European Commission Fines Microsoft for Noncompliance with Browser Choice Commitments

This posting was written by William Zale, contributor to Antitrust Law Daily.

The European Commission announced on March 6 that it has imposed a €561 million fine on Microsoft for failing to comply with its commitments to offer users a browser choice screen enabling them to easily choose their preferred web browser.

In statement issued today, Microsoft said, “We take full responsibility for the technical error that caused this problem and have apologized for it. We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake—or anything similar—in the future.”

In 2009, the Commission had made Microsoft’s browser choice commitments legally binding until 2014. The Commission found that Microsoft failed to roll out the browser choice screen with its Windows 7 Service Pack 1 from May 2011 until July 2012. 15 million Windows users in the EU did not see the choice screen during this period.

Until November 2010, 84 million browsers were downloaded through the choice screen, according to the Commission. When the failure to comply was detected and documented in July 2012, the Commission opened an investigation and, before taking a decision, notified to Microsoft its formal objections in October 2012.

Under Article 9 of the EU’s Antitrust Regulation, the Commission may conclude an antitrust investigation by making legally binding the commitments offered by the companies concerned. Such an Article 9 decision does not conclude that there is an infringement of EU antitrust rules and does not impose a sanction. However, it legally binds the companies concerned to comply with the commitments. If a company breaks such commitments, Article 23(2) of the Antitrust Regulation empowers the Commission to impose fines of up to 10% of its total turnover in the preceding business year.

EC Approves Procter & Gamble Acquisition of Teva OTC Business

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

The European Commission (EC) announced on November 12 that it has cleared Procter & Gamble Company's proposed acquisition of the over-the-counter (OTC) business of the generic pharmaceutical company Teva Pharmaceutical Industries, Ltd. of Israel. The OTC assets had been acquired by Teva from U.S.-based Cephalon, Inc. in 2011. The EC’s investigation focused on topical anti-rheumatics and analgesics, and expectorants, sold in Latvia, Lithuania, and Estonia.

The EC concluded that the current transaction would not raise competition concerns because it would not significantly alter the market structure. According to the EC, the affected market was last examined in October 2011, when Teva acquired Cephalon's then-existing OTC business. The competitive conditions in these markets have not materially changed since then.

In September 2011, the EC cleared Procter & Gamble’s acquisition of “important parts” of Teva’s OTC business, after concluding that the proposed transaction would not raise competition concerns. In its investigation of that transaction, the EC focused on laxatives sold in the Netherlands and antitussives sold in Austria.

Procter & Gamble and Teva had issued a statement in November 2011, announcing plans to create a new partnership and joint venture in consumer health care. The parties said that the venture, PGT Healthcare, was to be headquartered in Geneva, Switzerland, and operate in essentially all markets outside of North America. The partnership between Procter & Gamble and Teva also was to develop new brands for the North American market.

FTC Conditionally Approves Acquisition in Disk Drives Market

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

The FTC will allow Western Digital Corporation’s proposed acquisition of Viviti Technologies Ltd., formerly known as Hitachi Global Storage Technologies, to proceed, subject to divesture of selected Hitachi Global Storage Technologies assets related to the manufacture and sale of desktop hard disk drives to Toshiba Corporation.

A proposed consent decree would resolve FTC charges that the proposed acquisition would likely have harmed competition in the market for desktop hard disk drives used in personal computers.

According to the agency, the deal as originally proposed would have left only two companies, Western Digital and Seagate Technology LLC, in control of the entire worldwide market for desktop hard disk drives—key inputs into computers and other electronic devices that are used to store and allow fast access to data.

“Protecting competition in the high-tech marketplace is a high priority for the FTC,” said FTC Bureau of Competition Director Richard Feinstein. “This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives and that consumers are not faced with higher prices or reduced innovation as a result of this deal.”

Timing of Filings

In a March 5 statement accompanying the complaint and proposed consent order, the FTC explained the relationship of its analysis of the proposed Western Digital/Hitachi acquisition to an acquisition by Seagate Technology LLC of Samsung Electronics Co. Ltd.'s hard disk drive assets. The FTC reviewed the Western Digital/Hitachi transaction at the same time as it reviewed Seagate Technology/Samsung transaction. The two transactions were announced within weeks of each other.

