Comments on the European Court of First Instance’s Ruling in the Microsoft Case
By Magdalena Bergvall
On Monday, September 17, the European Court of First Instance delivered its awaited judgment in the Microsoft case. The judgment is a clear victory for the European Commission. The judgment contains valuable lessons for dominant companies and also for any company active in markets where intellectual property rights (IPRs) are strategic assets.
The case started in 1998 when Sun lodged a complaint with the European Commission stating, in essence, that Microsoft abused a dominant position. Sun argued that the company needed interoperability (i.e., possibility to exchange and use information) between Sun’s work group servers and Microsoft’s Windows PCs to be able to compete. The complaint was reviewed and the facts were investigated by the Commission, which issued a decision in March 2004. The Commission found that Microsoft had abused its dominant position by engaging in two separate types of conduct. First, the Commission confirmed that Microsoft’s refusal to supply its competitors with interoperability information constituted an illegal abuse because Sun and other competitors could not use the information to develop and distribute products competing with its own products on the work group server operating system market.
The second type of conduct criticized by the Commission was the tying of the Windows Media Player with the Windows PC operating system. Here, Microsoft had pre-installed its own media player rendering the consumers unable to acquire the Windows operating system without also acquiring Microsoft’s media player. Further, the Commission decided that a so called monitoring trustee should be appointed to, inter alia, issue decisions on whether Microsoft was complying with the decision. Finally, the Commission imposed a heavy fine of more than EUR 497 million.
Upon appeal the Court of First Instance has now confirmed the Commission decision apart from the appointment of the monitoring trustee. In its long judgment, the Court dealt in detail with Microsoft’s defense, which revolves around its intellectual property rights and incentives to innovate. However, Microsoft’s arguments were rejected and the Court followed the Commission’s reasoning. As for sanctions, the Court also upheld the record high fine.
Although the judgment may be appealed to the European Court of Justice, its importance is significant. First, the interface between IPRs and competition law has been further elucidated as the Court of First Instance elaborates on earlier judgments. Even though the objective of IPRs and competition law are ultimately the same, i.e. to promote innovation, it is clear that a dominant company cannot use its IPRs freely. Here, the Court confirmed that under certain circumstances a refusal to supply by a dominant holder of an IPR may indeed constitute an abuse. An interesting attendant question is then on what terms a dominant actor will have to provide licences. To what extent will the competition rules restrict an IPR holder from freely using certain terms of contract?
Second, it must be borne in mind that Microsoft had a “super dominant” position with more than 90 percent of the PC operating system market. It remains to be seen if this case will be seen as an exception or if the same harshness could apply also in relation to less dominant actors.
Third, the amount of the fine imposed on Microsoft is impressive. The Court of First Instance has shown that it will not hesitate to impose heavy sanctions when it finds that the infringement is, as in this case, “very serious.”
Monday’s judgment by the Court of First Instance will also be of immediate importance to the Commission’s handling of ongoing cases such as Rambus. (In July of this year, the Commission sent a so called Statement of Objections to the U.S. company Rambus, holding that Rambus has abused its dominant position by claiming unreasonable royalties for the use of certain patents for a certain type of electronic memory chips.)
Magdalena Bergvall
RydinCarlsten Advokatbyrå
Stockholm, Sweden
