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Microsoft loses key ruling

Microsoft has lost a European court case that the company’s lawyer says will
have an impact on Microsoft “for months and years to come”. Brad Smith said at a
press conference following the ruling, “It is one of these decisions that has
that kind of extraordinary impact.”

The judgment by the European Court of First Instance (CFI) confirms both the
decision made by the European Commission in 2004 and the euro 497m fine it
imposed. The ruling confirms that Microsoft abused its dominant position within
the meaning of Article 82 (see below) of the EU Treaty in two ways:
• First, Microsoft refused to provide competitor developers with the
interoperability information they needed to enable them to create and distribute
server operating system products – an offence that took place between October
1998 and the date of the European Commission decision in March 2004. The
commission ordered that Microsoft disclose its ‘client/server’ and
‘server/server’ communication protocols (but not, the CFI emphasised, the source
code) to anyone who wants to develop appropriate operating systems.
• Second, by bundling Media Player with the PC operating system, Microsoft
affected competition in the media player market. The EC ordered Microsoft to
offer for sale a version of Windows that didn’t contain the Windows Media

Rony Gerrits, a competition lawyer in the Brussels office of international
law firm Morrison & Foerster, says the decision is “a clear victory” for the
European Commission. The CFI “fully endorsed” what he describes as “a flagship

Gerrits believes that the CFI judgment will open the gates for a flood of
complaints in Brussels against dominant companies, especially in the high-tech
and IT sectors. “More US companies will seek recourse in Europe against their
competitors,” he says, “where they are likely to find a more sympathetic ear
than with their home country anti-trust agencies.”

The European Commission lost on one relatively minor point regarding the
appointment of a supervisory trustee, though this issue could affect how the
decision is actually enforced. In 2004, the Commission ruled that it should
appoint a monitoring trustee whose job it would be to ensure that Microsoft
complies with the decision and to handle relevant complaints from any third
party. The trustee was to have been given access to all relevant papers,
employees and code – and was to have been paid for by Microsoft.

The CFI, however, ruled that the Commission had no power to make such a
ruling and no power to appoint such a trustee. And, taking just a little of the
sting out of the tail of the fine, the CFI ruled that the Commission had
exceeded its powers in requiring Microsoft to pay for the monitoring trustee.

The CFI agreed that “undertakings are, as a rule, free to choose their
business partners”. But it added that, in certain circumstances, “a refusal to
supply on the part of a dominant undertaking may constitute an abuse of a
dominant position.” In determining whether there has been such an abuse, three
criteria need to be met:
• The refusal must relate to a product or service indispensable to the exercise
of an activity on a neighbouring market;
• The refusal must be of such a kind as to exclude any effective competition on
that market; and
• The refusal must prevent the appearance of a new product for which there is
potential consumer demand.

“Provided that such circumstances are satisfied, the refusal to grant a
licence [covering the communication protocol software] may constitute an abuse
of a dominant position unless it is objectively justified,” the CFI said.

Time to appeal
Microsoft has two months in which to lodge an appeal, limited to matters
regarding points of law, only. Brad Smith appeared to hint that an appeal was
unlikely. “It’s very important to us as a company that we comply with our
obligations under European law. We’ll study this decision carefully, and if
there are additional steps that we need to take to comply with it, we will take
them,” he said.

Competition commissioner Neelie Kroes pointed out that, during the nine years
it has taken for the litigation to get to this stage, Microsoft’s work group
servers market share has grown from 40% to 80%. But Smith insisted that “The
version of Windows that we offer in Europe today is in compliance with the
Commission’s 2004 decision.”

Article 82
Any abuse by one or more undertakings of a dominant position within the common
market or in a substantial part of it shall be prohibited as incompatible with
the common market in so far as it may affect trade between member states.
Such abuse may, in particular, consist in:
• Directly or indirectly imposing unfair purchase or selling prices or other
unfair trading conditions;
• Limiting production, markets or technical development to the prejudice of
• Applying dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage;
• Making the conclusion of contracts subject to acceptance by the other parties
of supplementary obligations which, by their nature or according to commercial
usage, have no connection with the subject of such contracts.

Useful links
The judgment can be found at the European Court of Justice website,

International law firm Morrison Foerster is at

Rony Gerrits can be contacted at

Microsoft’s comments are available at

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