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27 March 2014
An important day for the European Commission and the application of European competition rules came on 24 March. With its largest ever fine of €479m (£314.9m) against Microsoft, Mario Monti showed that European competition rules can touch the biggest players. But with such a firm stance against Microsoft he has reopened the transatlantic antitrust v competition debate.
Many in the US have since criticised the Commission. Members of the US House of Representative’s International Relations Committee are reported to have sent Monti an open letter complaining that he ignored the fact that the US authorities had already addressed Microsoft competition issues. Microsoft itself, when talking to US journalists, stated that the Commission “today embarked on a remedy that shows so little regard for the work and decision-making of the US government…”. However, is the Commission’s decision really so far removed from the US authorities’ decision?
In 2001 the US Court of Appeals upheld the District Court’s finding that Microsoft had maintained a monopoly in the market for operating systems, breaching Section 2 of the Sherman Act 1890.
Likewise, the Commission has found that Microsoft abused its dominant position by deliberately restricting interoperability between Windows-operated PCs and non-Microsoft operating systems. In both jurisdictions, the fundamental elements of Microsoft’s business were found to be in breach of competition rules.
Where the decisions differ is in relation to tying additional products to the operating system. The US Court of Appeals held that, in order to decide whether the tying of Microsoft’s internet browser to its operating system was illegal, it was necessary to apply the “rule of reason”. This required assessing the potential pro-competitive effects of the arrangement before deciding whether there was any breach of the antitrust rules. The Commission, however, has found that by tying its Media Player to its operating system, Microsoft deliberately abused its dominant position.
This divergence arises more from a difference between US and European competition rules than from inconsistent decision-making.
The Sherman Act does not contain the concept of dominant position, but makes the existence of a monopoly a violation of the antitrust rules, whereas abuse of a dominant position is a fundamental element of European competition rules. European case law recognises the existence of a super-dominant position when an undertaking has an excessively high market share of over 90 per cent, just like Microsoft. The greater the undertaking’s market share the greater its requirement to comply with European competition rules. The Commission’s decision was made against this backdrop.
Much has been made of the Commission’s failure to reach a settlement with Microsoft. This ignores the fact that the original US District Court judgment required Microsoft to break into two companies. While this decision was reversed on appeal (some may say due to political pressure), it is harsher than the Commission’s current sanctions. The US authorities did negotiate a settlement with Microsoft, which aimed to open up the market by requiring it to license its operating protocols to competitors. The settlement is closely monitored by the US authorities, with the US courts issuing periodic status reports on Microsoft’s compliance.
The most recent report is concerned that the effects of the arrangement are insufficient to open the operating systems market, suggesting that the US settlement is not working and is not robust enough to reduce Microsoft’s monopoly. Monti must have been aware of this during his Microsoft negotiations.
Not only would he have wanted to ensure that robust remedies were put in place, he was also looking to the future. He wants to see the market opened up and to ensure Microsoft’s dominance does not overflow into other markets. Whether his remedies (if they survive appeal) are sufficiently robust remains to be seen.
Assistant Lesley Davey assisted with this article