European Commission, Microsoft Settle Dispute over Browser Tying

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) adopted a decision on December 16 that renders legally binding a set of commitments that were offered by Microsoft to boost competition on the web browser market.

The commitments address EC concerns that Microsoft may have tied its web browser Internet Explorer to the Windows PC operating system in breach of European Union rules on abuse of a dominant market position.

Under the commitments approved by the Commission, Microsoft will make available for five years in the European Economic Area (through the Windows Update mechanism) a “Choice Screen” enabling users of Windows XP, Windows Vista and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft’s browser Internet Explorer. The commitments also provide that computer manufacturers will be able to install competing web browsers, set those as default and turn Internet Explorer off.

“Millions of European consumers will benefit from this decision by having a free choice about which web browser they use,” stated EC Competition Commissioner Neelie Kroes. “Such choice will not only serve to improve people’s experience of the Internet now but also act as an incentive for web browser companies to innovate and offer people better browsers in the future.”

Microsoft Senior Vice President and General Counsel Brade Smith declared the EC’s decision “a major step forward.”Smith added that the company “look[s] forward to building on the dialogue and trust that has been established between Microsoft and the Commission and to extending our industry leadership on interoperability.”

The decision follows a Statement of Objections sent to Microsoft in January 2009, outlining the EC’s preliminary view that Microsoft may have infringed Article 82 of the EC Treaty by abusing its dominant position in the market for client PC operating systems and distorted competition through the tying of Internet Explorer to Windows.

According to the EC, the tie distorted competition by giving Microsoft an artificial distribution advantage not related to the merits of its product on more than 90 percent of personal computers.

The Commission’s preliminary view was that this tying hindered innovation in the market and created artificial incentives for software developers and content providers to design their products or web sites primarily for Internet Explorer. The approved commitments address these concerns, the EC said.

This decision, which does not conclude whether there is an infringement, legally binds Microsoft to the commitments it has offered and ends the EC’s investigation. If Microsoft were to break its commitments, the EC could impose a fine of up to 10 percent of Microsoft’s total annual turnover without having to prove any violation of EU antitrust rules.

A clause in the settlement allows the EC to review the commitments in two years. Microsoft will report regularly to the EC, starting in six months’ time, on the implementation of the commitments and under certain conditions make adjustments to the Choice Screen upon EC request.

Justice Department Statement

In response to the announcement, Assistant Attorney General Christine Varney of the Department of Justice Antitrust Division issued a statement in which she commended the EC and Microsoft for resolving their disputes and lauded the settlement. “A settlement that helps to clarify obligations under European law allows the industry to move forward,” Varney remarked.

Interoperability

While the settlement ends litigation over Microsoft’s alleged tying, the EC’s investigation regarding interoperability continues. Kroes hailed Microsoft’s contemporaneous publication of an improved version of its July 2009 commitments to allow interoperability between third party products and several Microsoft products—including Windows, Windows Server, Office, Exchange, and SharePoint.

Under these commitments, Microsoft pledged to publish the technical specifications of the programs so that interoperability could be achieved by any interested party. Although this initiative was described as “very welcome” by Kroes, she noted that its “arrangements remain informal vis-a-vis the Commission.”

Therefore, Kroes cautioned, “[T]he Commission will carefully monitor the impact of Microsoft’s proposals on the market and take its findings into account in its assessment of the pending antitrust investigation.”