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Microsoft: the EC abuse of dominance case

This page discusses EC competition law cases involving Microsoft, starting with the European Commission's March 2004 decision (302 pages, PDF) finding that Microsoft Corporation had infringed the prohibition on abuse of a dominant position in Article 82 of the EC Treaty.

The following topics are currently addressed:

This page is hosted by the consultancy Reckon LLP, and users are encouraged to contribute relevant views and links. Advice on making contributions is provided in the Guidelines. For further information, please contact Nicholas Francis.

Complaints about Internet Explorer and Office

14 January 2008: Formal investigations start. DG Competition press notice that it will investigate complaints by Opera (web standards) and ECIS (XML office document standards) as potential abuses of Microsoft's dominant position.

December 2007 Opera complaint. Browser maker Opera has complained to the European Commission about alleged "embrace, extend and extinguish" conduct by Microsoft in relation to web coding standards.

Adobe and PDF-writing in Office. Microsoft has revealed that it might face a complaint under EC competition law from Adobe, concerning the potential inclusion of PDF-writing capabilities in the next version of Microsoft Office. On 2 June 2006, CNET reported comments from a Microsoft lawyer that the company has been in talks with Adobe, but these have broken down with a threat of legal action from Adobe, which wants Microsoft to either remove the "save as" PDF feature from its beta version of Office 2007 or to charge a fee for it. A subsequent CNET report suggests that Microsoft might seek to address competition law concerns by making PDF-writing capabilities available as a free download, but not including this on each version of Office shipped. The European Union is seen as a likely place for Adobe to raise antitrust issues, and commentators have suggested that the competition laws of the European Union place greater restrictions on Microsoft's conduct than antitrust laws in the US. Nonetheless, the European Commission's finding, that Microsoft abused a dominant position in PC operating systems by tying Windows Media Player to the Windows OS, does not necessarily imply that Microsoft could not lawfully include free PDF-writing capabilities in Office.

Complaint about Office file formats. A group of software companies described by Microsoft as "a front for IBM and a few other competitors" complained in February 2006 to the European Commission about a lack of interoperability information which they think might constitute another abuse of a dominant position by Microsoft. The complaint appears to focus on the Microsoft Office formats. Microsoft is currently seeking ratification of the XML version of these formats by the standardisation body ECMA but the complainants do not consider that this would resolve the issue that they are complaining about. Details of the complaints are scarce; Groklaw has a summary of what has been put in the public domain. The complainants are IBM, Sun, Nokia, Oracle, RealNetworks, Red Hat, Linspire, Corel and Opera.

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The CFI's judgment of 17 September 2007

Full CFI judgment (about 150 pages) and CFI press notice (5 pages, PDF).

In a nutshell: DG Competition won. The only modification to the decision relates to the role of a monitoring trustee in the implementation on the server protocols remedy. See the Microsoft press kit.

22 October 2007: Short Microsoft press notice and longer DG Competition press notice announcing that the Commission considers Microsoft to be in compliance with the 2004 decision and that Microsoft will not appeal the CFI judgment.

24 October 2007: Microsoft press notice announcing that the company had withdrawn its related appeals to the Court of First Instance (on the further fine for non-compliance with the 2004 decision, and on aspects of the interoperability remedy).

Implementation of remedies prescribed in 2004 decision

Court challenge to penalty for delay. Guardian.co.uk article (10 May 2008) reporting that Microsoft is appealing the EUR 899 million fine.

Penalty for delay in compliance. European Commission Q&A of 27 February 2008 on its decision to levy penalties amounting to EUR 899 million on Microsoft. The penalty is based on the number of days during which Microsoft was considered to be in breach of the 2004 decision because it was not providing adequate interoperability information on reasonable terms.

Allegedly excessive royalties. European Commission press notice of 1 March 2007 announcing that it has sent Microsoft a statement of objections alleging that the royalties charged for the licensing of server protocols are excessive and in breach of the 2004 decision. Microsoft announcement of 23 April 2007 that it has responded to this statement of objections on pricing, and that Microsoft is not seeking a formal hearing, but would prefer a constructive conversation: "We need greater clarity on what prices the Commission wants us to charge".

