EU Microsoft Statement - questions & answers

What are the next steps following this Statement of Objections?

The Statement of Objections specifies that Microsoft has four weeks to respond, and then a right to be heard in an oral hearing. The Commission will then make its definitive assessment.

If Microsoft replies in four weeks, when would the Commission expect to issue a final decision?

It is too early to speculate. The Commission would of course take into account Microsoft’s response, and any changes it might make to its royalty rates to render it compliant with the Commission’s March 2004 Decision (see IP/04/382 and MEMO/04/70).

Does the Statement of Objections also relate to Vista and Longhorn server protocols?

Microsoft is under an obligation pursuant to the 2004 Decision to provide technical documentation also for Windows Vista and Longhorn server protocols as soon as they are released for so called "beta-testing" by Microsoft. Accordingly, Microsoft has already documented Vista and Longhorn server-related protocols and priced them. The Statement of Objections therefore also relates to these protocols.

What is the legal basis on which the Commission could impose penalty payments on Microsoft for unreasonable royalty levels?

Article 24 of Regulation 1/2003 entitles the Commission to impose penalty payments not exceeding 5% of average daily turnover in the preceding business year per calendar day to compel companies to put an end to infringements of EC Treaty anti-trust rules, where an infringement has been established by a previous Commission anti-trust decision.

In a Decision of 10 November 2005 pursuant to Article 24(1) of Regulation 1/2003 (see IP/05/1695), the Commission specified that Microsoft would be subject to daily penalty payments of up to €2 million from 16 December 2005, if by 15 December 2005, it had not complied with its obligation to: (i) provide complete and accurate interoperability information; and (ii) charge reasonable royalty rates for that information. In addition, the Commission Decision of 12 July 2006 pursuant to Article 24(2) (see IP/06/979) also contained a provision pursuant to Article 24(1) of Regulation 1/2003 which specified that in the event of continued non-compliance, the daily penalty payment to which Microsoft could be subject would rise to €3 million from 1 August 2006.

How much can Microsoft be fined for non-compliance on the remuneration issue which is the subject of today’s Statement of Objections, and for what period can it be fined?

The Commission has not yet taken any final decision on whether or not Microsoft has failed to comply with the 2004 Decision as regards pricing of the interoperability information, and will only decide once it has examined any response (in writing and/or at an oral hearing) Microsoft may make to the Statement of Objections. Only at that stage will the Commission reach a final decision on whether Microsoft has failed to comply in this respect and on the appropriate level of the fine. The Commission has discretion over the level of the fine, which may be the same as or less than the total of the daily penalty payments to which Microsoft is potentially subject. The fine can in principle be calculated as from 16 December 2005.

The original Article 24(1) Decision and the subsequent Article 24(2) Decision also related to the completeness and accuracy of the Technical Documentation. What is the situation on this issue?

After the imposition of penalty payments in July 2006 Microsoft has substantially revised the Technical Documentation. The Trustee is currently testing the Technical Documentation that Microsoft submitted in November 2006 as regards its completeness and accuracy.

What is the situation as regards open source?

The Commission has previously stated that it is committed to ensuring that the open source community has access to the non-innovative protocols if the Court of First Instance rules in its favour in case T-201/04 (the action brought by Microsoft against the 2004 Decision). That remains the Commission's position (see IP/05/673).

Should an anti-trust authority involve itself in the setting of royalty levels?

The 2004 Decision found that Microsoft's refusal to supply interoperability information risked eliminating competition in the work group server operating system market. In order to prevent the perpetuation of this abuse of Microsoft's dominant position, the 2004 Decision requires Microsoft to make available interoperability information on reasonable and non-discriminatory terms. In accordance with this requirement, Microsoft has agreed to Pricing Principles on 31 May 2005. The mandate of the Monitoring Trustee explicitly mentions the Pricing Principles as a reference point for his opinions on issues relating to remuneration.

The Pricing Principles foresee that:

• Microsoft's pricing must permit implementation in a commercially practicable manner
• Microsoft can charge non-nominal prices only for protocol technology that is innovative and
• prices for such innovative protocols will reflect the market valuation of comparable technologies.

On the basis of these agreed criteria, the Commission has reached the preliminary conclusion that Microsoft’s royalty rates are unreasonable. The Commission's intervention in this case is solely based on its preliminary conclusion that this standard of reasonableness has been breached, and reflects its duty to preserve the effectiveness of the 2004 Decision.

What are work group server operating systems?

A work group server operating system is software that provides file and print and user administration services to groups of users connected to that network. File and print software is typically used in office environments, for example to allow users connected to the same network to share files and printers. Examples of user administration services include the possibility to access your computer via a password and determining the accessibility of files by category of users..

Background information

The Commission unilaterally suspended enforcement of the obligations imposed by the March 2004 Decision pending the Court of First Instance’s consideration of Microsoft’s request for interim measures, which request was denied by the Court of First Instance on 22 December 2004 (MEMO/04/305). Both before and after that date, the Commission engaged in discussions with Microsoft about its compliance, and conducted a market test of Microsoft’s proposals on interoperability (see IP/05/673). In the light of the results of that market test, the Commission issued a decision on 10 November 2005 pursuant to Article 24(1) of Regulation 1/2003 (the Article 24(1) Decision). This decision warned that should Microsoft not comply by 15 December 2005 with its obligation to: (i) supply complete and accurate interoperability information; and (ii) make that information available on reasonable terms, it would face a daily fine of up to €2 million (see IP/05/1695).

On 12 July 2006, the Commission adopted a decision pursuant to Article 24(2) of Regulation 1/2003 (the Article 24(2) Decision) which imposed a penalty payment on Microsoft for its continued non-compliance with its obligation to supply complete and accurate interoperability information. That Decision also includes a provision pursuant to Article 24(1) of Regulation 1/2003 which specified that if Microsoft fails to comply either with its obligation to provide complete and accurate interoperability information or to make that information available on reasonable terms, the level of daily penalty payment to which it would be potentially liable would rise to €3 million as of 1 August 2006 (see IP/06/979).

Professor Neil Barrett, the Monitoring Trustee, is a computer science expert appointed by the Commission (see IP/05/1215 and MEMO/06/119) on the basis of a shortlist of candidates submitted by Microsoft. He provides impartial technical advice to the Commission on issues relating to Microsoft’s compliance with the Commission’s March 2004 Decision.

Microsoft has four weeks to respond to the Statement of Objections and has the right to request an Oral Hearing. The Commission may then, after consulting the Advisory Committee of Member States' Competition Authorities, issue a decision pursuant to Article 24(2) of Regulation 1/2003 imposing a fine on Microsoft. Should Microsoft not have complied by the date of such a decision, Microsoft would remain subject to further penalty payments after that date.