Microsoft has a compliant version of its flagship operating system without Windows Media Player available under the negotiated name "
Windows XP N". In response to the server information requirement, Microsoft released the
source code, but not the specifications, to
Windows Server 2003 Service Pack 1 (SP1) to members of its Work Group Server Protocol Program (WSPP) on the day of the original deadline. Microsoft also appealed the case, and the EU had a week-long hearing over it.
Neelie Kroes stated: Microsoft stated in June 2006 that it had begun to provide the EU with the requested information, but according to the
BBC the EU stated that it was too late. On 12 July 2006, the EU fined Microsoft for an additional €280.5 million (US$448.58 million), €1.5 million (US$2.39 million) per day from 16 December 2005 to 20 June 2006. The EU threatened to increase the fine to €3 million ($4.81 million) per day on 31 July 2006 if Microsoft did not comply by then. The second scenario, where the Commission concludes that a behavior by a firm is not abusive (but it is), the firm is left alone to its own devices and to its anti-competitive practices, which may affect the competition process and cause irreparable damages, and ultimately the consumers are harmed. As a result of the law being under-inclusive, the firms get away with their anti-competitive practices. This is known as a '
false negative', and the European Union Competition Commission is more concerned with this, and it would rather interfere than step back. The US court's fear of false positives was seen in the case of
Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP (2004) which was about refusal to supply. The US Supreme Court stated that it had to include a realistic comparison between the costs and the benefits of antitrust intervention. It stated that mistaken conclusions and false condemnations are very costly and that they negate the purpose which antitrust laws are designed to protect. In the EU, the case relevance is
IMS Health GmbH & Co. OHG v NDC Health GmbH & CO. kg, in which the Court of Justice laid down limited conditions under which a dominant firm's refusal to license IP to a competitor constitutes an abuse of a dominant position in violation of Article 82 of the Treaty establishing the European Community (now
Article 102 TFEU). The main concern raised in
Microsoft v Commission was whether two distinct products were a subject of a tie.
Tying is a specific type of exclusionary abuse which refers to the situation where customers that purchase one product (the tying product) are also required to purchase another product from the dominant undertaking (the tied product). This is intended to provide the customers with better products in the most cost-effective ways. However, an undertaking which is dominant in one product market can harm consumer benefit through tying by foreclosing the market for other products. The commission's findings showed that Microsoft had tied its Windows Media Player to its personal computer operating system. There was serious evidence to point out that Microsoft advertised Windows Media Player as a standalone product to be downloaded by itself, it was designed to work with competitors' operating systems, and there was a separate licensing agreement for the media player. Alden F. Abbott (U.S. Federal Trade Commission), while visiting the Center for Competition Law and Policy at the University of Oxford, in his paper on "A Brief comparison of European and American Antitrust Law" talked about the early intervention of the European enforcers in regard to bundling/tying practices which conforms to the idea about the European Union and its concern for false negatives. He states that bundling carried out by a dominant firm is likely to be found more concerning by the EU than the American enforcers.
