The EU Microsoft case:The EU Microsoft case:tying abusetying abuse

Per HellströmPer HellströmDG Competition, European CommissionDG Competition, European Commission

(speaking in a personal capacity - the views (speaking in a personal capacity - the views expressed are not necessarily those of the expressed are not necessarily those of the

European Commission)European Commission)

BIICLBIICLLondon, September 25th London, September 25th

20072007

Content provider

Media player

Operating system

PC

User

I n t e r n e t

OEM

Media file

Streaming media chainStreaming media chain

Some key aspectsSome key aspects

Microsoft has a virtual monopoly in Microsoft has a virtual monopoly in the PC OS marketthe PC OS market

PC OS - a platform for applicationsPC OS - a platform for applications Specific role of OEMs - assemble end Specific role of OEMs - assemble end

product for consumersproduct for consumers

Legal assessment of tying Legal assessment of tying under Article 82under Article 82

Based on consistent case law, e.g. Based on consistent case law, e.g. Hilti, Tetra Pak IIHilti, Tetra Pak II

Dominance in tying product (PC OS)Dominance in tying product (PC OS) Two separate productsTwo separate products No choice for customersNo choice for customers Harm to competitionHarm to competition No objective justification/efficienciesNo objective justification/efficiencies

DominanceDominance

Microsoft is dominant on the PC OS Microsoft is dominant on the PC OS marketmarket

Microsoft has a very high and stable Microsoft has a very high and stable market sharemarket share

Fringe competitors: Apple and LinuxFringe competitors: Apple and Linux Barriers to entry are high: Barriers to entry are high:

Sunk cost (cost of developing OS)Sunk cost (cost of developing OS) Applications barriers to entry (indirect Applications barriers to entry (indirect

network effect)network effect)

Separate productsSeparate products

Distinctness to be assessed by Distinctness to be assessed by reference to independent demandreference to independent demand

Role of OEMs importantRole of OEMs important Microsoft’s own practice confirms Microsoft’s own practice confirms

the Commission’s analysisthe Commission’s analysis WMP exists for other operating systems WMP exists for other operating systems No technical reasons to put the No technical reasons to put the

products togetherproducts together

PC (Windows)

WMP

RealPlayer

““reposition [the] streaming media battle from reposition [the] streaming media battle from NetShow vs. Real to Windows vs. Real” and “follow NetShow vs. Real to Windows vs. Real” and “follow

the [Internet Explorer] strategy wherever the [Internet Explorer] strategy wherever appropriate”appropriate”

Quicktime

CoercionCoercion

Windows could not be obtained Windows could not be obtained without WMPwithout WMP

Within the meaning of Art. 82(d) ECWithin the meaning of Art. 82(d) EC OEMs main target, passed on to OEMs main target, passed on to

customerscustomers Both contractual and technicalBoth contractual and technical WMP is WMP is notnot free of charge free of charge

Foreclosure of competition Foreclosure of competition (I)(I)

Tying gives WMP unparalleled Tying gives WMP unparalleled presencepresence This creates disincentives for OEMs and This creates disincentives for OEMs and

consumers consumers Competition on the merits prevented Competition on the merits prevented

(‘(‘Microsoft’s competitors are a priori at a Microsoft’s competitors are a priori at a disadvantage even if their products are disadvantage even if their products are inherently better than Windows Media Player inherently better than Windows Media Player ’)’)

The CFI confirms that this is sufficient, The CFI confirms that this is sufficient, but also looks at other factorsbut also looks at other factors

Foreclosure of competition Foreclosure of competition (II)(II)

Indirect network effects mechanismIndirect network effects mechanism artificially induces content providers and artificially induces content providers and

software developers to the WMP platformsoftware developers to the WMP platform Actual evolution of the marketActual evolution of the market Tying has a detrimental impact on Tying has a detrimental impact on

innovationinnovation‘‘Microsoft interferes with the normal competitive Microsoft interferes with the normal competitive process which would benefit users by ensuring process which would benefit users by ensuring quicker cycles of innovation as a consequence of quicker cycles of innovation as a consequence of unfettered competition on the merits unfettered competition on the merits ’’

Objective justificationObjective justification

Uniform platform argumentUniform platform argument De factoDe facto standardisation should occur standardisation should occur

through competition, not monopoly through competition, not monopoly extension extension

Tying unnecessary for platform benefitsTying unnecessary for platform benefits Technical benefits of ‘integration’Technical benefits of ‘integration’

Wholly unsupportedWholly unsupported ‘‘Microsoft acknowledged there was no Microsoft acknowledged there was no

technical reasontechnical reason’ to tie WMP with ’ to tie WMP with Windows Windows

ConclusionConclusion

The case is an important precedent The case is an important precedent But not for every company in every industryBut not for every company in every industry Precise factual analysis relating to specific Precise factual analysis relating to specific

circumstancescircumstances Competition must always be assessed on Competition must always be assessed on

the merits of the productsthe merits of the products Consumer choice and innovation are key, Consumer choice and innovation are key,

particularly in the IT sector particularly in the IT sector

The EU Microsoft case:The EU Microsoft case:tying abusetying abuse

Per HellströmPer HellströmDG Competition, European CommissionDG Competition, European Commission

(speaking in a personal capacity - the views (speaking in a personal capacity - the views expressed are not necessarily those of the expressed are not necessarily those of the

European Commission)European Commission)

BIICLBIICLLondon, September 25th London, September 25th

20072007