Australia: European Commission Finding Upheld – Microsoft Abused Its Dominant Market Position

Last Updated: 13 December 2007
Article by Paul Schoff and Sarah Moritz

In September of this year, the European Court of First Instance (Court) handed down judgment in Microsoft Corporation v Commission of the European Communities. The Court upheld the European Commission's earlier finding that Microsoft had abused its dominant market position through refusing to supply interoperability information and tying Windows Media Player with the Windows PC operating system. The €497 million fine imposed by the Commission was also upheld.

A disclosure remedy imposed by the Commission and upheld by the Court requires Microsoft to provide its competitors with certain interoperability information. A comparable decision in Australia would highlight again the extent to which section 46 of the Trade Practices Act can act as a de facto access regime.

Commission Decision

In early 2004, the Commission found that Microsoft had infringed Article 82 of the EC Treaty (applicable to trade between Member States), by abusing its dominant position in the PC operating system market in relation to two separate types of conduct.

The Commission found that Microsoft had a dominant position in the following markets:

  • the PC operating system market, where Microsoft had a market share of greater than 90% and where there existed very high barriers to entry, due to indirect network effects; and
  • the work group server operating system market, where Microsoft had a market share estimated conservatively at 60% and where there existed significant barriers to entry, due to network effects and to Microsoft's refusal to disclose interoperability information.

Refusal To Supply

The first type of conduct found to constitute an abuse of its dominant market position was Microsoft's deliberate refusal to supply certain competitors, namely work group server operating system vendors, with interoperability information. Interoperability information was required by Microsoft's competitors to develop and distribute products in competition with Microsoft's products on the work group server operating system market. The effect of this conduct was to stifle innovation, ultimately diminishing consumer choice. As a remedy, the Commission required Microsoft to disclose to competitors on a reasonable and non-discriminatory basis the interfaces required for third-party products to interoperate with the Windows PC operating system (Disclosure Remedy).

Tying Arrangement

The second type of conduct found to constitute an abuse of its dominant market position in the PC operating systems market was Microsoft's tying of Windows Media Player (WMP) with the Windows PC operating system. Microsoft made the availability of the Windows PC operating system conditional on the simultaneous acquisition of WMP. This affected competition on the media player market, where Microsoft faced competition. The Commission found this tying arrangement satisfied the four elements required to breach Article 82 of the EC Treaty, because:

  • the tying and tied goods (namely the Windows PC operating system and WMP) were two separate products;
  • Microsoft was dominant in the tying product market, namely, the PC operating system market;
  • Microsoft did not give customers an option of obtaining the Windows PC operating system without WMP; and
  • this tying foreclosed competition in the media player market, as it reinforced and distorted network effects. As a result, WMP had unmatched ubiquity on PCs worldwide.

As a remedy, the Commission required Microsoft to offer for sale a version of its Windows PC operating system without WMP (Untying Remedy).

The Commission also made orders in relation to a monitoring trustee to oversee and issue opinions on Microsoft's specific compliance with the Commission's decision.

Court of First Instance Decision

On 7 June 2004 Microsoft lodged an appeal with the European Court of First Instance against the Commission's decision. It was judgment in this matter which the Court handed down on 17 September 2007. The Court:

  • upheld the Commission's decision concerning interoperability and found that Microsoft did not demonstrate the existence of an objective justification for its refusal to disclose the interoperability information, including its argument that the conditions to be satisfied before a firm in a dominant position must grant a licence over its intellectual property rights were not met;
  • upheld the Commission's decision with regards to Microsoft's tying of its PC operating system with WMP, commenting that the four elements upon which the Commission based its decision that abusive tying occurred were correct and consistent with Community law. The Court held that Microsoft did not demonstrate the existence of an objective justification for tying and that the Untying Remedy was proportionate;
  • annulled the Commission's decision regarding the monitoring trustee, finding that the Commission had gone beyond its powers and had no authority to compel Microsoft to grant to the monitoring trustee powers which the Commission itself could not confer on a third party; and
  • held that the Commission was right in its assessment of the gravity and duration of the infringement and setting the amount of the fine accordingly.

On 22 October 2007, Microsoft announced that it will not appeal the European Court of First Instance decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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