EU case against Microsoft - background

27 February 2008
by eub2 -- last modified 28 February 2008

Background information about the European Commission’s March 2004 Microsoft Decision, the Court of First Instance proceedings relating to that Decision, and its ongoing implementation.

The European Commisson's investigation

The European Commission- Microsoft case originated with a December 1998 complaint from Sun Microsystems alleging that Microsoft was refusing to supply it with interoperability information necessary to interoperate with Microsoft’s dominant PC operating system. In February 2000, following information obtained from the market, the Commission broadened the scope of its investigation to examine Microsoft’s conduct with regard to its Windows Media Player product.

On 1 August 2000, on the basis of an initial investigation, the Commission sent Microsoft a Statement of Objections alleging that Microsoft was denying to disclose interface information which rival work group server operating system vendors needed to interoperate with Microsoft’s dominant Windows PC operating system.

On 30 August 2001, the Commission sent Microsoft a second Statement of Objections. This: (i) confirmed and expanded the interoperability objections of the first Statement of Objections, in particular by taking into account Microsoft’s recently released Windows 2000 generation of PC and server operating systems; and (ii) alleged that Microsoft had engaged in anti-competitive tying of its Windows Media Player product with its Windows PC operating system.

On 6 August 2003, on the basis of additional evidence that the Commission had gathered, a third Statement of Objections confirming both the interoperability and tying objections of the second Statement of Objections was sent to Microsoft.

Microsoft provided responses to each Statement of Objections. In addition, following the third Statement of Objections, Microsoft requested an Oral Hearing. This was held on 12-14 November 2003.

Following an extensive analysis of the evidence on the file, the Commission concluded its investigation on 24 March 2004 by way of a Decision (“the Decision”).

This Decision found that Microsoft had abused its dominant position in the PC operating system market by:

• refusing to supply competitors in the work group server operating system market interface information necessary for their products to interoperate with Windows, and hence to compete viably in the market. The Decision ordered Microsoft to disclose, within 120 days, complete and accurate interface information which would allow rival vendors to interoperate with Windows, and to make that information available on reasonable terms;
• harming competition through the tying of its separate Windows Media Player product with its Windows PC operating system. The Decision ordered Microsoft to provide, within 90 days, a version of Windows which did not include Windows Media Player.

Full text of the non-confidential version of the Decision (pdf)

Court proceedings

Microsoft lodged an action for annulment of the Decision (pdf)  with the Court of First Instance (CFI) on 7 June 2004.

On 25 June 2004, Microsoft lodged an interim measures application with the CFI for the Decision’s remedies to be suspended pending the outcome of its main appeal. On the same date, the Commission voluntarily suspended Microsoft’s obligations pursuant to the Decision pending the outcome of Microsoft’s interim measures appeal.

The main grounds for Microsoft’s interim measures application were that Microsoft would suffer serious and irreparable damage as a result of the Decision’s remedies being imposed pending the CFI’s final decision on Microsoft’s application for annulment of the Commission’s March 2004 Decision. As regards the interoperability remedy, Microsoft claimed that the implementation of the Decision would: (i) harm its intellectual property rights; (ii) interfere with its commercial freedom; and (iii) irreversibly alter market conditions. As regards the tying remedy, Microsoft claimed that the implementation of the Decision would: (i) interfere with Microsoft’s commercial freedom by forcing it to abandon its "basic design concept" for the Windows PC operating system; and (ii) damage Microsoft’s reputation as "a developer of quality software products".

Following exchanges of written pleadings, an Oral Hearing on Microsoft’s interim measures appeal was held before the President of the CFI from 30 September-1 October 2004. In an Order of 22 December 2004, the President of the CFI rejected Microsoft’s request to suspend the Decision’s remedies on the grounds that Microsoft had not demonstrated that these would cause it serious and irreparable damage. As of that date, Microsoft has therefore been obliged to comply with the Decision’s remedies. For further information on the CFI President’s 22nd December 2004 Order.

The Court of First Instance delivered its judgement on 17 September 2007, upholding the findings of abuse in the Commission's decision.

With regards to interoperability, the Court considered that the Commission had been right to conclude that the work group server operating systems of Microsoft’s competitors must be able to interoperate with Windows domain architecture on an equal footing with Windows operating systems to be able to compete in the market.

On the bundling of Windows Media Player to the Windows operating system, the Court endorsed the Commission's conclusion that there was abusive tying and that it would lead to a weakening of competition.

