Microsoft Corp v Commission

From CS378H Public Policy and the Digitally Native Technologist
Jump to: navigation, search

Microsoft Corp v Commission was a highly influential case in which the EU Commission accused Microsoft of abusive market dominance practices.[1] The case began in 1998 with a complaint filed by Sun Microsystems over anticompetitive business practices. A preliminary decision against Microsoft by the EU Commission was reached in 2003 and punishment was issued in 2004. Further penalties against Microsoft were issued in 2006 which Microsoft appealed. The Court of First Instance rejected Microsoft's appeal on September 17, 2007.[2]

Background

Microsoft Corp v Commission was not the first case in which Microsoft came under scrutiny for questionable business practices. In 1993, Novell, a Utah-based software company[3], filed a complaint that Microsoft "blocked competitors out of the market for operating system software by way of certain anticompetitive practices."[4] One such practice was "Microsoft's standard agreements for licensing software to PC manufacturers, which required payment of royalties based on the number of computers shipped, regardless of whether the computers contained pre-installed Microsoft software."[4] This practice made it in the interest of PC manufacturers to ship only Microsoft software, undercutting competitors. The complaint led to an investigation by the EU Commission and Microsoft eventually agreed to change its licensing practices.[4]

In 1998, Sun Microsystems, a California-based software company[5] acquired by Oracle in 2010[6], filed a complaint against Microsoft that the company "would not disclose technical interfaces to Windows NT."[7] This complaint led to a EU Commission probe of the media streaming technologies used in Windows NT.[7] In February 2000, based on the findings from the probe, the EU Commission launched a full investigation "on Microsoft's anti-competitive conduct."[8]

Decision

Preliminary

In August of 2003, the EU Commission issued a preliminary decision stating that Microsoft should "reveal the technical details necessary for Microsoft's competitors in low-end servers to achieve full interoperability with Windows PCs and servers."[9] With regards to Windows Media player, which Microsoft had bundled with its operating system, the Commission also stated that "either that software [Windows Media Player] should be unbundled from Windows or Microsoft should be forced to bundle competitors' media players as well."[9] The Commission backed its decision by stating that it had "talked to more of Microsoft's customers, partners and competitors" finding that "by not disclosing the necessary information to allow rival servers to exchange data with Windows PCs, Microsoft is limiting competition."[9] Later, in 2004, the Commission ruled that Microsoft should pay a fine of 497,196,304 euros.[10] At the time, the fine (which was equivalent to $414,741,766 using historic exchange rates[11]) was the largest ever levied against a company for anti-competitive practices by the Commission.[12] Microsoft paid the fine in full while appealing the decision.[13]

Appeal

In June of 2004, Microsoft appealed the decision to the EU Court of First Instance, seeking to "suspend penalties imposed by the 2004 Decision (“the case for interim measure”) and annul the 2004 Decision(“the merit case”)."[8] In December of 2004, the Court of First Instance rejected Microsoft's appeal of the “the case for interim measure” and stated that "Microsoft should comply with the 2004 Decision, which is given immediate effect."[8]

Attempted Appeasement

After the failed appeal, Microsoft altered its main operating system, Windows XP, in order to comply with the court ruling about bundled software. The new operating system did not contain Windows Media Player and was branded as Windows XP N Edition.[14] Initially, Microsoft wanted to call the new operating system "Reduced Media Edition" but the EU regulators objected.[15] Additionally, Microsoft published the source code for Windows Server 2003 in order to comply with the Commission's mandate about interoperability of third-party software with Windows.[16] However, Microsoft charged for access to the published source code at amounts "between $100 to $600 per server."[17] This was a point of contention with the EU Commission, which stated that "Redmond [Microsoft] is failing to comply with the spirit of the remedies imposed after anti-trust findings."[17]

Final Penalties

In December of 2005, the EU Commission warned Microsoft "that it had failed to comply with the original ruling it issued in March 2004."[18] The Commission stated that "the interoperability information it [Microsoft] had provided was not complete and accurate." As punishment, the Commission stated that Microsoft would "face fines of up to 2 million euros a day if it did not comply immediately."[18] Six months later, in June of 2006, Microsoft began handing over information about its operating systems to the Commission.[18] The Commission found that the effort was too late and imposed an additional fine against Microsoft in July of 2006 for the amount of 280.5 million euros due to "continued non-compliance with [the] March 2004 Decision."[19] European Competition Commissioner Neelie Kroes announced the ruling, stating:

