[Am-info] Surprise - Microsoft broke European Union competition law
Gene Gaines
gene.gaines@gainesgroup.com
Wed, 24 Mar 2004 12:51:30 -0500
,
http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/04/382|0|RAPID&lg=EN&display=
Commission concludes on Microsoft investigation, imposes conduct
remedies and a fine
DN: IP/04/382 Date: 24/03/2004
IP/04/382
Brussels, 24 March 2004
Commission concludes on Microsoft investigation, imposes conduct
remedies and a fine
The European Commission has concluded, after a five-year
investigation, that Microsoft Corporation broke European Union
competition law by leveraging its near monopoly in the market for PC
operating systems (OS) onto the markets for work group server
operating systems(1)
and for media players(2). Because the illegal behaviour is still
ongoing, the Commission has ordered Microsoft to disclose to
competitors, within 120 days, the interfaces(3) required for their
products to be able to 'talk' with the ubiquitous Windows OS.
Microsoft is also required, within 90 days, to offer a version of its
Windows OS without Windows Media Player to PC manufacturers (or when
selling directly to end users). In addition, Microsoft is fined 497
million for abusing its market power in the EU.
"Dominant companies have a special responsibility to ensure that the
way they do business doesn't prevent competition on the merits and
does not harm consumers and innovation " said European Competition
Commissioner Mario Monti. "Today's decision restores the conditions
for fair competition in the markets concerned and establish clear
principles for the future conduct of a company with such a strong
dominant position," he added.
After an exhaustive and extensive investigation of more than five
years and three statements of objections(4)
, the Commission has today taken a decision finding that US software
company Microsoft Corporation has violated the EU Treaty's competition
rules by abusing its near monopoly(5) (Article 82) in the PC operating
system.
Microsoft abused its market power by deliberately restricting
interoperability between Windows PCs and non-Microsoft work group
servers, and by tying its Windows Media Player (WMP), a product where
it faced competition, with its ubiquitous Windows operating system.
This illegal conduct has enabled Microsoft to acquire a dominant
position in the market for work group server operating systems, which
are at the heart of corporate IT networks, and risks eliminating
competition altogether in that market. In addition, Microsoft's
conduct has significantly weakened competition on the media player
market.
The ongoing abuses act as a brake on innovation and harm the
competitive process and consumers, who ultimately end up with less
choice and facing higher prices.
For these very serious abuses, which have been ongoing for five and a
half years, the Commission has imposed a fine of 497.2 million.
Remedies
In order to restore the conditions of fair competition, the Commission
has imposed the following remedies:
* As regards interoperability, Microsoft is required, within 120
days, to disclose complete and accurate interface documentation
which would allow non-Microsoft work group servers to achieve full
interoperability with Windows PCs and servers. This will enable
rival vendors to develop products that can compete on a level
playing field in the work group server operating system market.
The disclosed information will have to be updated each time
Microsoft brings to the market new versions of its relevant
products.
To the extent that any of this interface information might be
protected by intellectual property in the European Economic Area^(6)
, Microsoft would be entitled to reasonable remuneration. The
disclosure order concerns the interface documentation only, and not
the Windows source code, as this is not necessary to achieve the
development of interoperable products.
* As regards tying, Microsoft is required, within 90 days, to offer
to PC manufacturers a version of its Windows client PC operating
system without WMP. The un-tying remedy does not mean that
consumers will obtain PCs and operating systems without media
players. Most consumers purchase a PC from a PC manufacturer which
has already put together on their behalf a bundle of an operating
system and a media player. As a result of the Commission's remedy,
the configuration of such bundles will reflect what consumers
want, and not what Microsoft imposes.
Microsoft retains the right to offer a version of its Windows client
PC operating system product with WMP. However, Microsoft must refrain
from using any commercial, technological or contractual terms that
would have the effect of rendering the unbundled version of Windows
less attractive or performing. In particular, it must not give PC
manufacturers a discount conditional on their buying Windows together
with WMP.
The Commission believes the remedies will bring the antitrust
violations to an end, that they are proportionate, and that they
establish clear principles for the future conduct of the company.
To ensure effective and timely compliance with this decision, the
Commission will appoint a Monitoring Trustee, which will, inter alia,
oversee that Microsoft's interface disclosures are complete and
accurate, and that the two versions of Windows are equivalent in terms
of performance.
The investigation
In December 1998, Sun Microsystems, another US company, complained
that Microsoft had refused to provide interface information necessary
for Sun to be able to develop products that would "talk" properly with
the ubiquitous Windows PCs, and hence be able to compete on an equal
footing in the market for work group server operating systems.
The Commission's investigation revealed that Sun was not the only
company that had been refused this information, and that these
non-disclosures by Microsoft were part of a broader strategy designed
to shut competitors out of the market.
This relegated to a secondary position competition in terms of
reliability, security and speed, among other factors, and ensured
Microsoft's success on the market. As a result, an overwhelming
majority of customers informed the Commission that Microsoft's
non-disclosure of interface information artificially altered their
choice in favour of Microsoft's server products. Survey responses
submitted by Microsoft itself confirmed the link between the
interoperability advantage that Microsoft reserved for itself and its
growing market shares.
In 2000, the Commission enlarged its investigation, on its own
initiative, to study the effects of the tying of Microsoft's Windows
Media Player with the company's Windows 2000 PC operating system.
This part of the investigation concluded that the ubiquity which was
immediately afforded to WMP as a result of it being tied with the
Windows PC OS artificially reduces the incentives of music, film and
other media companies, as well software developers and content
providers to develop their offerings to competing media players.
As a result, Microsoft's tying of its media player product has the
effect of foreclosing the market to competitors, and hence ultimately
reducing consumer choice, since competing products are set at a
disadvantage which is not related to their price or quality.
Available data already show a clear trend in favour of WMP and Windows
Media technology. Absent intervention from the Commission, the tying
of WMP with Windows is likely to make the market "tip" definitively in
Microsoft's favour. This would allow Microsoft to control related
markets in the digital media sector, such as encoding technology,
software for broadcasting of music over the Internet and digital
rights management etc.
More generally, the Commission is concerned that Microsoft's tying of
WMP is an example of a more general business model which, given
Microsoft's virtual monopoly in PC operating systems, deters
innovation and reduces consumer choice in any technologies which
Microsoft could conceivably take interest in and tie with Windows in
the future.
Note to editors
The European Commission enforces EU competition rules on restrictive
business practices and abuses of monopoly power for the whole of the
European Union when cross-border trade and competition are affected.
The Commission has the power to force changes in company behaviour and
to impose financial penalties for antitrust violations of up to 10% of
their annual turnover worldwide.
Commission decisions can be appealed to the European Court of First
Instance in Luxembourg.
(1)
These are operating systems running on central network computers that
provide services to office workers around the world in their
day-to-day work such as file and printer sharing, security and user
identity management.
(2)
A media player is a software product that is able to play back music
and video content over the Internet.
(3)
The interfaces do not concern the Windows source code as this is not
necessary to achieve the development of interoperable products. The
interfaces are the hooks at the edge of the source code which allow
one product to talk to another.
(4)
A Statement of Objections marks the opening of a formal investigation
as the Commission states its charges or objections to the company(ies)
concerned.
(5)
Microsofts operating systems equip more than 95% of the world^s
personal computers.
(6)
The European Union plus Norway, Iceland and Liechtenstein.