[Politech] Eurocrats put the antitrust smackdown on Microsoft

From: Declan McCullagh (declan@private)
Date: Wed Mar 24 2004 - 07:08:25 PST

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    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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