Contents

  • Introduction
  • Microsoft
  • IBM
  • Other developments in Europe
  • Developments in Asia

 

Introduction

The start of the year has seen antitrust authorities in Europe consider new cases against familiar foes. Just when Microsoft thought that the European Commission might be moving on to new technology sector targets [ See our briefing in November 2008 for details], a new set of concerns have been raised in respect of the way in which Microsoft packages its web browser Internet Explorer with its dominant Windows PC operating system. In addition, IBM, one of the first technology sector companies ever to be investigated by the European Commission in the early 1980s, has been the subject of an antitrust complaint to the European Commission by T3 Technologies, one if its competitors for mainframe products alleging that IBM is abusing a dominant position in the European mainframe market.

Meanwhile, in Asia internet search engine Baidu is facing significant scrutiny under China's new antimonopoly law. In actions reminiscent of similar claims made against Google in the US, plaintiffs argue that Baidu is altering search results to the detriment of companies who terminate their advertisement contract with Baidu.

 

Microsoft

The European Commission sends new Statement of Objections to Microsoft

Background

On 15 January, the European Commission made a series of formal allegations against Microsoft (in a so-called "statement of objections") claiming that Microsoft is, again, abusing its dominant position in the PC operating systems market by tying its web browser Internet Explorer to the Windows PC operating system. A statement of objections is a formal stage of an investigation by the Commission into breaches of the EU antitrust rules, setting out the alleged competition law infringements. In most cases, the statement will form the basis for a subsequent decision.

The sending of the statement of objections follows on from the initiation of an investigation one year ago into Microsoft's practices of tying different software products, including Internet Explorer, desktop search and Windows Live to its Windows PC operating system. At that time, following a complaint from the European Committee for Interoperable Systems, the Commission also initiated a formal investigation into Microsoft's alleged refusal to disclose interoperability information for a broad range of its products (including its Office suite).

The European Commission's concerns

The European Commission is concerned that the practice of tying Internet Explorer with Windows has the following negative effects:

  • Providing Microsoft with an artificial distribution advantage over its web browser competitors thereby restricting competition on the merits;
  • Artificially favouring Internet Explorer to the detriment of product innovation in the web browser market;
  • Inducing content providers and software developers to design websites or software matching Internet Explorer, which also hinders the development of competing products.

The European Commission will need to prove that the alleged conduct amounts to abusive conduct by a dominant company under Article 82 EC. That Microsoft holds a dominant position on the PC operating systems market has been confirmed by the European Commission and the European Courts. The main task of the Commission will therefore, be to show that the tying of Internet Explorer to the Windows operating system restricts competition on the market for internet browsers.

There is precedent for this in the EU, of course. In 2004 the European Commission found that Microsoft had infringed EU antitrust rules by tying Windows Media Player to its Windows Operating Systems thereby restricting competition from third party media player providers.

Potential implications

If, following Microsoft's opportunity to put the case in writing and orally, the Commission's views expressed in the statement of objections are confirmed and Microsoft is found to have abused its dominant position, the Commission may impose a fine of up to 10 per cent of Microsoft's annual worldwide turnover. As evidenced in its 2004 decision, the European Commission will not hesitate to hit Microsoft hard if its allegations are confirmed (the 2004 Commission decision imposed a fine of €497 million on Microsoft). In addition to fines, the Commission may also order Microsoft to offer a version of its Windows PC operating system that does not include Internet Explorer or, more radically, an order to offer a version of its Windows PC operating system including rival browsers.

What could come next?

This is unlikely to be the last action taken by the European Commission against Microsoft. The European Commission appears to have found a theory of competitive harm that could apply to a wide range of Microsoft's practices (the refusal to disclose interoperability information for products such as Office, a number of server products or the so-called .NET framework, and the tying of software products other than Internet Explorer to its Windows operating system). Moreover, the Commission has shown that it is committed to adopt a tough stance against companies holding quasi-monopoly power in key sectors of the IT industry, who use that power to exclude competitors from the market.

 

IBM

Recent complaint against IBM

Background

On 20 January 2009, T3 Technologies filed a complaint with the European Commission claiming that IBM is abusing its dominant position in the European market for mainframe products. The nature of the complaint (as reported in the wider press) is similar to allegations made by the Commission against Microsoft, albeit in different markets.

The complaint

IBM is accused of the following practices:

  • tying the sale of its operating system to its mainframe hardware thereby preventing the sale of competing mainframe hardware products;
  • withholding certain patent licences and other intellectual property rights for its mainframe operating systems, making it more difficult for competitors to sell IBM compatible mainframes to the detriment of mainframe customers.

T3 Technologies is a US company selling IBM compatible mainframe products. Mainframes are large data processing systems mainly used by large companies.

This is not the first time that a complaint has been lodged against IBM for practices relating to its mainframe products. In 2007, a complaint was brought by a US company, Platform Solutions Inc (PSI), another mainframe competitor at the time. The complaint however came to an end as IBM acquired PSI.

Next steps

As regards the complaint against IBM, the Commission is still to decide whether to open a formal investigation into the alleged abuse. The European Commission will need to be convinced that IBM holds a dominant position on the relevant market (the European market for mainframe products according to T3 Technologies) and has abused that dominant position. IBM has had dealings with the European Commission in the past. Back in 1984, IBM had agreed with the European Commission to provide certain interface information to its competitors. However, the large gap in time between that finding and the current complaint means that, unlike in the Microsoft case, the European Commission will have to start its analysis from scratch in this case.

