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Microsoft v Commission

The case of Microsoft v Commission shed light on the difference of judgments between the US Antitrust Laws and EU Competition Law. In regard to Competition Law, when the Commission, incorrectly decides that a behavior by a firm is abusive (when in fact it is not), the business of the firm is harmed, and the consumers lose out by missing out on the products or services offered by the business. In this situation, the law is over-inclusive, and is known as a ‘False Positive’. The US Antitrust Laws are more concerned with false positives and the authorities are more likely to step back.

The second scenario, where the Commission concludes that a behavior by a firm is not abusive (but it is), the firm is left alone to its own devices and to its anti-competitive practices, which may affect the competition process and cause irreparable damages, and ultimately the consumers are harmed. As a result of the law being under-inclusive, the firms get away with their anti-competitive practices. This is known as a ‘False Negative’, and the European Union Competition Commission is more concerned with this, and it would rather interfere that step back.

The US court’s fear of false positives was seen in the case of Verizon Communication Inc v Law offices of Curtis Trinko (2004) which was about refusal to supply.The US Supreme court stated that it had to include a realistic comparison between the costs and the benefits of antitrust intervention. It stated that mistaken conclusions and false condemnations are very costly and that they negate the purpose which antitrust laws are designed to protect. In the EU, the case relevance is IMS Health GmbH & Co. OHG v NDC Health GmbH & CO. KG, in which the Court of Justice laid down limited conditions under which a dominant firm’s refusal to license IP to a competitor constitutes an abuse of a dominant position in violation of Article 82 of the Treaty establishing the European Community (Now Article 102 TFEU).

The main concern raised in Microsoft v Commission was whether two distinct products were a subject of a tie. Tying is a specific type of exclusionary abuse which refers to the situation where customers that purchase one product (the tying product) are also required to purchase another product from the dominant undertaking (the tied product). This is intended to provide the customers with better products in the most cost-effective ways. However, an undertaking which is dominant in one product market can harm consumer benefit through tying by foreclosing the market for other products. The Commission’s findings showed that Microsoft had tied its Windows Media Player to it’s personal computer operating system. There was serious evidence to point out that Microsoft advertised the Windows Media Player as a standalone product and download it by itself, it was designed to work with competitor’s operating systems, separate licensing agreements for the media player. Alden F. Abbott (U.S. Federal Trade Commission) while visiting the Center for Competition Law and Policy at the University of Oxford, in his paper on ‘A Brief comparison of European and American Antitrust Law’ talked about the early intervention of the European enforcers in regard to bundling/tying practices which conforms to the idea about the European Union and its concern for False Negatives. He states that bundling carried out by a dominant firm is likely to be found more concerning by the EU than the American Enforcers.

Neelie Kroes, the then Commissioner for EU Competition Policy stated that Microsoft had continued to abuse its powerful market position and hindering innovation by charging extraordinary royalties to companies for providing crucial data to computer users around the world. She also goes on to state that main aim of the competition policy is to avoid consumer harm and to produce consumer benefits. However, the Assistant Attorney General at that time for Antitrust, R. Hewitt Pate issued a statement on the EC’s decision in its Microsoft investigation. He commented that the US Antitrust Laws are enforced to protect the consumers by protecting the competition, not competitors. The Commission’s Guidance on Article 102, states that the commission will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking. The commission is mindful that what really matters is protecting an effective competition process and not simply protecting competitors. This may well mean that competitors who deliver less to consumers in terms of price, choice, quality and innovation will leave the market.

With regards to tying of the WMP, the commission found out that customers were unable to buy windows without WMP, and they install any alternative software alongside WMP. Microsoft argues that customers need not use it and that they did not have to pay extra for it. Microsoft argues that tying of WMP allowed the consumers to have their personal computers running with default options, out of the box, which lowered the transaction cost by reducing time and confusion.

The decision highlighted that tying in this particular case would result in foreclosing the competition in this market. There was evidence that even though the other media players were rated higher in quality, WMP’s usage increased due to the tying process. The commission ordered that Microsoft should sell in Europe, a full functioning version of windows without WMP. It also asked Microsoft to refrain from promoting WMP over competitors through Windows or providing selective access to Window’s API’s. Microsoft was also unable to give discount to customers who were buying the operating system together with WMP, which would restrict the user’s choice to select the version without the player, and unbundled version had to have similar performance with the bundled version.

Richard Whish in his textbook goes on to say that the way in which Article 102 has been construed, has led academic commentators to compare it alongside with ordoliberalism, which is capable of having negative effects on the competition process, but disagrees by stating that at the heart of Article 102, the main objectives of EU commission are competition, efficiency, and welfare.