Antitrust - Microsoft Fined Over $600 Million as Europe’s Second Highest Court Upholds Decision Finding It in Violation of EU Antitrust Law
The second-highest court in Europe, the Court of First Instance (CFI), has affirmed the European Commission’s 2004 decision in Microsoft Corp. v. Commission finding that Microsoft’s anti-competitive practices
infringed Article 82 EC Treaty. The CFI rejected nearly all of Microsoft’s objections to the Commission’s order and concluded that Microsoft had abused its dominant market position by: (1) refusing to supply competitors
with interoperability information necessary to develop and to distribute competing products on the work group server operating system market; and (2) tying Windows Media Player to the sale of the Windows PC operating system. The
decision requires Microsoft to pay over $600 million in fines, share its communications code with competitors, and sell a version of its Windows PC operating system without the Media Player.
Interoperability In determining that Microsoft had abused its dominant position by refusing to license the use of its product to competing third parties, the CFI looked at several factors. It examined whether (1)
the refusal related to a product or service “indispensable” to the exercise of an activity on a neighboring market; (2) the refusal was of such a kind as to “exclude any effective competition on that market”;
and (3) the refusal prevented the appearance of a new product for which there is potential consumer demand.
The CFI affirmed the Commission’s determination that all factors were satisfied in this case. It determined that the interoperability information was indispensable to the work group server operating systems of Microsoft’s
competitors because without a high degree of interoperability with Windows domain architecture, competitors would be incapable of marketing their non-Windows products. The absence of such interoperability had the effect of reinforcing
Microsoft’s competitive position in the work group server operating systems market. Therefore, the CFI determined that Microsoft was taking advantage of its dominant position in the operating systems market to eliminate the
risk of competition in the work group server area.
In reaching this conclusion the CFI clarified several elements of the inquiry. The CFI explained that the “risk of elimination of competition” factor does not require the imminent elimination of all competition but
only “that the refusal at issue is liable to, or is likely to, eliminate all effective competition on the market.” The fact that some competitors retain a marginal presence in certain niches on the market does not suffice
to substantiate the existence of such competition. Additionally, the CFI noted that it was not required that the “refusal to deal” inhibited the production of a “new product” but only that similar products
incorporating “substantial elements” that benefit consumers resulting “from the licensee’s own efforts” were prevented.
After finding that all factors were satisfied, the court assessed whether the refusal to grant licenses to competitors was “objectively justified.” Finding no objective justification for their actions, the CFI ordered
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.”
TyingThe CFI endorsed the Commission’s legal analysis in its 2004 decision and affirmed its conclusion that Microsoft had engaged in abusive tying by bundling the Windows Media Player with its Windows PC operating
system. The Commission reached this decision by examining four factors: (1) the undertaking concerned must have a dominant position on the market for the tying product; (2) the tying product and the tied product must be two separate
products; (3) consumers must not have a choice to obtain the tying product without the tied product; and (4) the practice must foreclose competition. After concluding that each of these factors was met and that Microsoft had not
demonstrated the existence of an “objective justification” for the bundling, the CFI required Microsoft to offer a version of the Windows operating system without the Windows Media Player. Significantly, the CFI assessment
supports the Commission’s position that product design can result in unlawful bundling and that the tied product can be provided without additional charge and still run afoul of Article 82.
ConclusionThe CFI decision is remarkable in several important respects. As an initial matter, before this decision, the CFI often overturned the Commission’s opinions in the antitrust arena. Therefore, this
decision is significant in that it upholds the Commission’s ability to regulate antitrust matters, and it solidifies Europe’s role as the lead international regulator of dominant firm conduct.
Moreover, although the order to share technical information with competitors technically applies only to Europe, Microsoft will have a difficult time as a practical matter containing the impact of the required disclosure to the European
market only. Thus, for Microsoft, the decision is likely to have a world-wide impact. The decision also is noteworthy for other dominant firms.
For firms operating solely in the United States, however, the CFI decision make have little impact. Assistant Attorney General for Antitrust, Thomas O. Barnett, issued a statement in response to the decision and expressed concern
about the decision’s potential for the “unfortunate consequence of harming consumers by chilling innovation and discouraging competition” by focusing on protecting competitors and not consumers. Barnett reiterated
that the focus of the United States’ policy is consumers, and “[i]n the absence of demonstrable consumer harm, all companies, including dominant firms, are encouraged to compete vigorously.”
The CFI decision, thus, highlights what appear to be substantial differences between European and U.S. antitrust law:
First, in the United States, there is a significant argument that conduct by a dominant corporation is not anticompetitive unless “the evidence supports an inference that [the dominant corporation’s actions were] not
motivated by efficiency concerns and that it was willing to sacrifice short-run benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472
U.S. 585 (1985). By contrast, the EU’s Article 82 prohibits various behaviors which have the effect of foreclosing the market or exploiting smaller companies. The standard is very flexible and can be used to curb many actions
by a “dominant undertakings.”
Second, the United States Supreme Court has not endorsed the “essential facilities” doctrine, which is similar to the “indispensability” approach used in EU law. The “essential facilities”
doctrine imposes a duty for a monopolist controlling such a facility to deal with its rivals. Although there may be some limited circumstances where a firm must deal with its competitors, the general rule is that a corporation is
allowed to refuse to deal with its competitors without facing penalty for anticompetitive conduct. This approach to “refusal to deal” situations is markedly different from the EU’s “indispensability”
approach which was used to force Microsoft to give its competitors its interoperability information.
Third, most United States courts have rejected the “monopoly leveraging” theory, which imposes liability for a monopolist’s efforts to extend its monopoly power in one market to an adjacent market. This theory
is similar to that employed by the EU in finding Microsoft in violation of Article 82 for tying. In the United States, the Supreme Court has required that “to demonstrate attempted monopolization a plaintiff must prove (1)
that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous
probability of achieving monopoly power.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). These elements arguably prevent a theory that falls short of threatening monopoly in the downstream market.