Update on Microsoft's implementation of remedies. European Commission press notice, of 23 November 2006, reporting that Microsoft has submitted a revised version of the Technical Documentation in relation to the inter-operability remedies ordered in the Commission's March 2004 Decision. The Commission will decide, in due course, "whether or not Microsoft is in compliance with the obligation to provide complete and accurate Technical Documentation taking into account comments from the potential licensees and advice from the Trustee."

Microsoft appeals against fine on non-implementation of remedies. As expected, Microsoft has filed an appeal against the European Commission's decision to fine it 280.5 million Euros for failure to comply with the inter-operability remedies ordered in the Commission's March 2004 Decision.

Microsoft fined 280.5 million Euros for non-compliance. Microsoft is to be fined 280.5 million Euros "for its failure to comply with the March 2004 Decision as regards the requirement to provide complete and accurate interface specifications, so as to allow other companies to make their products interoperable with Microsoft PCs and servers" (according to Competition Commissioner Neelie Kroes, 12 July 2006). This follows a statement of objections for non-compliance issued in November 2005, which set a deadline for compliance of 15 December 2005. The fine corresponds to 1.5 million Euros per day over the period 16 December 2005 and 20 June 2006. The Microsoft legal newsroom includes a statement by Microsoft counsel (12 July 2006), which argues that the fine is unjustified, and points to the delays in reaching agreement on exactly what is required of Microsoft under the inter-operability remedies: "The real issue here is not about compliance, it is about clarity. Having received a clear definition of the documentation requirements this April [2006], we already have met nearly all those requirements in just three months."

Still in limbo. The Register reports that, as of 2 June 2006, the Commission is still seeking documentation from Microsoft regarding the inter-operability remedies, and threatening to back-date any fines for non-compliance to 15 December 2005.

Hearing scheduled. At Microsoft's request, a hearing has been set up for 30 and 31 March 2006 (apparently in public) regarding Microsoft's alleged non-compliance with the inter-operability remedies. A Commission notice claims that both the monitor Neil Barrett and the Commission's consultants TAEUS have advised that Microsoft's documentation of its relevant server protocols is unusable or inadequate.

Microsoft response and denial of non-compliance. Microsoft has published its response to the Commission's statement of objections on non-compliance with inter-operability remedies. The main document (78 pages, PDF) focuses on complaining about alleged procedural unfairness and asserting that Microsoft has in fact complied with the remedy (including by releasing source code in lieu of documentation) or at least that the Commission has failed to establish to the requisite standard that Microsoft has failed to comply. (Amusingly the document quotes from the UK CAT Napp judgment which came close to equating the civil standard in the case of substantial fines to a criminal standard, but does not refer to subsequent refinements of this reasoning by the CAT itself: see Standards of evidence for competition complaints | viewpoint: Franck for details.) A supplemental response (16 pages, PDF) published by Microsoft on 2 March 2006 alleges defects in the Commission's procedures and in its disclosures to Microsoft.

Statement of objections on non-compliance with inter-operability remedies. A Commission press release (22 December 2005) reports that the Commission has issued Microsoft with a statement of objections concerning compliance with the server inter-operability remedies required under the 24 March 2004 decision. The Commission had made a decision on 10 November 2005, under Article 24(1) of Council Regulation 1/2003, that Microsoft's proposals for implementation of the server market remedies did not meet its obligation to "supply complete and accurate interoperability information". That decision set a deadline for 15 December 2005. Since the decision of 10 November 2005, Microsoft has revised its proposals for disclosure if inter-operability information. However, the Commission "takes the preliminary view that this information is incomplete and inaccurate". The Commission refers to a report by the Monitoring Trustee, who sees the documentation as "totally unfit at this stage for its intended purpose" and that it requires "quite drastic overhaul before it could be considered workable". Microsoft has five weeks to respond to the statement of objections. The Commission warns (not for the first time) that it may then issue a daily fine on Microsoft for non-compliance. A Microsoft press release (22 December 2005) reports that the company will contest the statement of objections, cites the efforts it has gone to so far to comply with the 24 March 2004 decision and questions how the Commission can properly object to Microsoft's revised proposals when "by its own admission neither [the Commission] nor the Trustee have even read or reviewed these new documents".

