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Microsoft was fined €561 million for not complying antitrust commitments--The first case for non- im

Date:2020-05-11 19:50:46

On March 6, 2013, the European Union (EU) fined Microsoft Corp. (Microsoft) €561 million ($732 million) for failing to offer consumers a choice of web browser, breaking an agreement with the European Commission. This is the first time that Commission has imposed a fine for non-implementing legally binding commitments. Due to the significance of this case, this article intends to explain the relevant background and EU regulations of this case in order to raise the awareness of Chinese companies.

Background: Microsoft Corp. v. Commission of the European Communities

In 1993, Novell claimed that Microsoft was blocking its competitors out of the market through anti-competitive practices. The complaint centered on the license practices at the time which required royalties from each computer sold by a supplier of Microsoft's operating system, whether or not the unit actually contained the Windows operating system. Microsoft reached a settlement in 1994, ending some of its license practices. In 1998, Sun Microsystems raised a complaint about the lack of disclosure of some of the interfaces to Windows NT. The case widened when the EU examined how streaming media technologies were integrated with Windows.

In 2003, the EU reached a preliminary decision in this case and ordered the company to offer both a version of Windows without Windows Media Player and the information necessary for competing networking software to interact fully with Windows desktops and servers. In March 2004, Commission concluded thatMicrosoft breached Article 102 of the treaty of the Functioning on the European Union (TFEU) on two grounds. Firstly, Microsoft was abusing its dominant market position by tying two separate products, Windows Media Player and Windows OS. Secondly, Microsoft refused to provide interoperability information to its competitors, constituting a violation of dominant market position under Article 102 TFEU because consumers were unable to purchase Widows OS without Windows Media Player, even though Windows Media  Player  was  free  for  consumers. 1Thus, the  EU ordered  Microsoft  to  pay €497  million ($794 million), the largest fine ever handed out by the EU at the time, in addition to the previous penalties, which included 120 days to divulge the server information and 90 days to produce a version of Windows without Windows Media Player.

After European Commission’s decision, Microsoft complained to the Court of First Instance. On 17 September 2007, Microsoft lost their appeal against the European Commission. The €497 million fine was upheld, as were the requirements regarding server interoperability information and bundling of Media Player. On 22 October 2007, Microsoft announced that it would comply and    not    appeal    the    decision    any    more.2

In 2009, The Commission adopted a decision of legally binding commitments by Microsoft due to Commission concerns Microsoft was abusing its dominant market position under Article 102 of TFEU by tying its web browser Internet Explorer to the Windows PC operating system. Based on the judgment of the Court of First Instance of 17 September 2007, Microsoft was found to abuse its dominant market position by tying Windows Media Player to  its  Windows  PC operating system. Commission claimed that this kind of practice was giving an artificial distribution  advantage  to  Microsoft,  which  is  not  related  to  merits  of  the  product      itself.3

By the decision of legally binding commitments under Article 9 of the Council Regulation 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Council Regulation 1/2003), Microsoft committed to offer possibility to choose among different web browsers, a choice screen allowing to its users of Windows XP, Windows Vista and Windows 7 to have access to rival products in the European economic area. Commission gave Microsoft five years to imply these legally binding  commitments.4

Relevant Rules for not complying the commitments

Article 9 of the Council Regulation 1/2003 provides: “Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission”. 5 In other words, it allows undertakings to allow further practices to change the alleged competition restricting practice. Otherwise, the Commission is likely to find undertaking or undertakings being in violation of Article 101 or Article 102 of TFEU.

Under Articles 23( 2 ) ( c ) and 24 ( 1 ) ( c ) of the Council Regulation 1/2003, the Commission may impose fines and periodic penalty payments if the undertakings are not sufficiently complying the legally binding obligations pursuant to Article 9 of the Council Regulation   1/2003.
 
Also, the Commission is able to reconsider the implications of actions to competition law under Article 9 (2) of the Council Regulation 1/2003 if the legally binding commitments are not followed, the Commission may consider the potential violation of Article 101 and 102 again. On the other words, approval of commitments does not provide immunity from the Commission investigation in the future. It merely sets the case aside for some time because there are no grounds for the Commission actions. 6

EU’s fine on Microsoft for failing to implementing the commitments

Microsoft changed the Windows code to meet the commitment, but when it released Windows 7 Service Pack 1 in February 2011, a major update that fixed various bugs in the software, it failed to offer a choice of browser. The lapse came to light last July, after rival companies reported its absence. After investigation, the European Commission EU found that Microsoft had failed to honour that obligation in software issued between May 2011 and July 2012, meaning that 15 million users were never made aware that they could  choose.

“Legally binding commitments reached in antitrust decisions play a very important role in our enforcement policy,” said Joaquin Almunia, the EU’s competition commissioner. “A failure to comply is a very serious infringement that must be sanctioned  accordingly.”7

Conclusion: What does it mean for companies?

Since 2003, when the current settlement rule was introduced, the commission has taken 29 such commitment decisions. Before    this    case,    the    Commission never     fined an undertaking because of the breach of satisfy legally  binding  commitments. This  is  the  first time that the Commission has imposed a fine for  non-implementing  legally binding commitments.

This case indicates that violating the commitments can be as serious as violating EU competition rules. Thus, companies shall take their commitments seriously and implement them. Otherwise, they will face heavy fines as Microsoft faced. Thus, it is of significance that companies’ compliance policies not only include comply the existing competition rules, but  also implementing their relevant commitments to the competition authorities. It also raises alarm to Chinese companies that they must comply not only Chinese antimonopoly law but also competition laws in other jurisdictions, particularly EU competition law and US antitrust laws, since these laws have extraterritorial jurisdiction. Thus, their competition compliance program shall  be  able  to  cover  multi-competition  jurisdictions  rather  than  only  focus  on  China.
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