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ECJ Backs Commission On Microsoft

by Ulrika Lomas,, Brussels

18 September 2007

In an eagerly awaited judgement, the EU's Court of First Instance yesterday mostly upheld the European Commission's ruling that Microsoft had abused its dominant market position, left in place its Euros497m fine, but found that the Commission had no power to appoint a 'monitoring trustee'.

On 23 March 2004 the European Commission adopted a decision finding that Microsoft had infringed Article 82 of the EC Treaty by abusing its dominant position by engaging in two separate types of conduct.

The first type of conduct found to constitute an abuse consisted in Microsoft’s refusal to supply its competitors with ‘interoperability information’ and to authorise them to use that information to develop and distribute products competing with its own products on the work group server operating system market, between October 1998 and the date of adoption of the decision. By way of remedy, the Commission required Microsoft to disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems.

The second type of conduct to which the Commission took exception was the tying of Windows Media Player with the Windows PC operating system. The Commission considered that that practice affected competition on the media player market. By way of remedy, the Commission required Microsoft to offer for sale a version of Windows without Windows Media Player.

On 7 June 2004 Microsoft brought an action before the Court of First Instance for annulment of the decision or for annulment or a substantial reduction of the fine imposed on it.

In its ruling, the Court confirms that the necessary degree of interoperability required by the Commission is well founded and that there is no inconsistency between that degree of interoperability and the remedy imposed by the Commission.

As to the question of the intellectual property rights covering the communication protocols or the specifications, the Court considers that there is no need to adjudicate on that question in order to determine the case. It observes that in adopting the decision the Commission proceeded on the presumption that Microsoft could rely on such rights or, in other words, it considered that it was possible that the refusal at issue was a refusal to grant a licence to a third parties, thus opting for the solution which, according to the case-law, was the most favourable to Microsoft.

The Court considers that the Commission was correct to conclude that the work group server operating systems of Microsoft’s competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems if they are to be capable of being marketed viably.

The Court rejected Microsoft’s arguments to the effect that the refusal is objectively justified because the technology concerned is covered by intellectual property rights. The Court notes that such justification would render ineffective the principles established in the case-law which are referred to above. The Court further considers that Microsoft has failed to show that if it were required to disclose the interoperability information that would have a significant negative effect on its incentives to innovate.

As regards the bundling of the Windows client PC operating system and Windows Media Player, the Court considers that the factors on which the Commission based its conclusion that there was abusive tying are correct and consistent with Community law. The Court observed that it is beyond dispute that, in consequence of the tying, consumers are unable to acquire the Windows operating system without simultaneously acquiring Windows Media Player. In that regard, the Court considers that neither the fact that Microsoft does not charge a separate price for Windows Media Player, nor the fact that consumers are not obliged to use that media player, is relevant for the purposes of the examination of that factor.

The Court found that Microsoft had not demonstrated the existence of objective justification for the bundling and that the remedy imposed by the Commission is proportionate. On that point, the Court made clear that Microsoft retains the right to continue to offer the version of Windows bundled with Windows Media Player and that it is required only to make it possible for consumers to obtain the operating system without that media player, a measure which does not mean any change in Microsoft’s current technical practice other than the development of that version of Windows.

The Court found that the Commission has no authority to compel Microsoft to grant to a monitoring trustee powers which the Commission itself is not authorised to confer on a third party. Last, the Court considered that the Commission exceeded its powers in so far as it made Microsoft responsible for all the costs associated with the monitoring trustee. There is no provision of Community law that authorises the Commission to require an undertaking to bear the costs which the Commission itself incurs as a result of monitoring the implementation of remedies.

The Court therefore annulled the Commission's decision in so far as it orders Microsoft to submit a proposal for the appointment of a monitoring trustee with the power to have access, independently of the Commission, to Microsoft’s assistance, information, documents, premises and employees and to the source code of the relevant Microsoft products and in so far as it provides that all the costs associated with that monitoring trustee be borne by Microsoft.

An appeal, limited to points of law only, may be brought before the Court of Justice of the European Communities against a decision of the Court of First Instance, within two months of its notification.

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