Commission appoints trustee to advise on Microsoft compliance. The European Commission has announced the appointment of Professor Neil Barrett, a computer scientist specialising in security, computer crime and UNIX systems, as the Monitoring Trustee to "provide impartial expert advice to the Commission on compliance issues" relating to the March 2004 Decision. The Commission can seek advice from the trustee in respect of Microsoft's implementation of both the server inter-operability remedies and the media player remedies. The press release states that Professor Barrett was selected following the Commission's evaluation of the expertise and impartiality of several candidate trustees put forward by Microsoft.

Microsoft brings remedies case against Commission. Microsoft filed on 10 August 2005 a new claim with the CFI against the European Commission concerning implementation of the server markets remedies ordered by the Commission in its March 2004 decision. The request for annulment relates to the disclosure and licensing arrangements for source code implementing the Windows protocol specifications to be disclosed by Microsoft. Microsoft's concern seems to centre on the risk that the licensing arrangements the Commission wishes it to offer to allow third party inter-operability with its workgroup server protocols leads to the inappropriate revelation of source code when these protocols are implemented by open source software developers. A brief notice of application is available online. This story is also covered by Out-law.com.

Competitors unhappy about Microsoft's inter-operability royalties. ZDNet reported that a European Commission spokesman (Jonathan Todd, according to The Register) has cast doubts on whether the licensing arrangements offered by Microsoft to permit inter-operability with its workgroup server protocols satisfy the requirements of the remedy imposed by the Commission. Part of the concern relates to the structure (per user fees) and level of royalties, particularly their adequacy for users of open-source solution such as Samba. A draft of the proposed licence can be downloaded from the Microsoft website. On 15 July 2005 The Register reported that no decision was likely before September and Arstechnica reported that competitors were still unhappy about Microsoft's proposed remedies.

Microsoft statement on media player remedies. Microsoft has issued a press release on 8 June 2005 reporting on the release of the versions of Windows that the company was required to offer to meet the European Commission's remedies in the media player/bundling part of the case: "Originally released to computer makers in January 2005, the latest versions of the XP operating systems without Windows Media Player follow further clarifications from the European Commission". These will be made available to computer manufacturers on 15 June in major European languages, and a little later in the case of versions for other European languages.

Microsoft statement on inter-operability remedies. Microsoft has issued a press release on 6 June 2005 confirming that the company "has made a number of concessions to address concerns raised by the European Commission regarding the company's compliance with the interoperability part of the Commission's ... Decision" but notes that it is still in disagreement with the Commission on whether open source developers should be able to publish source code associated with the company's technology. The press release also states that a Trustee appointed by the Commission will review the reasonableness of the royalties set for inter-operability information. Out-law reports that the Commission is to "market test" Microsoft's proposals and also notes the disagreement over open source developers use of the inter-operability information.

Agreement on versions of Windows without a media player. A Microsoft press release reports that the company has agreed to adopt the names "Windows XP Home Edition N" and "Windows XP Professional Edition N" for the versions of Windows it must offer without a media player. These names originated from the Commission; the press release reports that the Commission had rejected nine previous suggestions put forward by Microsoft. A subsequent press release sets out various further technical and packaging changes that Microsoft has agreed to make to those versions of Windows.

CFI dismisses Microsoft's application for interim measures. On 22 December 2004, the European Court of First Instance (CFI) issued an order to dismiss Microsoft's application for interim measures whilst the Court deals with the substance of the case. The application sought suspension of the remedies imposed by the European Commission in Case COMP/C-3/37.792 Microsoft, which included a requirement for Microsoft to supply competitors in work group server markets with inter-operability information, and to offer versions of its Windows operating system that do not contain its Windows Media Player. The appeal has been dismissed in its entirety. A CFI press release states that "the President [of the CFI] finds that Microsoft has not shown that it might suffer serious and irreparable damage as a result of implementation of the contested decision." The CFI has taken this view in respect of both the server part of the case (refusal to supply inter-operability information) and the Windows Media Player part of the case (tying of media player to operating system). Microsoft may appeal this decision before the European Court of Justice (ECJ), limited to points of law, within two months of notification.
Full text of the Order of the president of the CFI in case T-201/04 on 22 December 2004
(The BBC subsequently reported that Microsoft will not appeal the CFI's decision.)

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CFI trial of Microsoft's appeal against the 2004 decision

Judgment scheduled. Article in The Register reporting that the court is to hand down its judgment at 9:30 am Luxembourg time on Monday 17 September 2007.

Five-day hearing from 24 April 2006. A five-day hearing of the appeal before 13 judges of the Court of First Instance began on 24 April 2006. An article from the International Herald Tribune offers a perspective on the CFI.

