European Court Affirms Microsoft Abuse-of-Market Dominance

The European Communities Court of First Instance (Court) has upheld a 2004 decision of the EU Commission (Commission) holding that Microsoft Corp (Microsoft) had abused its market dominance by leveraging its near monopoly in the PC operating systems market to the work group server operating system and media player markets (For a discussion of the 2004 ruling, see the earlier article in E-TIPS®, "Europeans Impose Record Fine on Microsoft for Anti-Competitive Practices", Vol 2, No 21, March 31, 2004). The Court affirmed the fine (€497m) ordered by the Commission, as well as the Commission's orders that Microsoft disclose interoperability information and offer a version of its PC operating system without Windows Media Player. One ground on which Microsoft challenged the Commission's ruling was that its communication protocols (which were previously ordered disclosed by the Commission) constituted intellectual property protected either by patent, copyright or trade secret. Microsoft argued, therefore, that the order of the Commission was akin to a grant of a compulsory licence. The Court agreed that Microsoft's communication protocols constituted intellectual property. It also noted that the refusal of a dominant party in a market to licence a third party to use a product protected by such a right could not, in itself, constitute an abuse of dominance under Article 82 of the EC Treaty. The exercise of the right would only be an abuse of dominance if there were "exceptional circumstances". After reviewing the case law, the Court commented that exceptional circumstances will arise when the following criteria are present:

• the refusal relates to a product or service indispensable to the exercise of a particular activity on a neighbouring market;
• the refusal is of such a kind as to exclude any effective competition on that neighbouring market; and
• the refusal prevents the appearance of a new product for which there is potential consumer demand.

The Court ruled that all of these criteria were met in the present case, but Microsoft could still escape infringement of Article 82 if it could establish that its refusal was "objectively justified". The only argument that Microsoft advanced to support that the refusal was justified was that the disclosure order would eliminate future "incentives to invest in the creation of more intellectual property". This theoretical argument was not accepted by the Court, and Microsoft was found to abuse its dominant market position. The decision was applauded by European competition commissioner Neelie Kroes, who also described the ruling as "bittersweet", noting that software customers have no more choice today than they did following the original Commission ruling in 2004. For the full reasons of the decision, see: http://tinyurl.com/3x2pze For comments from the European Commission, visit: http://tinyurl.com/27awpz For other commentary, see: http://tinyurl.com/2z4gvn; or http://news.bbc.co.uk/2/hi/business/6998272.stm Summary by: Michael Migus