Neelie Kroes, the then Commissioner for EU Competition Policy, stated that Microsoft had continued to abuse its powerful market position and hindering innovation by charging extraordinary royalties to companies for providing crucial data to computer users around the world. She also goes on to state that main aim of the competition policy is to avoid consumer harm and to produce consumer benefits. However, the Assistant Attorney General at that time for Antitrust, R. Hewitt Pate issued a statement on the EC's decision in its Microsoft investigation. He commented that the US antitrust laws are enforced to protect the consumers by protecting the competition, not competitors. The commission's guidance on
Article 102 states that the commission will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking. The commission is mindful that what really matters is protecting an effective competition process and not simply protecting competitors. This may well mean that competitors who deliver less to consumers in terms of price, choice, quality and innovation will leave the market. With regards to tying of
Windows Media Player, the commission found out that customers were unable to buy Windows without WMP, and they install any alternative software alongside WMP. Microsoft argues that customers need not use it and that they did not have to pay extra for it. Microsoft argues that tying of WMP allowed the consumers to have their personal computers running with default options, out of the box, which lowered the transaction cost by reducing time and confusion. The decision highlighted that tying in this particular case would result in foreclosing the competition in this market. There was evidence that even though the other media players were rated higher in quality, WMP's usage increased due to the tying process. The commission ordered that Microsoft should sell in Europe a full functioning version of Windows without WMP. It also asked Microsoft to refrain from promoting WMP over competitors through Windows or providing selective access to Windows
APIs. Microsoft was also restricted from giving discounts to customers who were buying the operating system together with WMP, which would restrict the user's choice to select the version without the player, and the unbundled version had to have similar performance with the bundled version. Richard Whish in his textbook goes on to say that the way in which Article 102 has been construed, has led academic commentators to compare it with
ordoliberalism, which is capable of having negative effects on the competition process, but disagrees by stating that at the heart of
Article 102, the main objectives of the EU Commission are competition, efficiency, and welfare. On 17 September 2007, Microsoft lost their appeal against the European Commission's case. The €497 million fine was upheld, as were the requirements regarding server interoperability information and bundling of Media Player. In addition, Microsoft has to pay 80% of the legal costs of the Commission, while the commission has to pay 20% of the legal costs of Microsoft. However, the appeal court rejected the Commission ruling that an independent monitoring trustee should have unlimited access to internal company organization in the future. On 22 October 2007, Microsoft announced that it would comply and not appeal the decision any more, and Microsoft did not appeal within the required two months as of 17 November 2007. Microsoft announced that it will demand 0.4% of the revenue (rather than 5.95%) in patent-licensing royalties, only from commercial vendors of interoperable software and promised not to seek patent royalties from individual open source developers. The interoperability information alone is available for a one-time fee of €10,000 (US$15,992). On 27 February 2008, the EU fined Microsoft an additional €899 million (US$1.44 billion) for failure to comply with the March 2004 antitrust decision. This represented the largest penalty ever imposed in 50 years of EU competition policy until 2009, when the European Commission fined Intel €1.06 billion ($1.45 billion) for anti-competitive behaviour. This latest decision follows a prior €280.5 million fine for non-compliance, covering the period from 21 June 2006 until 21 October 2007. On 9 May 2008, Microsoft lodged an appeal in the European
Court of First Instance seeking to overturn the €899 million fine, officially stating that it intended to use the action as a "constructive effort to seek clarity from the court". In its 2008 Annual Report, Microsoft stated: On 27 June 2012, the
General Court upheld the fine, but reduced it from €899 million to €860 million. The difference was due to a "miscalculation" by the European Commission. The commission's decision to fine Microsoft was not challenged by the court, saying the company had blocked fair access to its markets. E.U. competition commissioner Joaquín Almunia has said that such fines may not be effective in preventing anti-competitive behavior and that the commission now preferred to seek settlements that restrict businesses' plans instead. As such,
The New York Times called the Microsoft decision "a decision that could mark the end of an era in antitrust law in which regulators used big fines to bring technology giants to heel." The fines will not be distributed to the companies that lost income due to Microsoft practices. The money paid in fines to the European Court goes back into the EU budget.
Related investigations In May 2008, the EU announced it was going to investigate
Microsoft Office's
OpenDocument format support. In January 2009, the European Commission announced it would investigate the bundling of Internet Explorer with Windows operating systems from Microsoft, saying "Microsoft's tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice." In response, Microsoft announced that it would not bundle Internet Explorer with Windows 7 E, the version of Windows 7 to be sold in Europe. On 16 December 2009, the European Union agreed to allow competing browsers, with Microsoft providing a "
ballot box" screen letting users choose one of twelve popular products listed in random order. The twelve browsers were Avant,
Chrome,
Firefox,
Flock,
GreenBrowser,
Internet Explorer,
K-Meleon,
Maxthon,
Opera,
Safari,
Sleipnir, and
Slim, which were accessible via
BrowserChoice.eu. The automatic nature of the BrowserChoice.eu feature was dropped in
Windows 7 Service Pack 1 in February 2011 and remained absent for 14 months despite Microsoft reporting that it was still present, subsequently described by Microsoft as a "technical error". As a result, in March 2013 the European Commission fined Microsoft €561 million to deter companies from reneging on settlement promises. ==References==