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microsoft loses 5 year battle with european commission

april 2004

Following a five year investigation, the European Commission concluded on 24 March 2004 that Microsoft had breached EC competition law by leveraging its dominant position in the PC operating systems sector for work group server operating systems into the media software field and fined the company €497 million (approximately £350 million). This is the first major judgment against Microsoft (it has settled US anti-trust actions previously) and is likely to set a precedent for future cases. By way of remedies the Commission has ordered Microsoft to disclose to competitors, within 120 days, the interfaces required for their products to be compatible with the Windows operating system and has also ordered the company to offer, within 90 days, a version of Windows without the Windows Media Player (WMP) to PC manufacturers.

The investigation began in December 1998 when another US company, Sun Microsystems complained to the Commission that Microsoft had refused to provide interface information which was required to develop products which could ‘talk’ to the Windows PCs. Without such information Sun Microsystems were unable to compete on an even footing with Microsoft in the sector for work group server operating systems. These systems run on central network computers that provide services, such as file and printer sharing, to offices worldwide. They are at the heart of corporate IT networks and a company which is dominant in relation to group server operating systems may be able to eliminate or restrict competition in the media software field.

During the course of the investigation, the Commission found that Microsoft had denied the interface information to other companies as part of its strategy to obstruct competitors. The products developed by Microsoft’s competitors were therefore slower, less reliable and less secure and a large majority of Microsoft’s customers also informed the Commission that this had altered their choice of software in favour of Microsoft’s server products.

The Commission extended its investigation in 2000 to examine the effect of Microsoft tying WMP with its Windows operating system. Microsoft’s operating systems equip more than 95% of the world’s personal computers. The tying of WMP with Microsoft’s ubiquitous operating system therefore reduced the incentives for other media companies to develop their own products, having a consequential adverse effect on consumer choice.

The Commission drew the conclusion that Microsoft had abused its near monopoly by deliberately restricting interoperability between Windows PCs and non-Microsoft work group servers. The Commission found that Microsoft had violated the EC Treaty’s competition rules by breaching Article 82 which prohibits an abuse of a dominant market position. Microsoft’s competition in the media player field had been weakened due to factors unrelated to the price and quality of their competitors’ products.


The remedies imposed by the Commission were aimed at restoring conditions of fair competition. In relation to interoperability Microsoft was given 120 days to disclose the complete and accurate interface documentation to enable rival vendors to develop products which can compete with Microsoft’s. This information will need to be updated each time Microsoft launches a new version of its own products. Microsoft will, however, be entitled to reasonable remuneration to the extent that its products are protected by intellectual property rights.

With regards to the 90 day untying remedy, most customers buy PCs from PC manufacturers which put together a bundle of operating systems. The effect of the untying remedy is that these bundles should now reflect the customer’s choices and not be determined by Microsoft. Also, Microsoft still has the right to sell a version of its Windows client PC operating system with the WMP provided it does not use any commercial, contractual or technological terms which would make the unbundled version less appealing. This particularly rules out the possibility of a discount for the bundled version. A monitoring trustee will be appointed to oversee that these remedies are carried out.

These sanctions are stricter than those agreed in a settlement between the US Justice Department and Microsoft. Critics have said that the US decision failed to prompt a significant increase in competition. The settlement talks between Microsoft and the European Commission broke down due to a failure to agree on Microsoft’s future business practices and general rules on software bundling for future disputes. The judgment against Microsoft will not only give manufacturers the freedom to choose which software they install in PCs but it should also make it easier and quicker for the Commission to act on future complaints.

In the meantime Microsoft’s General Counsel Brad Smith has stated that the company intends to appeal the decision on the basis that it would cause consumer confusion and disrupt the industry. This could delay any action on the orders for several years.

key expertise

Geraldine Tickle
Partner
geraldine.tickle@martjohn.com

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