T-201/04, Microsoft v Commission

As I have written on this case before: in sum, this case was about Microsoft’s refusal to supply interoperability information and its bundling of Windows Media Player with the Windows client PC operating system.

Limited Review
The Court reiterated that it could only undertake a limited review, since this case involved a complex economic appraisal.

It held that judicial review was limited to checking whether the relevant rules on procedure and on stating reasons had been complied with, whether the facts had been accurately stated and whether there had been any manifest error of assessment or a misuse of powers.

Nevertheless, the Court stated that it could determine whether the evidence was factually accurate, reliable and consistent.

It could also determine whether that evidence contained all the relevant data that must be taken into consideration in appraising a complex situation and whether it was capable of substantiating the conclusions drawn from it.

This perhaps contradictory approach was used by the Court throughout its judgement. For instance, the Court first thoroughly assessed the accuracy of the facts on which the Decision of the Commission was based, to then find that the Commission correctly

- determined the degree of interoperability that should be attainable in the light of the objectives of Article 82 EC.

- found that the server operating systems were ‘optimised’ for the tasks which they were to perform.

- assessed the degree of interoperability by reference to what, in its view, was necessary in order to enabled developers of non-Microsoft work group server operating systems to remain viably on the market.

Intellectual property rights
The Court furthermore held that Microsoft’s communication protocols in question were protected by intellectual property rights.

It held that undertaking might refuse to third party a license to use product covered by intellectual property right except in exceptional circumstances, such as:

­- the refusal related to a product or service indispensable to the exercise of a particular activity on a neighbouring market;

- the refusal was of such a kind as to exclude any effective competition on that neighbouring market;

- the refusal prevented the appearance of a new product for which there was potential consumer demand.

Once it was established that such circumstances were present, the refusal by the holder of a dominant position to grant a licence might infringe Article 82 EC unless the refusal was objectively justified.

Correct analysis of Commission
The Court, however, found that the Commission’s analysis was not manifestly incorrect. The Court inter alia took into account that the Windows operating system was present on virtually all client PCs installed within organisations. Non-Windows work group server operating systems could not continue to be marketed if they were incapable of achieving a high degree of interoperability with Windows.

In sum, Microsoft’s dominant position was clear: Windows represented the ‘quasi-standard’ for those operating systems.

Non-Windows work group server operating systems could interoperate not only with Windows client PC operating systems but also, more generally, with the Windows domain architecture.

The absence of such interoperability with the Windows domain architecture had the effect of reinforcing Microsoft’s competitive position on the work group server operating systems market.

Microsoft had not demonstrated that the method which the Commission used when calculating market shares was vitiated by a manifest error of assessment or, consequently, that the estimates of market shares given at recitals 491 to 513 to the contested decision must be considered manifestly incorrect.

It was for the Commission to establish that the refusal to supply gave rise to a risk of the elimination of all effective competition. The Commission must base its assessment on accurate, reliable and coherent evidence which comprised all the relevant data that must be taken into consideration in order to assess a complex situation and which were capable of substantiating the conclusions drawn from them.

Furthermore, the Commission did not make a manifest error of assessment when it concluded that the evolution of the market revealed a risk that competition would be eliminated on the work group server operating systems market.

There was a risk that competition would be eliminated on that market because the market had certain features which were likely to discourage organisations which had already taken up.

The Commission’s finding to the effect that Microsoft’s refusal limited technical development to the prejudice of consumers within the meaning of Article 82(b) EC was not manifestly incorrect.

Bundling infringing Article 82 EC
The Court furthermore held that the Commission’s analysis of the constituent elements of bundling was correct and that it was consistent both with Article 82 EC and with the case-law.

The Court argued that while it was true that neither that provision nor, more generally, Article 82 EC as a whole contains any reference to the anti-competitive effect of bundling, the fact remains that, in principle, conduct would be regarded as abusive only if it was capable of restricting competition.

The Commission was correct to conclude that client PC operating systems and streaming media players constituted two separate products for the purposes of Article 82 EC and that the condition relating to the imposition of supplementary obligations was satisfied in the present case.

Foreclosure of competition
The Commission was also correct to make the following findings:

- Microsoft used Windows as a distribution channel to ensure for itself a significant competitive advantage on the media players market.

- because of the bundling, Microsoft’s competitors were a priori at a disadvantage even if their products were inherently better than Windows Media Player.

- Microsoft interfered with the normal competitive process which would benefit users by ensuring quicker cycles of innovation as a consequence of unfettered competition on the merits.

- the bundling increased the content and applications barriers to entry, which protected Windows, and facilitated the erection of such barriers for Windows Media Player.

- Microsoft shielded itself from effective competition from vendors of potentially more efficient media players who could challenge its position, and thus reduces the talent and capital invested in innovation of media players.

– by means of the bundling, Microsoft might expand its position in adjacent media-related software markets and weaken effective competition, to the detriment of consumers.

- by means of the bundling, Microsoft sent signals which deterred innovation in any technologies in which it might conceivably took an interest and which it might tie with Windows in the future.

TRIPS obligations
The Court reiterated that it was only where the Community had intended to implement a particular obligation assumed under the WTO or where the Community measure referred expressly to specific provisions of the WTO Agreements that the Community judicature must review the legality of the Community measure in question in the light of the WTO rules.

As the circumstances of the present case clearly did not correspond to either of those two situations, Microsoft could not rely on the TRIPS Agreement in support of its application for annulment of the contested decision in so far as it concerned the bundling of Windows and Windows Media Player.

Article 7 of contested decision without legal basis
The Court did however hold that the Commission had no authority, in the exercise of its powers under Article 3 of Regulation 17, to compel Microsoft to grant to an independent monitoring trustee powers which the Commission was not itself authorised to confer on a third party. The second subparagraph of Article 7 of the contested decision was therefore without legal basis and was hence annulled, since it entailed the delegation to the monitoring trustee of powers of investigation which the Commission alone could exercise pursuant to Regulation 17.

The Court furthermore held that the Commission had correctly calculated the fines and had correctly established the duration of the infringement. It dismissed the argument of Microsoft that the Commission had infringement the duty to state reasons in that context. Finally, it held that in the main action, it was appropriate that the costs be shared.

Link to judgment