Microsoft ruling: EU court statement

The statement released by the Court of First Instance gives details on its decision to uphold most of a 2004 European Commission antitrust decision against Microsoft
Written by Richard Thurston, Contributor

The European Court of First Instance said on Monday that it upheld the European Commission's antitrust decision against Microsoft, in what could prove to be a crucial regulatory landmark.

The Court dismissed Microsoft's appeal on all substantive points. Its statement follows:

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 monitoring trustee, which have no legal basis in Community law.

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 €497m (£344m) 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. The monitoring trustee's primary responsibility would be to issue opinions, upon application by a third party or by the Commission, or on his own motion, on whether Microsoft was complying with the decision and on any issue that might be of interest with respect to the enforcement of the decision. He was to have access to Microsoft's assistance, information, documents, premises and employees and to the source code of the relevant Microsoft products. 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.

First, the Court confirms 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 then observes that the Commission defined interoperability information as a detailed technical description of certain rules of interconnection and interaction that can be used within Windows work group networks to deliver work group services. The Court notes that the Commission emphasised that Microsoft's abusive refusal to supply concerned only the specifications of certain protocols and not the source code and that it was not its intention to order Microsoft to disclose its source code to its competitors.

The Court also considers that the aim pursued by the Commission is to remove the obstacle for Microsoft's competitors represented by the insufficient degree of interoperability with the Windows domain architecture, in order to enable those competitors to offer work group server operating systems differing from Microsoft's on important parameters. In that connection, the Court rejects 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 considers that there is no need to adjudicate on that question in order to determine the case. It observes that in adopting the decision the Commission proceeded on the presumption that Microsoft could rely on such rights or, in other words, it considered that it was possible that the refusal at issue was a refusal to grant a licence to a third parties, thus opting for the solution which, according to the case-law, was the most favourable to Microsoft.

As regards the refusal to supply the interoperability information, the Court recalls that, according to the case-law, although undertakings are, as a rule, 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. Before a refusal by the holder of an intellectual property right to license a third party to use a product can be characterised as an abuse of a dominant position, three conditions must be satisfied: the refusal must relate to a product or service indispensable to the exercise of an activity on a neighboring market; the refusal must be of such a kind as to exclude any effective competition on that market; and the refusal must prevent the appearance of a new product for which there is potential consumer demand. Provided that such circumstances are satisfied, the refusal to grant a licence may constitute an abuse of a dominant position unless it is objectively justified.

In the present case, the Court finds that the Commission did not err in considering that those conditions were indeed satisfied.

The Court considers 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.

Last, the Court rejects Microsoft's arguments to the effect that the refusal is objectively justified because the technology concerned is covered by intellectual property rights. The Court notes that such justification would render ineffective the principles established in the case-law which are referred to above. The Court further considers that Microsoft has 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.

Editor's note: The European Commission has also published the full findings of the case.

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