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The new Statement of Objections (SO) issued by the European Comm-ission on 30 August - along with the
two-year investigation that preceded it - is an important milestone in the efforts of antitrust authorities on both sides of the Atlantic to tackle the problem of Microsoft's massive monopoly power in large segments of the computer software market. The EU investigation constitutes an important 'second front' in what is now becoming an epic confrontation between antitrust enforcers and one of the strongest monopolies of all time. The new SO anticipates impending major battles on Microsoft's new Windows XP offering and the Hailstorm/.Net project, which are of critical importance to Microsoft's bid to extend its market power to the internet.
The commission's legal theory is that Microsoft has infringed Article 82 of the EC Treaty by "abusing its dominant position" on the desktop operating system market in order to leverage that position into the low-end server market, where Microsoft's market position has grown very rapidly. The abusive conduct consists essentially of: denying interface and other technical information to other server software suppliers, thus preventing them from producing server software which can run effectively with new generations of Microsoft products; bundling Media Player into the operating system, which helps Microsoft to leverage its desktop monopoly into the low-end server operating system market; and Microsoft licensing practices, which encourage customers to license the Microsoft server as well as desktop products.
There are some significant differences between the commission's approach and that of the US Department of Justice (DOJ) following the Washington DC Circuit Court of Appeal's judgment 28 June, and the DOJ's announcement that it is dropping the Section 1 tying claim and will not seek structural remedies.
First, the commission's approach focuses squarely on Microsoft's leveraging of its existing monopolies into new markets. Although, even following the new SO, the only market directly considered is the server market, the logic of the commission's approach points directly and inexorably towards XP, the Hailstorm/.Net initiatives and Microsoft's plans to build market power on the internet. While bundling is still an issue in the US monopoly maintenance claim under Section 2, in the new SO it is cast as a weapon for achieving dominance in new markets. XP and Hailstorm/.Net are replete with anticompetitive strategies, including not only software bundling but also tying/linkage with Microsoft internet service products, and these are now likely to come under scrutiny, especially if there were to be a further complaint and investigation.
Second, the issue of remedies remains open in the EU procedure. If the commission finds Microsoft guilty of infringing Article 82, it will probably impose a fine (an amount not greater than 10 per cent of Microsoft's annual worldwide revenues), and also order, or accept an undertaking from, Microsoft to accept and implement behavioural remedies. Following the introduction of the bundling accusation in the new SO, any behavioural remedy that dealt with bundling would inevitably have repercussions, not only for Windows 2000, but also for XP and all the other future products that pose similar problems.
Finally, the possibility of structural remedies remains open in the EU case. Legally contentious and politically sensitive as this may appear, Microsoft's own market behaviour as it introduces new products and extends its market power into the server and internet services markets may make the logic of such remedies - that some kind of breakup is the only remedy that will suffice to cause the infringing behaviour to come to an end - increasingly hard to escape.
So what happens next? Microsoft now has two months to make a written submission rebutting the accusations of the SO; other interested parties will then have a short interval to comment on the SO and Microsoft's rebuttal.
Late this year or early next year, there will be a hearing at which all the parties can express their views to the commission and the advisory committee of the member states. Then it will be for the commission to take a decision, which could be some time during the first half of 2002. More often than not, commission decisions follow the structure
and content of the SO. In this case, an important role may be played not only by the debate within the four corners of the EU proceeding, but also by what happens in the marketplace, as well as what happens in the US proceeding. In any event, it seems likely that the decision will be a stage in a continuing struggle, and not its end.
|Microsoft in the dock: case summaries|