“Commission staff reviewed both matters at the same time in order to understand the effects on competition resulting from each transaction on its own, as well as the cumulative effect on the relevant markets if both transactions were allowed to be consummated,” according to the FTC. The agency earlier closed its investigation
of the Seagate Technology/Samsung transaction without taking action.

European Commission

In reviewing the two transactions, the European Commission (EC), on the other hand, followed a priority rule and gave priority to the transaction that was notified first. As a result, Seagate’s planned acquisition of Samsung’s hard-disk operations, which was notified to the EC prior to the planned Western Digital/Hitachi combination, was assessed assuming that Western Digital and Hitachi were still separate competitors. The implications of the second deal were not considered.

In November 2011, the EC announced that clearance of the Western Digital/Hitachi combination was conditioned upon the divestment of essential production assets for 3.5-inch hard disk drives, including a production plant, and accompanying measures. The Seagate Technology/Samsung transaction was approved by the EC without conditions.

The case is Matter of Western Digital Corporation, FTC File No. 111 0122, Docket No. C-4350, CCH Trade Regulation Reporter ¶16,738. The proposed consent agreement appears here at 77 Federal Register 14523, March 12, 2012.

Apple Subscription Service Draws Antitrust Scrutiny in U.S., EU: News Reports

This posting was written by John W. Arden.

Subscription terms set by Apple Inc. for media companies seeking to sell content on the iPad. iPhone, and its other devices have attracted the interest of antitrust officials in both the United States and the European Union, according to news reports.

The Wall Street Journal reported on February 18 that, according to unnamed sources, the Justice Department and Federal Trade Commission were examining whether the Apple “was running afoul of U.S. antitrust laws by funneling media companies’ customers into the payment system for its iTunes store—and taking a 30% cut . . . ”

Under Apple’s terms, companies selling digital subscriptions to content on Apple devices would have to make the content available for sale through the iTunes App Store at the best available price. They could not link to stores other than its App Store and could not offer better terms to subscribers elsewhere. This “most favored nation” clause could be considered anticompetitive if it distorts pricing.

U.S. antitrust enforcers would have to show that Apple has market power and was abusing it. Market definition is always a key issue.

While the iPhone is very popular, it has only a 16% share of smartphones and a very small share of the mobile telephone market, according to the Journal. Although Apple currently has about 75 percent of the tablet computer market, that share could drop when competitive brands start appearing.

Officials from the Justice Department, FTC, and Apple declined to comment to the Journal.

Meanwhile, a spokeswoman for the European Commission said that the Commission was “carefully monitoring the situation.”

The Independent, an Irish newspaper, quoted competition lawyer Guy Lougher of Pinsent Masons as predicting that the Apple subscription service was likely to appear on the European Commission’s radar “sooner rather than later.”

He added that a competition investigation would have to determine whether Apple has a dominant position in the market. Apple might successfully argue that the market is all digital media—a market where Apple does not have a monopoly.

The Wall Street Journal article (“Regulators Eye Apple Anew,” February 18, 2011) appears here. The Independent article (“Apple subscription service attracts regulators’ attention,” February 18, 2011) appears here.

EC Investigates Google for Abuse of Dominance

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

The European Commission (EC) announced today that it has opened an in-depth antitrust investigation into Google Inc.'s methods for displaying search results.

According to the EC announcement, the investigation will look into whether Google abused a dominant market position in online search by:

(1) Lowering the ranking of unpaid search results of so-called vertical search services and by according preferential placement of its own vertical search services;

(2) Lowering the “Quality Score" for sponsored links of competing vertical search services and thereby influencing the price paid for advertising and the corresponding rankings;

(3) Imposing exclusivity obligations on advertising partners that prevent certain types of competing ads; and

(4) Restricting the portability of online advertising campaign data to competing online advertising platforms. The EC is attempting to determine whether Google engaged in this conduct in an effort to shut out competitors.