The Court ruled that the amount of the fine remain unchanged at EUR 497 million.

EC Press release (17.09.2007): Commission welcomes CFI ruling upholding Commission’s decision on Microsoft's abuse of dominant market position

Further information on the implementation of the Commission decision

Implementation of the Decision

Microsoft’s Obligations

As regards interoperability, the Commission’s Decision of March 24, 2004 ordered Microsoft to disclose, within 120 days, complete and accurate interface information which would allow rival vendors to interoperate with Windows, and to make that information available on reasonable and non-discriminatory terms (Article 5 of the Decision).

As regards tying, the Commission’s Decision of March 24, 2004 ordered Microsoft to provide, within 90 days, a version of Windows which did not include Windows Media Player (Article 6 of the Decision).

On 25 June 2004, the Commission voluntarily suspended Microsoft’s obligations pending the outcome of Microsoft’s interim measures appeal of that date (see Court proceedings). Following the Order of the President of the CFI rejecting Microsoft’s interim measures application 22 December 2004, Microsoft was obliged to comply with its obligations pursuant to the Decision as of that date.

Role and appointment of Monitoring Trustee

The Decision foresees the establishment of an independent Monitoring Trustee, whose role is to assist the Commission in the monitoring of Microsoft’s compliance with the Decision. An implementing Decision of 28 June 2005 outlines the precise role and mandate of the Monitoring Trustee in this regard. This Decision can be consulted here.

On 5 October 2005, the Commission appointed Professor Neil Barrett as the Monitoring Trustee. Professor Barrett is a renowned computer scientist, and was one of several candidates proposed by Microsoft for the position of Monitoring Trustee.

Professor Barrett appointed Professors John McDermid and David Parnas as technical advisors .

Formal compliance proceedings

On 10 November 2005, following input from the Commission’s technical advisers (OTR) and an extensive market test, the Commission issued a Decision pursuant to Article 24(1) of Regulation 1/2003 ("the Article 24(1) Decision"). This decision concluded that Microsoft was not complying with its obligation pursuant to the Decision to: (i) supply complete and accurate interoperability information; and (ii) make that information available on reasonable terms. The Article 24(1) Decision warned that should Microsoft not be in compliance with this obligation from 15 December 2005, it would face a daily penalty payment of up to €2 million from that date.

Following the Article 24(1) Decision, Microsoft revised the interoperability information that it was obliged to disclose. However, on the basis of input from the Monitoring Trustee, the Commission’s preliminary view was that on 15 December 2005, Microsoft had still not supplied complete and accurate interoperability information. It therefore sent Microsoft a Statement of Objections on this point on 21 December 2005, and provided Microsoft with all the technical reports on which its conclusion was based.

Microsoft replied to this Statement of Objections on 15 February 2006, and at Microsoft’s request, an Oral Hearing was held on 30-31 March 2006. Further reports from both the Trustee and the Commission’s technical advisers (TAEUS) indicating that revised versions of the interoperability information which Microsoft had submitted were still not complete and accurate were sent to Microsoft by way of two letters of facts on 10 March 2006 (see IP/06/298) and 19 May 2006. Microsoft was provided the opportunity to comment on all the relevant reports.

On the basis of an analysis of all the relevant evidence on the file, the Commission’s conclusion was that as of 20 June 2006, Microsoft has still not complied with its obligation pursuant to the Decision to supply complete and accurate interoperability information. Therefore, on 12 July 2006, the Commission adopted a Decision pursuant to Article 24(2) of Regulation 1/2003 ("the Article 24(2) Decision") imposing on Microsoft a penalty payment of €280.5 million for non-compliance with its obligations (€1.5 million per day for the period from 16 December 2005 to 20 June 2006).

This Decision also warns that should Microsoft not be in compliance with its obligations from 31 July 2006, it is liable to face a daily penalty payment of up to €3 million from that date. Article 24 of Regulation 1/2003 entitles the Commission to impose such penalty payments not exceeding 5% of average daily turnover in the preceding business year per day.

On 1 March 2007 the Commission, by means of a Statement of Objections, warned Microsoft of further penalties (of up to €3 milion per day) over its unreasonable pricing of the interoperability information (IP/07/269). Microsoft replied to the Statement of Objections on 23 April 2007. The Commission is currently assessing the reasonableness of Microsoft remuneration schemes for the interoperability information.

See the case documents page for the latest developments.

Source: European Commission