 

Other developments in Europe

Intel fails in legal challenge to the European Commission's antitrust procedure

Following a complaint from AMD, its main competitor, the European Commission sent a statement of objections to Intel on 26 July 2007. This was followed by a supplementary statement of objections sent in July 2008 [ See our briefing in November 2008] in which the European Commission alleged that Intel had abused its dominant position in the microprocessor market in a number of way, including offering illegal rebates to customers, as part of an overall strategy to exclude AMD from the market.

In November 2008, Intel brought actions against the European Commission before the EC Court of First Instance, claiming, inter alia, that the proceedings were "discriminatory and partial", and requesting an extension of the deadline to answer the Commission's statement of objections. The EC Court of First Instance dismissed the actions and refused to suspend the proceedings.

French competition council cancels exclusive Orange contracts with Apple

In December 2008, the French Competition Council (now known as the French Competition Authority) ordered the dissolution of the five year exclusive sales agreement between Orange and Apple for the distribution of iPhones in France, although the order is only an interim measure, pending a final decision in the case. The proceedings were initiated following a complaint from rival operator Bouygues Telecom. Orange has already unsuccessfully appealed the decision to the Paris Court of Appeal, though it intends to lodge a further appeal with France's highest court - the Cour de Cassation.

The French Competition Council had concerns that the agreement breached rules on anti-competitive agreements because:

  • First, the French mobile market is very concentrated, with only three operators of which Orange is the former monopoly operator.
  • Secondly, exclusive deals such as the one concluded between Orange and Apple will increase the costs for consumers of changing mobile operators. Consumers buying iPhones or other handsets for which a partnership agreement has been signed must remain with the mobile operator for a minimum period of time (usually between 12 and 24 months), thereby making it difficult to switch between mobile operators.
  • Finally, the iPhone is very popular in France and an exclusive contract for this duration would be likely to exclude competitors from the market.

Other countries where Apple has exclusive dealings with mobile operators include Germany, the UK and the US. In Germany, Vodafone failed to break up the exclusive agreement between iPhone and T-Mobile. It remains to be seen whether the French Competition Council's interim decision may trigger new actions in those countries as well.

European Commission investigates the smart card chips sector

On 21 October 2008, the European Commission dawn raided the offices of several producers of smart card chips in Europe. The Commission is concerned that these companies violated antitrust laws by fixing prices, allocating customers and exchanging commercially sensitive information.

If the suspected smart card chips producers are found to have violated antitrust laws, they could face a fine of up to 10 per cent of their annual worldwide turnover and follow-on actions from aggrieved customers.

 

Developments in Asia

China - search engine Baidu the first target of complaints for monopolistic behaviour under the antimonopoly law

Since the entry into force of China's new antimonopoly law last August, a number of complaints have been filed against Baidu, in what may be a test for the new competition authorities' effectiveness in enforcing the new law.

Baidu is the leading Chinese online search engine and operates one of the world's most visited internet sites. It is listed on the NASDAQ and became the first Chinese company in 2007 to be included in the tech-heavy NASDAQ-100 index. Like Google, Baidu has diversified beyond its core search engine business but still derives most of its income from advertising revenue.

Two complaints have been filed against Baidu in the new law's first six months. The first complaint, reported to have been filed at the end of October, alleges that upon opting for a cheaper advertising contract with Baidu, the complainant's website was removed from the list of Baidu search results altogether. A second complaint filed around the same time is reminiscent of the recent lawsuit filed by TradeComet.com against Google: qmyy.com, an online information platform, accused Baidu of abusing its dominant position by preventing qmyy.com's web pages from appearing in Baidu's search results.

Both complaints were filed with the State Administration for Industry of Commerce's Antimonopoly and Unfair Competition Enforcement Bureau. The Bureau is one of four agencies with jurisdiction to enforce the new antimonopoly law, in particular with respect to monopolistic practices. The Bureau has yet to issue procedural and enforcement guidelines, and has so far not been reported to investigate any of the complaints it has received.

This does not mean, however, that Baidu will be exempt from scrutiny under the antimonopoly law. In December, a group of lawyers announced it had enlisted more than 50 companies willing to sue Baidu for abuse of dominance amongst other things. The group claimed that a lawsuit will be filed once the number of plaintiffs has risen to 100.

If Baidu is found to have violated the antimonopoly law, it could be subject to significant fines and the obligation to compensate aggrieved parties.

South Korea - Intel legally challenges KFTC decision

On 4 June 2008, the Korea Fair Trade Commission (KFTC) ordered Intel to pay a 26 billion won fine ($25.4 million) for abusing its dominant position in the microprocessor market by offering rebates to South Korean computer makers [ See our briefing in November 2008] in a way that unfairly harmed its rival AMD.

In December 2008, Intel filed an action before the Seoul High Court seeking to annul the KFTC's decision. Intel claims that the KFTC decision contains legal and factual errors. It also claims that the KFTC failed to understand the pricing and competition dynamics in the computer chips sector and ignored certain evidence.

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