Complaints by Search Service Providers

The EC said that the formal investigation followed complaints from search service providers. While not named in the EC announcement, the three complaining firms have been identified as U.K.-based search service and price comparison site Foundem, French legal search engine eJustice, and Microsoft-owned shopping site Ciao.

The EC noted that the investigation did not imply it had proof of any infringements.

IComp, the Initiative for an Online Competitive Marketplace, in a November 30 statement, expressed hope that the EC decision “will contribute towards the development of a healthier and more competitive online marketplace.” Foundem is among the members of the Internet business organization.

Google Response

In response to the EC announcement, Google posted a statement on its European Public Policy Blog, saying that it would “work closely with the Commission to answer their questions.” According to the post, Google “will continue to review complaints about Google's search and search advertising.”

Busy Week of Antitrust Developments in Aviation Industry

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

The Department of Transportation's antitrust immunity grants to two groups of air carriers seeking to jointly market trans-Pacific routes were among a number of interesting antitrust developments in the aviation industry this week.

American Airlines and Japan Airlines (JAL), members of the oneworld alliance, announced on November 10 that the DOT had granted final approval to their request for antitrust immunity with respect to their trans-Pacific joint business. The arrangement has also been approved by Japan's Ministry of Land, Infrastructure, Transport and Tourism. Both airlines anticipate launching their coordinated services in early 2011, according to their joint statement.

American and JAL filed their application for antitrust immunity for the joint business agreement (JBA) in February 2010. At that time, the carriers said that, under an immunized JBA, American and JAL would cooperate commercially on flights while continuing to operate as separate legal entities. They would coordinate fares, services, and schedules.

United Airlines, Continental Airlines, and ANA also announced on November 10 that the DOT issued a final order granting antitrust immunity for their trans-Pacific joint venture under which the carriers intend to jointly develop flight schedules and sales activities. United Continental Holdings, Inc. is the holding company for United and Continental, which recently merged to form the world's largest airline. ANA is a leading Japanese provider of air transportation services.

Southwest/AirTran Merger

Earlier this week, Southwest Airlines Co. and AirTran Holdings, Inc. announced that the Department of Justice Antitrust Division had issued a “second request” in its investigation into the combination of the low-cost air carriers.

A second request is issued when the antitrust agency reviewing the deal determines during the initial waiting period that it needs additional information and/or documents to complete its analysis of competitive effects under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. The second request extends the waiting period imposed by the HSR Act until 30 days after the parties have substantially complied with the request.

Second requests are not uncommon in federal antitrust reviews of large mergers. The Justice Department issued a second request in the recently consummated United/Continental merger.

“Both parties are in the process of gathering information to respond to the second request and will continue to work cooperatively with the DOJ as it reviews the transaction,” according to the carriers' joint statement of November 9. Southwest and AirTran expect the transaction, which was announced on September 27, 2010, to close in the first half of 2011.

Air Cargo Cartel

Meanwhile, on the other side of the Atlantic, the European Commission (EC) announced on November 9 that 11 air cargo carriers had been fined a total of nearly €800 million for operating a worldwide cartel. Air Canada, Air France-KLM, British Airways, Cathay Pacific, Cargolux, Japan Airlines, LAN Chile, Martinair, SAS, Singapore Airlines, and Qantas were fined a total of €799.445.000 by the EC for coordinating surcharges for fuel and security over a six year period. Lufthansa (and its subsidiary Swiss) received full immunity from fines under the EC's leniency program.

The EC fines follow a number of guilty pleas from these same carriers to price fixing charges filed by the U.S. Department of Justice since August 2007.

New York State Charges Intel with Monopolization

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

Intel Corporation unlawfully maintained its monopoly in the market for x86 central processing unit (CPUs) in violation of New York’s Donnelly Act and Sec. 2 of the Sherman Act, the State of New York alleges in an 83-page complaint filed today in a federal district court in Delaware.

The state is seeking injunctive relief and damages on behalf of its governmental agencies as well as New York consumers who purchased products containing x86 CPUs.

