European Court of First Instance Rejects Key Parts of Microsoft's Appeal

September 17, 2007. The European Court of First Instance (CFI) released its opinion [PDF] upholding much of the European Commission's (EC) 2004 decision regarding Microsoft.

The CFI's ruling is a victory of European regulators, a defeat for Microsoft, and a sign that successful U.S. technology companies may face further fines and regulation of their business practices by European regulators.

In July, the EC commenced an action against Intel. US competition regulators have not brought a parallel or related action against Intel. See, story titled "European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007.

The EC asserts in both the Microsoft and Intel cases that single firm conduct of successful US companies, in the absence of mergers, acquisitions, or collusive conduct among competitors, is anti-competitive and a violation of European law.

European regulators have not yet initiated actions against Google, Qualcomm, or Apple.

The present proceeding is Microsoft's appeal of the EC's decision that mandated that Microsoft remove certain code from its products sold in the Europe, and that it license certain proprietary technology and intellectual property rights to its competitors, and that it pay 497 Million Euros to the EC.

See, stories titled "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004, and "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004. See also, Microsoft web page for this proceeding.

Brad Smith, Microsoft's General Counsel, was obsequious. He stated in a release that while Microsoft has "only had a very short amount of time to read the decision", it is "nonetheless clear that the court has agreed with the Commission on a number of the Commission's points".

He expressed appreciation for the hard work of the Commission, and said that Microsoft would comply with European law.

Smith also said that Microsoft "will continue to grow" the number of employees that it bases in Europe, and the research and development that it conducts in Europe.

Neelie Kroes, the EU Competition Commissioner, stated in a release that "Court of First Instance has upheld the most crucial elements" of the Commission's decision.

She added that "That 2004 Decision set an important precedent in terms of the obligations of dominant companies to allow competition, in particular in high tech industries."

She also predicted that "You may hear scare stories about the supposed negative consequences of this ruling for other companies and for innovation on the market". But she said "Let me be clear -- there is one company that will have to change its illegal behaviour as a result of this ruling: Microsoft."

She concluded, "I will not tolerate continued non-compliance" by Microsoft.

Competitors of Microsoft and Intel have praised the actions of the EC. On September 17, Thomas Vinje of the European Committee for Interoperable Systems (ECIS) stated in a release [PDF] that "The European Commission, Commissioner Kroes, former Commission Monti and their officials are to be praised for their vision and persistence in the face of nearly ten years of foot dragging by Microsoft." The ECIS's members include IBM, Oracle, RealNetworks, Sun Microsystems, and other competitors of Microsoft.

In contrast, representatives of the U.S. Department of Justice's (DOJ) Antitrust Division have often criticized the EC's action against Microsoft.

See, for example, September 10, 2004 speech in Tokyo, Japan, by former Assistant Attorney General Hewitt Pate titled "Securing the Benefits of Global Competition". See also, stories titled "Pate Criticizes EC Decision Regarding Microsoft" in TLJ Daily E-Mail Alert No. 869, April 5, 2004; "Pate Addresses US EU Differences on Antitrust, Microsoft, and IPR" in TLJ Daily E-Mail Alert No. 913, June 8, 2004; and "Pate Addresses US Competition Law And Differences With EU" in TLJ Daily E-Mail Alert No. 975, September 13, 2004.