On 24 March 2004, the European Commission concluded its five-year investigation of Microsoft, imposing a fine of €497 million (approximately $610 million), the largest fine ever imposed on a company by the Commission for antitrust infringements. The Commission has imposed on Microsoft the obligation to disclose sufficient information to allow Microsoft’s competitors in low-end servers to achieve full interoperability with Windows PCs and servers and to unbundle Media Player from Windows.
The Commission’s investigation into Microsoft’s trading practices should be differentiated from the Microsoft proceedings and settlement in the US. The US and EU cases do not address the same facts and are thus complementary. In the US, the main thrust of the proceedings revolved around Microsoft’s efforts to protect its dominance on the PC operating systems market by weakening Netscape’s Navigator Internet browser and Sun’s Java system. The allegations which the Commission has examined centre on Microsoft leveraging its dominance in PC operating systems into the server operating systems. The Commission’s decision follows an extensive investigation into Microsoft’s Windows 2000 operating system, which was launched by the Commission on its own initiative in February 2000. The Commission had already opened proceedings against Microsoft relating to its licensing practices following a complaint by Sun Microsystems in December 1998. These two cases were merged into one investigation.
The Commission’s Microsoft decision seeks to increase choice and price arbitrage and encourage innovation by establishing a level-playing field in which rival software vendors can compete. Despite this decision, however, third-party software manufacturers should remain cautious. Microsoft is likely to appeal the Commission’s decision to the Court of First Instance, which could suspend the Commission’s orders from taking effect for two years or more. Moreover, the payment of the fine could be postponed until the end of the appeal proceedings by arranging a bank guarantee.
Currently, only the Commission’s press release on the Microsoft decision is publicly available. The final decision will be published shortly. Below provides a summary of the Commission’s principal findings against Microsoft’s practices at issue, as set out in the press release.
Commission Decision
There are two key violations: the refusal to disclose interface information on Microsoft’s PC operating system necessary to allow third-party server operating systems to communicate with Windows 2000 and the tying of Windows Media Player and its dominant PC operating system. More detail on these issues follow:
- The Commission found that Microsoft’s refusal to supply technical interoperability information to its competitors was a breach of European competition law. The allegation is that Microsoft’s non-disclosure of interface information of Windows operating system forces consumers to favour Microsoft’s server products. The Commission, therefore, concluded that nondisclosure indirectly harmed consumers by undermining effective competition and innovation.
By way of remedy, the Commission has ordered Microsoft to disclose complete and accurate interface documentation to competitors, which would allow their non-Microsoft servers to achieve full interoperability with Windows PCs and servers. Microsoft is required to disclose the relevant data within 120 days. The disclosed information will have to be updated each time Microsoft brings to the market new versions of its relevant products.
To the extent that any of the interface information might be protected by intellectual property rights in Europe, Microsoft would be entitled to reasonable royalties. The disclosure order concerns the interface documentation only and not the Windows source code.
- Second, the Commission determined that the tying of Media Player with the Windows PC operating system distorted competition. Similar to Microsoft’s bundling of Internet Explorer to Windows, bundling Media Player with Windows for PCs means that Microsoft is able to leverage its dominant PC operating system platform in order to gain a competitive advantage over competing media player software. Given consumers’ tendency to use the pre-installed configuration on their desktop, this tying foreclosed other vendors of streaming media software.
Microsoft is required, within 90 days, to offer PC manufacturers a version of its Windows client PC operating system without Media Player. While Microsoft retains the right to offer a version of its Windows client PC operating system product with Media Player, it must refrain from using any commercial, technological or contractual terms that would have the effect of rendering the unbundled version of Windows less attractive or performing. In particular, it must not give PC manufacturers a discount conditional on their buying Windows together with Media Player. The Commission makes clear that the untying remedy is designed to allow the configuration of streaming media/operating system bundles to reflect what consumers want, and not what Microsoft imposes.
Implications for companies operating in the EU
At least three key implications follow from the decision. First, the decision shows that US companies can realise substantial benefits from bringing an antitrust complaint in the EU against conduct that is practised globally by a US rival. As noted above, a major part of the European Commission’s investigation into Microsoft was instigated by a complaint from Sun Microsystems, Microsoft’s US rival. Perhaps more importantly, the decision also highlights that the European Commission can impose strong remedies that have an extraterritorial effect impacting a rival’s worldwide conduct, subject or course to the condition that such extraterritorial conduct produces effects in Europe. Recourse to the EU complaints procedure could, therefore, be a feasible complement or alternative to bringing US proceedings.
Second, in the non-merger context, the Microsoft decision makes clear that the European Commission is willing to seek behavioural remedies that are different, and in some cases more effective, than those available from the US courts. For instance, from a comparison of the Microsoft proceedings in the EU and US, it is apparent that while there is parity in the analysis of similar substantive antitrust issues, the subsequent remedies imposed by the European Commission and the US Department of Justice, respectively, are significantly different.
Third, in light of expanding damage opportunities in EU member state courts and possible experience of US extraterritorial jurisdiction, the Microsoft decision highlights the increased opportunity for European companies to seek damages for European antitrust violations in the US and Europe. The fact that the Commission decision addressed the legality of worldwide conduct impacts the risk of litigation in national European courts and in the US. In Europe, a new competition regime relating to the enforcement of the prohibition of abuse of dominance will allow complainants to bring an action for damages in a EU member state court by relying on a relevant Commission decision. By way of example, in the UK, a company may sue for damages in the UK’s Competition Appeal Tribunal pursuant to a Commission infringement decision. This new regime will be introduced on 1 May 2004.
Conversely, in the US, current jurisprudence suggests that non-US purchasers may recover treble damages under US antitrust laws for damages suffered as a result of conduct in violation of those laws. In Empagran SA v F Hoffman-LaRoche Ltd, F.3d, No.01-7115, 2003 WL 131804 (D.C.Cir. Jan. 17, 2003), the US Court of Appeal for the District Columbia allowed such claims even where the transactions giving rise to the damages took place outside the US and the purchaser had no connection to the US, so long as the underlying illegal conduct had an effect on US commerce and injured at least one US-based claimant. This judgment is being appealed. But if the ruling withstands appellate review, US companies face potentially substantial liability (including treble damages) for sales to customers wholly outside the US.
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