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.

Final Claims Dismissed in Novell’s Antitrust Suit Against Microsoft

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

Software developer Novell, Inc. could not pursue two claims remaining in an antitrust action against Microsoft because Novell transferred the claims to a third party in an asset purchase agreement, the federal district court in Baltimore has ruled.

Novell alleged that Microsoft’s anticompetitive conduct in 1994-1996 damaged Novell’s ability to market its office productivity applications, including WordPerfect and Quattro Pro. In 2007, the district court dismissed as time-barred Novell’s claims alleging anticompetitive conduct in the office productivity applications market (2007-2 Trade Cases ¶75,901, CCH Computer Cases ¶49,423).

Novell’s remaining monopolization and restraint of trade claims, alleging harm in the operating systems market, were allowed to proceed because they were tolled during the pendency of the government’s action against Microsoft.

Assignment of Claims

In an Asset Purchase Agreement dated July 23, 1996, Novell assigned to Caldera, Inc., claims “held by Novell at the Closing Date and associated directly or indirectly with any of the DOS Products.”

Novell contended that the agreement meant to assign only claims for harm inflicted on the DOS products themselves, not on the operating system market, which comprised the actual market in which the DOS Products competed. However, the plain language of the assignment clause did not limit its application to claims inflicting “harm” on the DOS products; rather, it assigned claims “associated” with the DOS products, according to the court.

The APA assignment language encompassed the present claims because they were “associated directly or indirectly with the DOS Products.”

Merits

Despite finding that Novell lacked standing to pursue the claims at issue, the court nevertheless addressed the merits of each claim. If Novell had not transferred the claims to Caldera, Novell’s restraint of trade claim would have been decided in favor of Microsoft, but its monopolization claim would have proceeded to trial.

Novell alleged that Microsoft violated Sec. 2 of the Sherman Act by exclusive dealing—entering into “agreements with OEMs and others not to license or distribute Novell's office productivity applications.” To be considered “exclusive,” an agreement must expressly preclude a party from doing business with the defendant's competitors or engage in other conduct that has the practical effect of exclusivity.

Microsoft's agreements with computer manufacturers (OEMs) did not foreclose a substantial share of the software applications market, and its agreements with distributors were not exclusive or otherwise anticompetitive—they simply provided modest rebates for increased sales and “blended share” of Microsoft products.

With regard to its Sherman Act Sec. 1 claim, Novell’s evidence raised sufficient factual issues to preclude summary judgment. Although a monopolist generally has a right to refuse to cooperate with a competitor, Novell’s evidence suggested more, including that Microsoft acted out of predatory motives and affirmatively misled Novell about Windows 95 functionality and licensing.

The opinion, In re Microsoft Corp. Antitrust Litigation, is reported at CCH Guide to Computer Law ¶49,927. It will appear in CCH Trade Regulation Reporter.

U.S., EC Clear Agreement Between Microsoft and Yahoo!

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

Microsoft Corporation and Yahoo! Inc. announced on February 18 that they would begin implementing their proposed search agreement, after receiving clearance from the Department of Justice Antitrust Division and the European Commission (EC).

In an announcement the same day, the Antitrust Division said it had closed its investigation into proposed Internet search and paid search advertising agreement between the companies without taking action. The EC also issued a statement that it had concluded that the deal would not significantly impede effective competition in Europe.

Yahoo!’s algorithmic and paid search platforms will be transitioned to Microsoft, under the parties' proposal. Yahoo! will become the exclusive relationship sales force for both companies’ premium search advertisers globally.

According to the parties' statement, “the companies’ unified search marketplace will deliver improved innovation for consumers, better volume and efficiency for advertisers and better monetization opportunities for web publishers.”

Competition with Google

Both the Antitrust Division and the EC suggested that the transaction would allow Microsoft/Yahoo! to compete more effectively with Google.

“The proposed transaction will combine the back-end search and paid search advertising technology of both parties,” the Antitrust Division explained in its statement. “U.S. market participants express support for the transaction and believe that combining the parties' technology would be likely to increase competition by creating a more viable competitive alternative to Google, the firm that now dominates these markets.”

The transaction “is not likely to harm the users of Internet search, paid search advertisers, Internet publishers, or distributors of search and paid search advertising technology,” in the government's view.

According to the parties, the transaction was also cleared by regulators in Australia, Brazil, and Canada.

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.”