EC Warns Microsoft of Further Penalties for Noncompliance with 2004 Decision

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

Microsoft Corporation has four weeks to reply to a Statement of Objections issued by the European Commission (EC), outlining the EC's preliminary view that the computer software company’s pricing for certain technology does not comply with obligations imposed by a March 2004 EC decision. After four weeks, the EC may impose a daily penalty for failure to comply with the decision, according to a March 1 announcement.

Abuse of Dominant Position

The March 24, 2004 decision found that Microsoft abused its dominant position by leveraging its near monopoly in the market for PC operating systems onto the market for work group server operating systems. The decision found that Microsoft's refusal to supply interoperability information risked eliminating competition in the work group server operating system market.

In order to prevent the perpetuation of this abuse of Microsoft's dominant position, the 2004 Decision requires Microsoft to make available interoperability information on reasonable and non-discriminatory terms.

An assessment of the reasonableness of Microsoft's prices for interoperability information depends on whether there is innovation in the protocols and, if there is, what is charged for comparable technologies in the market.

Unreasonable Royalty Rates

According to the EC's Statement of Objections, Microsoft's current royalty rates are unreasonable. The Statement of Objections found that there is no significant innovation in the interoperability information. The EC is still considering the issue of whether the interoperability information is complete and accurate.

“Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative,” said EC Competition Commissioner Neelie Kroes. “The Commission's current view is that there is no significant innovation in these protocols. I am therefore again obliged to take formal measures to ensure that Microsoft complies with its obligations.”