No amicus curia at the CFI. The CFI has dismissed on 28 November 2005 applications by an association of Microsoft resellers and by three "mere think-tanks" with "merely an indirect, and purely abstract and academic, interest" to intervene in support of Microsoft.

FSF intervention. The Free Software Foundation Europe has filed an application to intervene on 23 November 2005.

Worldwide settlement with RealNetworks. A Microsoft press release states that Microsoft and RealNetworks have reached three agreements to settle their antitrust case and "create a new partnership to innovate and promote consumer choices in digital music and games". These agreements involve cash payments to RealNetworks of $761 million. One of the agreements is seen to resolve all the antitrust disputes between the parties worldwide. The press release implies that RealNetworks will end its participation as intervener in the case before the CFI that Microsoft brought against the Commission.

"Ayatollahs". The CFI judge originally heading the panel hearing the case, Hubert Legal, suggested in print that some CFI staff may sometimes risk exceeding the review functions of the court, and were acting as "ayatollahs of free enterprise". This has now led to a change in the composition of the panel. The Microsoft case will be heard by a "Grand Chamber" presided by Bo Vesterdorf, with judge John Cooke responsible for handling the case (see Reuters report). Groklaw reports concerns from the Free Software Foundation Europe about potential delays resulting from this change. Hubert Legal's earlier hope that the CFI would have decided on Microsoft's appeal by summer 2006 now seems forlorn.

Interveners. Reuters reported on 15 March a CFI order allowing a number of interveners to participate in the case, including RealNetworks and the Free Software Foundation Europe on the Commission's side. Several sources, including The Register, reported in early April 2005 that another consortium, the European Committee for Interoperable Systems or ECIS, which includes IBM, Nokia, Oracle, Red Hat and RealNetworks, had requested permission to intervene. Interventions from other key players are less likely since Microsoft reached settlements during 2004 with various parties that had supported the European Commission's case, including Sun, Novell and the Computer & Communications Industry Association. (See Microsoft's legal newsroom.)

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Overview of the Commission's case

In its decision of 24 March 2004 (Case COMP/C-3/37.792 Microsoft) the European Commission found Microsoft Corporation to have abused a dominant position under Article 82 of the EC Treaty. Microsoft was found to hold a dominant position in the relevant market for the supply of client PC operating systems (and also in the relevant market for the supply of work group server operating systems). The Commission held that Microsoft conducted two separate abuses.

Microsoft was fined almost 500 million Euros. To address the refusal to supply abuse, Microsoft was ordered to disclose specifications of protocols used by Windows work group servers that would enable other suppliers of server operating systems to compete viably with Microsoft's own work group operating system products. To address the tying abuse, Microsoft was required to offer a version of its Windows operating systems that did not include the Windows Media Player, and to refrain from using technological, commercial or contractual or other means that would have an equivalent effect to the tying.

Microsoft announced that it had filed an appeal with the European Court of First Instance (CFI) against the European Commission's decision, on June 7 2004 (case number T-201/04). Subsequently, Microsoft announced that on 25 June 2004 it had requested that the CFI suspend the remedies set out in the Commission's Decision pending the CFI decision on the merits of Microsoft's appeal.

The CFI issued an order on procedural matters on 26 July 2004. A two-day hearing before the CFI started on 30 September 2004, on Microsoft's request for a suspension of the interim measures recommended by the Commission.

On 22 December 2004, the CFI issued an order to dismiss Microsoft's application for a suspension of remedies whilst the Court deals with the substance of the case. The text of the order includes a good summary of the Commission's March 2004 decision.

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The link between dominance and abuse in the server case

An interesting aspect of the Microsoft case is the nature of the economic links that exist between the different relevant markets in the Commission's analysis. As a short-hand the key markets are as follows:

In the server case, the link between the dominance and abuse is worthy of consideration. There is a sense in which the client PC OS market, in which Microsoft was found dominant, might not be the relevant one for assessing whether the conduct found to be abusive by the Commission was an abuse of dominance in that market.

Some of the inter-operability information discussed by the Commission relates to server-server inter-operability, rather than client PC-server inter-operability. If the key inter-operability information denied to rivals is that which would allow non-Microsoft servers to work effectively in work groups using Microsoft servers, is Microsoft's dominance in the client PC OS market sufficient grounds for it to be obliged to supply server-server inter-operability information?

