On 11 December 2013, the EU General Court upheld the European Commission's clearance of Microsoft's acquisition of Skype against a challenge brought by Cisco Systems and Messagenet. The Commission had unconditionally approved the deal in October 2011 after a phase I review (see VBB on Competition Law, Volume 2011, No. 10, available at www.vbb.com).
In its decision, the Commission had considered the effect of the transaction on the distinct markets for internet-based communications services aimed at enterprises and those aimed at consumers. In the enterprise communications market, the Commission had noted that Skype's market presence was limited and that Microsoft would not become the market leader after the acquisition. By contrast, on the consumer communications market, the acquisition would have resulted in very high market shares in some segments. The Commission had determined that the transaction nonetheless did not raise serious competition concerns, a conclusion that Cisco and Messagenet challenged.
If the product market had been narrowly defined as that for consumer video communications on Windows-based PCs, the parties' combined market share would have been around 80-90%. However, the Court noted that the Commission had not in fact determined that such a market definition was accurate. More importantly, the consumer video communications sector was highly dynamic and characterised by rapid innovation. In this context, very high market shares were not indicative of market power sufficient to enable Microsoft to significantly impede effective competition.
Cisco and Messagenet also argued that Microsoft could leverage network effects to impede competition. The Court held that the Commission had rightly considered network effects to have little anticompetitive impact, most importantly because there were no technical or economic obstacles to prevent users from downloading and using several competing communications applications.
Cisco and Messagenet had also argued that, following the acquisition, Microsoft could foreclose competition in the enterprise communications market. The Court, however, considered that the applicants' arguments were too speculative, and that they had not demonstrated that Microsoft had the ability or the incentive to pursue a foreclosure strategy.
The Court therefore dismissed the appeal.
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