The Court of First Instance just issued its highly anticipated ruling on Microsoft’s appeal of a March 2004 decision by the European Commission to sanction and fine the company for abusing its monopoly in PC operating systems. The decision is relatively straightforward, but, as expected, it’s still nuanced, as indicated by the headline on this news release the court issued shortly after delivering its brief decision this morning (PDF, five pages):
THE COURT OF FIRST INSTANCE ESSENTIALLY UPHOLDS THE COMMISSION’S DECISION FINDING THAT MICROSOFT ABUSED ITS DOMINANT POSITION
However, the Court has annulled certain parts of the decision relating to the appointment of a monitoring trustee, which have no legal basis in Community law
On March 24, 2004, the European Commission completed a five-year inquiry and found that Microsoft’s Windows operating system “broke European Union competition law by leveraging its near monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players.” Here’s the EC’s news release from that time.
The company was given six months to make available to competitors “the interfaces required for their products to be able to ‘talk’ with the ubiquitous Windows OS,” also described as “interoperability information.” The company was also ordered to offer European consumers an unbundled version of Windows without Windows Media Player built in. Microsoft was also fined an eye-popping 497 million euros, or $613 million.
The European Commission also called for the apointment of a monitoring trustee to assist it in monitoring Microsoft’s adherence to the decision. According to the Court of First Instance’s statement today, “He was to have access to Microsoft’s assistance, information, documents, premises and employees and to the source code of the relevant Microsoft products. All the costs associated with the monitoring trustee, including his remuneration, were to be borne by Microsoft.”
In June 2004, Microsoft challenged the EC’s decision and the fine before the Court of First Instance, one step below the highest judicial authority in Europe. Today’s ruling is the outcome of that appeal.
On the question of interoperability information, the court found that the EC correctly determined that Microsoft’s refusal to share that information resulted in an abuse of its dominant position in the operating system market.
Also, the court found that the “degree” of interoperability between Windows and server software sought by the EC was “well founded” and the remedy it imposed — forcing Microsoft to “disclose the ‘specifications’ of its client/server and server/server communication protocols to any undertaking wishing to develop and distribute work group server operating systems” — was appropriate.
Further, the court rejected “Microsoft’s claims that the degree of interoperability required by the Commission is intended in reality to enable competing work group server operating systems to function in every respect like a Windows system and, accordingly, to enable Microsoft’s competitors to clone or reproduce its products.”
The court concluded, “The absence of such interoperability has the effect of reinforcing Microsoft’s competitive position on the market and creates a risk that competition will be eliminated.”
On the question of bundling Windows Media Player into the Windows operating system, the court agreed with the EC’s decision that the two products were tied together, to the detriment of consumer choice, and upheld the remedy requiring Microsoft to offer a version of Windows without the player.
The court noted that “independent companies, like [Seattle-based] RealNetworks, … design and supply competing [media player] products independently of operating systems.” This was one of several ways the court determined that Windows Media Player and Windows are in fact seperate products — a precursor to the finding that they were illegally tied together.
RealNetworks, which settled with Microsoft on the question of bundling two years ago, applauded the court’s decision. “The standards affirmed by the European Court should help ensure fair competition for all Windows application developers,” Real’s General Counsel Bob Kimball said in a statement this morning.
The hefty fine was upheld. The court determined that the EC “did not err in assessing the gravity and duration of the infringement and did not err in setting the amount of the fine.”
Finally, on the question of the monitoring trustee, the court found that the EC’s creation of such a position — with its own “powers of investigation and capable of being called upon to act by third parties” — went “far beyond” merely seeking an outside expert to help with its investigation and monitoring of Microsoft. It struck down the creation of the monitoring trustee position.
Decisions of the Court of First Instance can be appealed to the brought before the Court of Justice of the European Communities, the highest court in Europe. Microsoft would have two months from today to decide to appeal.
As of 1:50 a.m., Redmond time, the company’s General Counsel Brad Smith, who was in the Luxembourg court room to hear the decision, had not yet issued a statement on the ruling. He is expected to hold a press conference later this morning.