"I regret that, more than two years after the Decision, and despite an Order from the President of the Court of First Instance that the Microsoft appeal to the Court does not suspend Microsoft’s obligation to comply, Microsoft has still not put an end to its illegal conduct. I have no alternative but to levy penalty payments for this continued non-compliance. No company is above the law. Any businesses operating in the EU must obey EU law I sincerely hope that the latest technical documentation being delivered by Microsoft will finally bring them into compliance and that further penalty payments will not prove necessary."[19]

Microsoft appealed this fine to the Court of First Instance but lost the appeal on September 17, 2007.[20] In the Court's 416 page decision, Microsoft was further required to "bear 80% of its own [legal] costs and to pay 80% of the Commission's [legal] costs."[20] Microsoft announced that it would not appeal the Court of First Instance's decision.[21]

Aftermath

Some commentators view the decision of Microsoft Corp v Commission as the start of the decline of Microsoft's tech dominance.[22] Patrick Moorhead, the principal analyst at Moor Insights and Strategies, a technology industry analyst and disruptive strategy firm, stated that "Microsoft had never really recovered from that decision [Microsoft Corp v Commission] in Europe."[23] Drawing parallels to the ongoing litigation against Google by the EU Commission, Moorhead stated that "For years, Google's competitors have been looking at it [Google] like people used to look at Microsoft twenty years ago before they got into trouble. Many people saw the trouble that Microsoft got into in Europe as the point which really initiated their declines versus other companies."[23]

The penalties brought against Microsoft were among the first of many levied by EU regulators against American tech companies in recent years.[24] President Obama, in an interview with Re/Code[25], a technology news site, stated that these attacks against American tech companies are protectionist in natrue:

"Sometimes the European response here is more commercially driven than anything else. As I’ve said, there are some countries like Germany, given its history with the Stasi, that are very sensitive to these issues. But sometimes their vendors — their service providers who, you know, can’t compete with ours — are essentially trying to set up some roadblocks for our companies to operate effectively there. We have owned the Internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests."

References

  1. Judgement of the Court
  2. EUR-Lex - 62004TJ0201
  3. https://www.novell.com/company/?ref=h
  4. 4.0 4.1 4.2 Novell Complaint Against Microsoft
  5. http://web.archive.org/web/20080228001540/http://www.sun.com/aboutsun/company/index.jsp
  6. http://www.oracle.com/us/sun/index.htm
  7. 7.0 7.1 Sun Microsystems Complaint Against Microsoft
  8. 8.0 8.1 8.2 Case Timeline
  9. 9.0 9.1 9.2 Preliminary Decision
  10. Microsoft Fine Decision
  11. Historic Exchange Rates for the Euro
  12. http://web.archive.org/web/20060413082435/http://www.cnn.com/2004/BUSINESS/03/24/microsoft.eu/
  13. http://news.cnet.com/2100-1014_3-5255715.html
  14. http://winsupersite.com/article/windows-xp2/windows-xp-n-editions
  15. http://news.cnet.com/Microsoft-updates-slimmed-down-Windows/2100-1016_3-5737415.html
  16. Concise European IT Law By Alfred Büllesbach
  17. 17.0 17.1 Microsoft and the EU square up for new battle over source code
  18. 18.0 18.1 18.2 Brussels poised to fine Microsoft
  19. 19.0 19.1 Commission imposes penalty payment of €280.5 million on Microsoft for continued non-compliance with March 2004 Decision
  20. 20.0 20.1 Judgement of the Court of First Instance September 17, 2007
  21. Microsoft finally bows to EU antitrust measures
  22. When Microsoft Ruled Tech: An Elegy
  23. 23.0 23.1 Is 'clueless' Europe going to destroy Google?
  24. Europe Targets U.S. Web Firms
  25. http://recode.net/2015/02/15/white-house-red-chair-obama-meets-swisher/