Moreover, even if Microsoft were dominant in the relevant server market, it is not clear that the non supply of server-server inter-operability information should be seen as an abuse. In particular, provided that the client PC-server inter-operability information were openly available, rivals to Microsoft might have been able to compete for the supply of servers so long as customers did not need to integrate Microsoft and non-Microsoft servers in the same work group.

Thus, the finding of dominance in the server OS market seems more important than the finding of dominance in the client PC OS market. But there are question marks over the analysis of dominance in the server market.

The Commission seems to use evidence that Microsoft holds key inter-operability information from its client PC dominant position, which could enable it to influence competition on the related server OS market, as evidence of its dominance of the server OS market. This seems to be its meaning when it says (at paragraph 526) "Even if the Commission were to disregard Microsoft's present work group server operating system market share as an indication of dominance ... the conclusion to the effect that Microsoft has a dominant position [in the server OS market] is furthermore supported by the particular links between the client PC and work group server operating system markets".

This is interesting, because dominance on a market is usually seen as an absence of effective competition on that market, rather than the ability to harm competition on that market. If this approach is taken to its logical conclusion, any firm dominant in an "upstream" market might also be seen as dominant in any related downstream markets that are dependent on that upstream market for key inputs – even if the upstream firm (i) does not supply those downstream markets or (ii) supplies those under competition from rivals. This concept of dominance would appear to equate dominance with the ability to harm competition on a market. This is hardly the concept commonly applied, and so the Commission's finding of dominance in the server OS market seems somewhat forced. At the same time, the Commission's concept of dominance in this market is not totally inconsistent with the definition in EC case law such as Hoffmann-La Roche (at para 4).

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Protecting versus promoting competition

A difficult aspect of the law on abuse of dominance is the distinction between the obligation on a dominant firm not to impede or eliminate competition that already exists, and the obligation to facilitate new forms of competition where these could be introduced. This issue is discussed briefly in a Reckon article on the Genzyme case in the UK (PDF download) – a case which, despite the rhetoric of the Competition Appeal Tribunal's judgment, is more about introducing a new form of competition than protecting competition that had existed prior to the "abuse".

The most prominent EC case law on "vertical" abuse of dominance cases (such as Commercial Solvents) relates to abuse by a dominant firm through the terms it deals with current customers. It is only in "exceptional circumstances" that a dominant firm would be obliged to supply a new customer. The Advocate General has taken a similar interpretation in its opinion in Syfait v Glaxo (see para 66-68).

One interpretation of this is that Article 82 places emphasis on the protection of competition that already exists, rather than on pursuing the introduction of new competition (a task which is carried out by sector-specific reforms, such as those experienced in the UK electricity and telecoms sectors, or even by potential reforms to IP law). The Microsoft case could therefore provide a good opportunity for the European Courts to provide clarification on the role of Article 82 in promoting as well as in protecting competition, in the context of inter-operability.

For instance, the Commission (section 5.3.1.1.3.2) argues that "Microsoft's conduct involves a disruption of previous levels of supply". The Commission's theory of abuse in the server case is that, in effect, Microsoft had adopted a policy of providing less relevant information on inter-operability to rival suppliers of work group server operating systems, the effect of which was to have threatened the maintenance of competition on that market.

Therefore, despite the evolving technical nature of the relevant service (the relevant inter-operability information), the theory of abuse in the server case is that of an upstream monopolist harming competition in a downstream market by worsening the terms at which it will supply to third parties on the downstream market. The fact that the Commission goes to the effort of showing how Microsoft's conduct had changed suggests that, were Microsoft to have followed a consistent policy towards the availability of inter-operability information, the case would have been different. If a Court decision upheld the server abuse on the basis of a change in Microsoft's conduct – which threatened to harm competition that had previously emerged – this might be seen to limit the ability to use EC competition law to achieve inter-operability, and to suggest the benefits of consistency as an effective compliance strategy (see IMS Health for the "exceptional circumstances" under which a dominant firm should introduce new supply to allow competition against itself in a downstream market).

In addition, as discussed below, there are serious economic problems with the concept of abuse of dominance through tying. One way that these can be addressed is by a law that does not punish those dominant undertakings that have always tied their products, and only punishes those dominant undertakings that start to tie products, where this threatens the maintenance and development of competition. Arguably, such an approach (and the lesser, more tightly defined form of "special obligation" on a dominant firm that it would imply) might render EC competition law more workable.