According to the complaint, Intel “engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors, the ‘brains’ of Personal Computers (PCs).” Intel allegedly bribed and bullied computer makers in an effort to deprive Advanced Micro Devices, Inc. of distribution channels for its competing microprocessors.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said New York Attorney General Andrew M. Cuomo, in a statement announcing the complaint.

“Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices," Cuomo charged."These illegal tactics must stop and competition must be restored to this vital marketplace.”

European Commission Fine

New York’s complaint follows a May 2009 European Commission (EC) decision fining the computer chip maker €1.06 billion (approximately $1.44 billion U.S.) for violating EC antitrust rules prohibiting the abuse of a dominant position. The EC found that Intel engaged in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 CPUs.

In addition to imposing the fine, the EC ordered Intel to cease the challenged practices. In September, the EC made public a redacted version of its May decision. Intel has announced that it was appealing the EC decision to the Court of First Instance of the European Community.

Federal Trade Commission Investigation

The Federal Trade Commission has also been conducting an investigation of Intel’s allegedly anticompetitive practices. Intel announced in June 2008 that the FTC had issued a subpoena related to its “business practices with respect to competition in the microprocessor market.”

At that time, the company explained that it had been working closely with the FTC since 2006 on an informal inquiry into competition in the microprocessor market and that it had provided the Commission staff with a considerable amount of information and thousands of documents.

European Commission Fines Intel for Abuse of Dominant Position

This posting was written by John W. Arden.

Computer chip giant Intel was fined €1.06 billion ($1.45 billion) on May 13 for violating European Commission Treaty antitrust rules on the abuse of a dominant position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 central processing units (CPUs).
In addition to imposing the fine, the European Commission ordered Intel to cease the illegal practices that were still ongoing.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said Competition Commissioner Neelie Kroes. “Such serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

The Commission found that Intel—while maintaining a dominant position in the x86 CPU market—engaged in two forms of illegal practices.

Exclusionary Rebates, Payments

First, Intel gave wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or nearly all, of their x86 CPUs from Intel. The chip manufacturer also made direct payments to major retailer Media Saturn Holding on the condition that it stock only computers with Intel x86 CPUs.

“Such rebates and payments effectively prevented customers—and ultimately consumers—from choosing alternative products,” the Commission stated.

Halt or Delay Products with Other Chips

Second, Intel made direct payments to computer manufacturers to halt or delay the launch of products containing competitors’ x86 CPUs and to limit the sales channels for these products, according to the Commission.

“By undermining its competitors’ ability to compete on the merits of its products, Intel’s actions undermined competition and innovation,” the Commission said.

“Abusive” Rebates

While some rebates can lead to lower prices for consumers, those offered by a company in a dominant position that are conditioned on a manufacturer buying less of a rival’s products or none at all are abusive according to settled case law of European Community courts, unless they are justified by some specific reasons.

In this case, the Commission did not object to rebates, but to the conditions Intel attached to the rebates, it was explained.

Promotion of Innovation

In a question and answer document released on Wednesday, the Commission said that this decision will promote innovation in the market because Intel’s practices stifled innovative products from reaching customers.

“Such practices deter innovative companies which might otherwise wish to enter and compete in the market. By ordering Intel to end its abusive practices, competition on the x86 CPU market will play out on the merits with the effect that innovation to the benefit of the consumer can flourish.”

The document refers to the “legal underpinning” of the Commission’s case, based on a consistent pattern of jurisprudence, including Case 85/87 Hoffmann-La Roche v. Commission; Case T-203/01 Michelin v. Commission; Case C-95/04 British Airways v. Commission; Joined Cases T-24/93 and others, Compagnie Maritime Belge v. Commission; and Case T-228/7 Irish Sugar.

The European Commission and the Federal Trade Commission kept each other regularly informed on their respective investigation of Intel.

Text of the press release and the questions and answers appear on the European Union website.

Intel’s Reaction

In a May 13 statement, Intel President and CEO Paul Otellini took “strong exception” to the Commission decision.

“We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace—characterized by constant innovation, improved product performance and lower prices,” Otellini said. “There has been absolutely zero harm to consumers. Intel will appeal.”