact on the level of innovation of the whole industry. The President held that Microsoft’s arguments could not be rejected outright

In relation to the question of urgency, the President found that most of Microsoft’s concerns could be dealt with in the licences granted to its competitors, for example, they could contain contractual safeguards concerning confidentiality and the use of the information pending the decision in the main action.

The tying issue

Microsoft disputed the factual basis for the Commission’s decision and maintained that Windows and its media functionality were not two distinct products. The company also submitted that:

  • The Commission applied a new and speculative theory on tying in concluding that the ubiquitous distribution of media functionality in Windows will compel content providers to encode their content almost exclusively in Windows Media formats which will, in turn, eventually drive all competing media players out of the market and then, indirectly, oblige consumers to use only Windows multimedia functionality, i.e. it will have a foreclosure effect in that it will tip the market in favour of Microsoft. This ignored the realities of the market in which consumers were able to obtain third party media players through the Internet, sometimes free of charge. The President described the Commission’s analysis as, in part, “prospective”. The issue raised was complex and could not be resolved in interim proceedings
  • The Commission should have given greater weight to the advantages flowing from the Windows operating system design concept. The President considered this to be an intricate question, involving consideration of whether the positive effects associated with the increasing standardisation of certain products constituted objective justification or whether, as the Commission contended, the positive effects of standardisation should only be accepted when they resulted from the operation of the competitive process or from decisions taken by standardisation bodies.

Immediate consequences

Microsoft has set up a very basic web page for those interested in applying for a licence over the communications protocols (see www.microsoft.com/mscorp/legal/eudecision/). It has announced that it will make the version of Windows without the Media Player code available to PC manufacturers in January which, in turn, will mean that it will be available to resellers in February. Microsoft has also stated that the two versions will probably be sold at the same price.