On Monday, the CFI ruled that Microsoft’s refusal to provide interoperability information to competitors and its decision to tie its Windows Media Player software to the purchase of Windows operating systems amounted to an abuse of a dominant position, contrary to Article 82 of the EC Treaty.
Microsoft had argued that any attempt to make it hand over information about its technology to its rivals would be a breach of its IP rights. But the Court rejected its argument.
Although the Court made it clear that refusal to license can only be characterized as an abuse of a dominant position in “exceptional circumstances”, it said that such circumstances are present in the Microsoft case.
Pat Treacy, a partner at Bristows, said that the decision showed that Article 82 can be used to force companies to license their technology. This will ultimately have an impact on IP rights, she said.
“The Court has been bolder than expected. It has opened the door for more claims for compulsory licensing.”
The ruling has already been criticized by a number of technology industry associations who say that it will reduce the incentive to innovate.
Lars Liebeler, counsel for the Computing Technology Industry Association (CompTIA), told MIP Week that the judgment is “a dangerous and unfortunate precedent” and “does not encourage investment and innovation in the market”.
Jonathan Zuck, president of the Association for Competitive Technology, which counts Microsoft among its members, said that in the information technology market, new products are launched quickly and often. As a result, it is very easy for a company to suddenly gain a dominant market position.
In the wake of this ruling, that could make more technology companies vulnerable to being ordered to license their rights, Zuck added.
At a press conference following the ruling, Microsoft’s senior vice-president and general counsel, Brad Smith, drew comparisons with other players in the IT industry who enjoy high market shares, suggesting that they, too, could find themselves vulnerable to allegations of abusing a dominant position.
“Apple has a 70% share for digital music...along with Google with a 70 to 80% share for search engines...and IBM with a 99 to 100% share for mainframe computers in Europe and the rest of the world,” Smith said.
Michael Wendy, a spokesman for the CompTIA described the decision as “resoundingly anti-Microsoft” and said that it now gives the Commission a new power as a “de facto policeman or sheriff”.
Microsoft also won sympathy from the US government. Under the Bush administration, US antitrust regulators are generally regarded as being less willing to take an overtly interventionist approach to competition issues than their counterparts in the European Commission.
In a statement, Thomas O Barnett, the assistant attorney general for the Department of Justice, said the ruling may have “the unfortunate consequence of harming consumers by chilling innovation and discouraging competition”.
But officials in the European Commission expressed their satisfaction with the Court’s ruling, arguing that the decision would encourage – rather than curb – innovation by putting Microsoft and its competitors on a level-playing field.
At a press conference, Competition Commissioner Neelie Kroes said that the decision gives consumers “more choice in software markets and sets an important precedent in terms of the obligations of dominant companies to allow competition, in particular in high tech industries”.
But she distinguished the Microsoft dispute from other competition cases, saying that “super-dominance like Microsoft's is rare”. And she urged companies who are concerned at the implications of this case to approach her. “My door is always open,” she said.
Microsoft’s rivals have also been quick to discredit the company’s claims that the decision will lead to far more businesses being forced to license their technology. In particular, they say that the Microsoft case is unique, given that the company has a 95% share of the desktop PC market.
Kenneth Wasch, the President of Software Information Industry Association, told MIP Week that he was delighted by the ruling and said that Microsoft and its supporters are making an “enormous stretch” when they claim that that this decision will inform and encourage similar future actions.
“This was a very fact-based case and is very specific to Microsoft. It has been going on since 1998, why do you think it has taken so long? This is a once in a generation case,” he added.
Microsoft has not yet revealed whether it intends to appeal the ruling to the European Court of Justice – Europe’s highest court. Microsoft’s Brad Smith explained to journalists that it was too early to make a decision and said he preferred not “to rule out or rule in anything”.
Although Smith said that Microsoft is “100% committed to complying with the ruling”, he also pointed to the changes in the business environment in which Microsoft now operates.
He highlighted recent cooperation deals that the company has this year struck with Sun Microsystems and Novell, two of the companies that backed the Commission’s original investigation into Microsoft’s business practices nine years ago.
The agreements underline how much the technology industry has developed since the Commission’s investigation began. As such, the ruling may appear to be out of date.
Yet the Court’s decision is still highly significant because the detailed, 1,373-paragraph ruling sets out the circumstances in which a refusal to license IP rights may be deemed to amount to abuse of a dominant position. If Microsoft decides not to appeal, or if the CFI’s ruling is subsequently upheld, the judgment will provide a lengthy guide to the circumstances in which IP rights may be limited by antitrust rules in Europe.
