Microsoft Corp v Commission (2007) T-201/04 is a case brought by the European Commission of the European Union (EU) against Microsoft for abuse of its dominant position in the market (according to competition law). It started as a complaint from Sun Microsystems over Microsoft's licensing practices in 1993, and eventually resulted in the EU ordering Microsoft to divulge certain information about its server products and release a version of Microsoft Windows without Windows Media Player. The European Commission especially focused on the interoperability issue.
In 1993, Novell claimed that Microsoft was blocking its competitors out of the market through anti-competitive practices. The complaint centered on the license practices at the time which required royalties from each computer sold by a supplier of Microsoft's operating system, whether or not the unit actually contained the Windows operating system. Microsoft reached a settlement in 1994, ending some of its license practices.
In 1998, Sun Microsystems raised a complaint about the lack of disclosure of some of the interfaces to Windows NT. The case widened when the EU examined how streaming media technologies were integrated with Windows.
Citing ongoing abuse by Microsoft, the EU reached a preliminary decision in the case in 2003 and ordered the company to offer both a version of Windows without Windows Media Player and the information necessary for competing networking software to interact fully with Windows desktops and servers. In March 2004, the EU ordered Microsoft to pay €497 million ($794 million or £381 million), the largest fine ever handed out by the EU at the time, in addition to the previous penalties, which included 120 days to divulge the server information and 90 days to produce a version of Windows without Windows Media Player.
The next month Microsoft released a paper containing scathing commentary on the ruling including: "The commission is seeking to make new law that will have an adverse impact on intellectual property rights and the ability of dominant firms to innovate." Microsoft paid the fine in full in July 2004.
In 2004, Neelie Kroes was appointed the European Commissioner for Competition; one of her first tasks was to oversee the fining brought onto Microsoft. Kroes has stated she believes open standards and open source are preferable to anything proprietary:
|“||The Commission must do its part.....It must not rely on one vendor, it must not accept closed standards, and it must refuse to become locked into a particular technology – jeopardizing maintenance of full control over the information in its possession||”|
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 has claimed that its obligations in the decision are not clear, or that the obligations have changed. I cannot accept this characterization--Microsoft's obligations are clearly outlined in the 2004 decision and have remained constant since then. |
Indeed, the monitoring trustee appointed in October 2005, from a shortlist put forward by Microsoft, believes that the decision clearly outlines what Microsoft is required to do. I must say that I find it difficult to imagine that a company like Microsoft does not understand the principles of how to document protocols in order to achieve interoperability.
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.
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 by 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:
|“||The European Commission closely scrutinizes the design of high-volume Microsoft products and the terms on which we make certain technologies used in these products, such as file formats, programming interfaces, and protocols, available to other companies. In 2004, the Commission ordered us to create new versions of Windows that do not include certain multimedia technologies and to provide our competitors with specifications for how to implement certain proprietary Windows communications protocols in their own products. The Commission’s impact on product design may limit our ability to innovate in Windows or other products in the future, diminish the developer appeal of the Windows platform, and increase our product development costs. The availability of licenses related to protocols and file formats may enable competitors to develop software products that better mimic the functionality of our own products which could result in decreased sales of our products.||”|
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."
A spokesperson for Microsoft said the company was "disappointed with the court’s ruling" and felt the company had "resolved [the commissions'] competition law concerns" in 2009, making the fine unnecessary. He declined to say whether Microsoft would file an appeal or not. Almunia called the ruling a vindication of the crackdown on Microsoft and warned "The judgment confirms that the imposition of such penalty payments remains an important tool at the commission’s disposal." He also claimed that the commission's actions against Microsoft had allowed "a range of innovative products that would otherwise not have seen the light of day" to reach the market.
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.
In May 2008, the EU announced it is 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 are 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.
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THE verdicts of Europe's second-highest court in antitrust cases are not generally reckoned to make for gripping live television. But when the European Union (EU) lined up against Microsoft, the decision of 13 begowned judges of the Court of First Instance in Luxembourg was of interest. The judges' ruling on Monday September 17th, which amounted to a trouncing for the software giant, even provided some drama. Microsoft's appeal against an antitrust punishment imposed by the European Commission in 2004 was rejected almost entirely.
Neelie Kroes, the EU's competition commissioner, did not betray the delight of Europe's regulators. She called it a “bittersweet” victory and added that “Microsoft must now comply fully with its legal obligations”. Those obligations refer to demands made by the commission in 2004 after it decided against Microsoft in a case begun nine years ago. Then Sun Microsystems charged that Microsoft was refusing to share information that would allow “interoperability” between its servers and equipment produced by the software giant.
Along the way another complaint over “bundling” was added to Microsoft's charge sheet. As with a similar antitrust action brought in America, Microsoft was accused of abusing its market dominance, and thus damaging excluded rivals, by tying its own media software to its Windows operating system. An American judge ordered Microsoft to be broken up, a punishment overturned on appeal in 2001 when a toothless remedy was imposed instead. Microsoft's model of expanding into new markets by adding products to its dominant operating system endured.
In Europe Microsoft fought a hard legal battle while simultaneously mounting a charm offensive (a tricky proposition for Steve Ballmer, the firm's pugnacious boss). The firm hoped that the EU would also settle rather than pursue its decisions to force Microsoft to disclose or license its server protocols, supply Windows without a media player and impose a fine of €497m ($612m).
Although keen to reach a settlement, Microsoft also argued that it had done nothing wrong. It used Apple's iTunes software as an example of competition in the media-software market. Microsoft also argued that consumers were indifferent, noting that only a handful of copies of Windows had been sold without a media-player compared with millions including it. And the firm insisted that it should not be forced to give up server data which amounts to valuable intellectual property. The EU, for its part, was keen to pursue the legal case against Microsoft. Mario Monti, a previous competition commissioner, made it clear that he wanted a court to set a precedent and act as a caution to other tech firms in dominant positions.
At the weekend Microsoft gave warning to rivals which had lined up to support the European case that a newly emboldened Commission could have them in its sights too. The decision will certainly provide fresh impetus for outstanding cases against Intel, Rambus and others. And other big tech firms like Apple and Google may yet feel the Commission's breath on their necks. There could also be more action against Microsoft.
But Microsoft's greater concern may well be the advance of open-source software and open standards. Linux, an open-source operating system, is widely used in servers and among the technically minded but—for now—constitutes no threat to Windows. Firefox, an open-source browser, is used by at least one in ten instead of Microsoft's Internet Explorer. Windows and Office, the firm's word-processing and other applications, are the backbone of Microsoft. But increasingly the rise of online applications will lessen the importance of operating systems and may eventually chip away at Microsoft's dominance.
The Commission's tough line may at least offer some succour to Microsoft's rivals. But Ms Kroes's desire to see Microsoft suffer a “significant drop in [market] share” that Windows enjoys (95% of the world's one billion or so computers use the system) looks fanciful in the short term. Microsoft's pride may have been hurt by the court, but its dominance is hardly under immediate threat.