Eurocrats put the antitrust smackdown on Microsoft

[Declan McCullagh <declan () well com>]

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.
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