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Tying and the concept of separate products

The Commission provides four conditions that it considers to be required for tying to be prohibited under Article 82. It seems to treat these as necessary conditions. The first condition is that the tied good and the tying good are separate products; the remaining conditions require dominance in the tied good; that no untied supply is available; and that tying forecloses competition (paragraph 794).

Focusing on the first condition, there is an immediate problem of definition: how do we know when the tied and the tying good are separate products? As frequently pointed out by economists, all products can be thought of as "bundles" of individual components (the classic example is a car — a composition of chassis, body, wheels, CD player, steering wheel, etc). The fact that we can think of potential sub-divisions of the product is not helpful in deciding if those sub-divisions are separate products.

The Commission argues that whether the tied and tying products are distinct depends on whether there exists "independent demand" for the tied product (para 803). Its argument that the tying of WMP to Windows meets the first condition for its abusive tying test then seems to rest on the observation that separate media players are available, and that there is clearly consumer demand for these players.

For the products in question, this is not much of a test. Simply showing that people use media players that are not integrated with operating systems allows the Commission to pass the first condition above. In this respect, the Commission refers to ECJ and CFI decisions (Hilti and Tetra Pak II respectively) in which the Court had pointed out that there existed independent producers of the tied product.

Since the Commission has established that Microsoft is dominant in the tied product, and since no untied version of Windows was available, its test of abuse comes down to whether tying forecloses competition in the market for the supply of media players (see below).

But something is wrong with this approach. At face value, the Commission's test means that any dominant supplier of a product could be held to infringe Article 82 if it would be possible to have competition in the supply of a sub-component of that product, were the dominant firm to offer a version of its product that lacks that sub-component. Quite simply, this cannot be the law — the Commission's proposition on the conditions necessary for tying to be an abuse of Article 82 do not stand up to logical scrutiny. (Note that when the Commission sets out these conditions, at para 803, it does not refer to case-law; this is remarkable in such a well-referenced document.)

It is not obvious how to rescue the rationale behind the Commission's rule on when tying is an abuse.

One option would be to interpret the "separate product" test differently from the "independent demand" concept which the Commission uses or, alternatively, to add an additional leg to the analysis which considers the chronology of participation on the affected markets. Whether the products subject to the tie have previously been supplied separately, in particular by market participants other than the dominant firm, seems relevant. The obligation may be on a dominant firm not to adopt a tying policy that impedes competition that has already taken shape on the market even if there is no general obligation on a dominant firm to introduce competition in new markets for various sub-components of a previously integrated product. However, although this approach addresses the key defect of the Commission's (stated) approach, it is not straightforward to apply (especially because the characteristics of all products change over time).

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An alternative way to consider the "tying" abuse

Another way to address the problem of when tying should be interpreted as an abuse of a dominant position is to abandon the concept of "tying" altogether.

All "tying" cases can be re-interpreted as potential refusal to supply cases (depending, of course, on whether any such refusal took place). Most obviously, one can think of the refusal to supply the relevant product in an untied form. But it might also be possible to consider the case from a different angle altogether.

In the Microsoft case, one could assess an allegation that Microsoft abused a dominant position through the refusal to supply appropriate "distribution" services that were necessary to maintain competition on the media player market.

The Commission could have examined whether Microsoft should be seen as dominant in a market for the supply of distribution services for media players. Presumably Microsoft could have offered a service to Real Networks and Apple whereby, for a fee, it would distribute their media players with its Windows operating system. The European Court of Justice in IMS Health (IMS v. NDC C-418/01 [2004]) confirmed that a relevant market could be identified even if that market were hypothetical, showing no previous transactions. Under this approach, the Commission would have considered whether other means of distribution (e.g. sending CDs by post, advertising the availability of software applications for online download) would be effective substitutes.

If Microsoft were found dominant in such a distribution market, it seems likely that the Commission would have have needed to show that the "exceptional circumstances" of Magill applied, in order to find an abuse and force Microsoft to enable the distribution of non-WMP media players with Windows.

Arguably, a case based on a charge of refusal to supply certain distribution services might have provided a more consistent analytical framework than the four conditions held by the Commission as necessary for "tying" to be abusive.

