Microsoft Corp. v Commission (Case T-201/04) is the 2007 judgment of the Court of First Instance of the European Communities, now the General Court, on Microsoft’s challenge to the European Commission’s decision of 24 March 2004. The Commission had found that Microsoft abused its dominant position in PC operating systems by refusing to supply interoperability information needed by competing work group server operating systems, and by tying Windows Media Player to Windows. It fined Microsoft EUR 497,196,304 and ordered it to make the information available on reasonable and non-discriminatory terms and to offer a version of Windows without Windows Media Player.[1] On 17 September 2007 the Court essentially upheld the decision and the fine, annulling only the provisions on a monitoring trustee.[3]
Background
The case began with a complaint lodged by Sun Microsystems on 10 December 1998.[1] According to the Commission, Sun complained that Microsoft had refused to provide the interface information Sun needed to develop products that would communicate properly with Windows PCs, and the investigation found that Sun was not the only company refused this information.[2] Work group server operating systems are those running on central network computers that provide services such as file and printer sharing, security and user identity management.[4]
The dispute
The decision. In Article 2 of its decision the Commission found that Microsoft infringed Article 82 of the EC Treaty and Article 54 of the EEA Agreement by (a) refusing to supply the Interoperability Information and allow its use for developing and distributing work group server operating systems, from October 1998, and (b) making the availability of the Windows client PC operating system conditional on the simultaneous acquisition of Windows Media Player, from May 1999.[1] The remedies were:
- within 120 days, make the Interoperability Information available to any undertaking interested in developing and distributing work group server operating systems and allow its use “on reasonable and non-discriminatory terms”, keep it updated, and set up an evaluation mechanism for interested undertakings (Article 5);[1]
- within 90 days, offer a full-functioning version of Windows without Windows Media Player, while retaining the right to offer the bundle (Article 6);[1]
- propose a monitoring mechanism including an independent monitoring trustee (Article 7).[1]
The Commission stated that the disclosure order covered interface documentation only and not Windows source code, and that where the information was protected by intellectual property in the EEA, Microsoft would be entitled to reasonable remuneration.[2]
The action. Microsoft brought an action before the Court of First Instance on 7 June 2004 for annulment of the decision, or for annulment or a substantial reduction of the fine.[3] Among its arguments, as summarised by the Court, were that the degree of interoperability the Commission required would in reality allow competitors to clone its products, and that its refusal was objectively justified because the technology was covered by intellectual property rights.[3]
Decision or outcome
Interoperability. The Court rejected the argument that the required interoperability would let competitors clone Windows. It did not decide whether intellectual property rights covered the protocols, noting that the Commission had assumed they might, which was the approach most favourable to Microsoft. It held that the conditions under which a refusal to license may be an abuse were satisfied: the refusal related to something indispensable to activity on a neighbouring market, was of a kind to exclude effective competition there, and prevented the appearance of a new product for which there was potential consumer demand. It rejected the intellectual property justification and found that Microsoft had not shown that disclosure would significantly harm its incentives to innovate.[3]
Tying. The Court upheld the finding of abusive tying. It found separate consumer demand for media players, and held that neither the absence of a separate price for Windows Media Player nor the fact that consumers were not obliged to use it was relevant. It found that offering OEMs only the bundled version altered the balance of competition in Microsoft’s favour, and that the remedy was proportionate because Microsoft could continue to offer the bundled version.[3]
Monitoring trustee and fine. The Court annulled the decision in so far as it required Microsoft to propose a monitoring trustee with independent access to Microsoft’s information, documents, premises, employees and source code, and in so far as it made Microsoft bear all the trustee’s costs. It found no error in the assessment of the gravity and duration of the infringement, and the fine remained unchanged at EUR 497 million.[3]
Compliance. On 27 February 2008 the Commission imposed a penalty payment of EUR 899 million, finding that before 22 October 2007 Microsoft had charged unreasonable prices for access to the interface documentation. According to the Commission, Microsoft initially sought royalties of 3.87% of a licensee’s product revenues for a patent licence and 2.98% for an information licence, reduced them in May 2007 for sales within the EEA, and from 22 October 2007 offered the information licence for a flat fee of EUR 10,000 with an optional worldwide patent licence at 0.4%.[5]
Significance for software licensing and SAM practice
The case established, for the European Union, that a dominant software vendor can be required to license technical information to competitors, and that the terms of that licence, including its price, are subject to review.[3][5] The tying part concerns how software is packaged and licensed to OEMs: the unbundled Windows had to be offered without commercial, technological or contractual terms that would make it less attractive, and in particular without a discount conditional on taking Windows Media Player.[2] For the parallel United States case on Microsoft’s OEM licences, see United States v. Microsoft; for later European and UK disputes about Microsoft licensing, see ValueLicensing v Microsoft and Microsoft cloud licensing complaints.
Lessons learned
- Refusals to license can be remedied by compulsory licences. The Commission ordered Microsoft to allow use of its interoperability information on reasonable and non-discriminatory terms, and the Court upheld the finding that the refusal was an abuse.[1][3] Organisations that depend on a dominant vendor’s interfaces for interoperability have a legal basis for asking about access terms.
- “Free” bundled components can still be tying. The Court held that it did not matter that Windows Media Player had no separate price or that users were not obliged to use it.[3] Bundled components in a licence are part of the commercial offer and can be assessed as such.
- The price of a remedy is part of compliance. The Commission’s 2008 penalty was based on the royalties Microsoft charged, not on a failure to offer a licence at all.[5] When a vendor is under a licensing obligation, the actual rates and terms offered determine whether it is met.