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Tying and "competition on the merits"

A further problem of the tying case relates to the effects of Microsoft's conduct on competition. There is no doubt that Microsoft gained a significant competitive advantage over rival suppliers of the media player market, by distributing WMP with Windows. The important question is whether the nature of that advantage, or the means used to achieve it, provided grounds for the finding of abuse.

In some ways, the Commission is seeking the impossible: "Microsoft thus interferes with the normal competitive process which would benefit users in terms of quicker cycles of innovation due to unfettered competition on the merits" (para 980). This may look nice on paper, but is "unfettered competition on the merits" anything more than a slogan? Is competition on the merits really something that can be used as part of an operational test to distinguish between normal business practices and an abuse of a dominant position? Competition on the merits is an inviting concept: it is difficult to object to the desire for competition on the merits, and Article 82 might appear a tool designed to achieve this ambition. Yet it is not clear that the concept means anything in the context of competition law.

Para 969 of the Commission's decision suggests that one can assess whether conduct by a dominant firm is compatible with the EC Treaty by assessing if it is justified as "on the merits" or whether, alternatively, it represents exploitation of historic success:

"Under Community competition law an undistorted competition process constitutes a value in itself as it generates efficiencies and creates a climate conducive to innovation ... . A justification [of the tying practice and the possible domination by Microsoft of the media player market] relying on Windows' historic success in the client PC operating system market — and not on the merits of media players — can therefore not have a place within such a system."

But the decision does not provide specific guidance on what sort of competition is "on the merits". This is unfortunate because the different suppliers to a market will always have varying capabilities. It is neither possible to strip out these differences (e.g. Microsoft's brand from its client PC OS monopoly could be seen to advantage it in the media player market) nor desirable to do so (competition is a selection mechanism that thrives on differences between suppliers to a market).

There is a line of reasoning that the use of a dominant position in one market to achieve benefits in supplying a related market, which would not be obtainable without that dominant position, could be defined as inconsistent with a concept of competition on the merits. But such a narrow concept would seem to add little in abuse of dominance cases, since it is incapable of providing a "test" of where use of a dominant position becomes abuse of a dominant position.

Along similar lines, it would not seem absurd to define competition on the merits as encompassing competition amongst market participants that are acting lawfully. For instance, where a market participant benefits from unlawful conduct, such as through an abuse of a dominant position, illegal state aid or unlawful industrial espionage, this could be deemed as something other than competition on the merits. Again, however, this definition would not allow one to use analysis of whether specific conduct is compatible with competition on the merits to justify a finding that that conduct constitutes an abuse of a dominant position.

Without a coherent explanation of what competition on the merits means, the concept does not seem to offer operational guidance on the sort of conduct that is prohibited.

The Commission's analysis is more informative, and more convincing, where its focuses on whether Microsoft's tying practice threatens the existence of rivalry between different media players (and between different content formats, DRM solutions, etc), without being sidetracked by whether Microsoft's practices allow "competition on the merits".

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The concept of "overwhelmingly dominant"

It is not clear what the difference is between a firm that is "overwhelmingly dominant", as Microsoft was found to be in market for client PC operating systems, and a firm that is just dominant. The law on abuse of dominance applies in a one-zero sense. While dominant firms have a "special responsibility" under EC competition law, there is no sense in which the nature of that responsibility undergoes a clear step-change once a certain threshold of overwhelmingly dominant (or super-dominant) is reached.

The specific market conditions in which a dominant firm operates may affect the scope of the firm's special responsibility under Article 82. Regardless of which terms are used to describe a particular undertaking's dominant position on a market, it remains necessary for the assessment of whether that undertaking has abused a dominant position to take account of the market context in which the alleged abuse is considered to take place. Because of this requirement, any factors that might be used to distinguish between a position of dominance and a position of overwhelming (or super-) dominance will in any event be relevant to the assessment of the alleged abuse. But it is questionable whether going one step further, and making an explicit finding that a firm is not just dominant but "overwhelmingly dominant" contributes to the analysis.

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Links to related online content

Case documents and related:

Opinion and analysis:

Other Reckon resources:

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Last changed by Franck at 2:32 PM on Monday 12 May 2008.

Reference for this page:
Reckon Open "Microsoft: the EC abuse of dominance case" 2008-05-12T14:32:22