EC Demands More Money From Microsoft

February 27, 2008. The European Commission (EC) demanded more money from Microsoft. This time, it wants 899 Million Euros. The EC again asserted that Microsoft is violating European competition laws.

The EC alleged in a release that this action is a "fine" for Microsoft for it "non-compliance with its obligations under the Commission’s March 2004 Decision"

The EC demanded back in 2004, among other things, that Microsoft license certain proprietary technology and intellectual property rights to its competitors. 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.

Microsoft then sought judicial review in Europe of the EC's 2004 action. On September 17, 2007, the European Court of First Instance (CFI) released its opinion [248 pages in PDF] upholding much of the EC's 2004 decision. See, story titled "European Court of First Instance Rejects Key Parts of Microsoft's Appeal" in TLJ Daily E-Mail Alert No. 1,639, September 14, 2007.

The EC's Nellie Kroes (at left) stated in the EC release that "I hope that today's Decision closes a dark chapter in Microsoft's record of non-compliance with the Commission's March 2004 Decision and that the principles confirmed by the Court of First Instance ruling of September 2007 will govern Microsoft's future conduct".

An alternative interpretation of the EC's latest action against Microsoft, and its pending action against Intel, is that these are the beginning of a dark chapter of EC regulation of U.S. technology companies, under the rubric of competition law, in the absence of any mergers, acquisitions, or collusive conduct among competitors, and without regard for economic analysis of the underlying single firm conduct.

See also, 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's release is short. The EC also released a second short release in question and answer format. The EC released no accompanying order, opinion, report, or memorandum. The release does not articulate arguments regarding how this latest action might reduce anti-competitive behavior, maximize consumer welfare, or promote innovation.

The EC wrote only that "the interface information of how to ``communicate´´ with Microsoft’s PC and server operating systems that Microsoft refused to disclose to its competitors, is vital for them to viably compete in the market for work group server operating systems and to be able to bring innovative products to that market."

On February 21, 2008, Microsoft announced in a release and news conference that it is implementing four new interoperability principles. See, story titled "Microsoft Announces Commitment to Open Connections" in TLJ Daily E-Mail Alert No. 1,722, February 25, 2008.

The EC, which is regulating by news release, responded in release dated February 21. It wrote that "This announcement does not relate to the question of whether or not Microsoft has been complying with EU antitrust rules in this area in the past. The Commission would welcome any move towards genuine interoperability. Nonetheless, the Commission notes that today's announcement follows at least four similar statements by Microsoft in the past on the importance of interoperability."

The release continues that "In January 2008, the Commission initiated two formal antitrust investigations against Microsoft -- one relating to interoperability, one relating to tying of separate software products". See, EC release of January 14, 2008, and story titled "EC Again Targets Microsoft" in TLJ Daily E-Mail Alert No. 1,700, January 15, 2008.

The EC's February 21 release continues that "In the course of its ongoing interoperability investigation, the Commission will therefore verify whether Microsoft is complying with EU antitrust rules, whether the principles announced today would end any infringement were they implemented in practice, and whether or not the principles announced today are in fact implemented in practice. Today's announcement by Microsoft does not address the tying allegations."

"In its Microsoft judgment of 17 September 2007 the Court of First Instance established clear principles for dominant companies with regard to interoperability disclosures and the tying of separate software products" the EC wrote in its February 21 release. "In January 2008 the Commission initiated two formal antitrust investigations in order to verify whether Microsoft is complying with the principles established by the Court."

The February 21 release then restates information contained in the January 14 release.

Commentary. The EC has a record of enforcing its competition laws to reduce anti-competitive behavior involving collusion among competitors. Those actions are explainable. In contrast, explaining its actions involving single firm conduct by technology companies is more difficult.

One hypothesis would be that its actions are grounded in economic analysis and expert application of competition law. However, the EC has failed to articulate sound economic rationales for its actions. Moreover, U.S. antitrust agencies, which possess superior resources and expertise in economic analysis to the EC technology regulators, have taken no parallel actions. Indeed, some US officials have politely criticized the EC in public statements and speeches and offered more colorful characterizations in discreet communications.

A second hypothesis would be that EC regulators are abusing antitrust enforcement powers to benefit EC companies, to the detriment of US technology companies. However, to date, the EC has primarily targeted US companies in a manner that benefits their US competitors. A related hypothesis would be that the EC is laying the groundwork for a regime that will in the future be used to compel to US companies to transfer proprietary rights and secrets to EC companies, to compel unbundling by US companies for the benefit of EC companies, and to regulate prices charged by US companies to companies and consumers in the EC.

A third hypothesis is that the EC is building an additional tax on foreign technology companies. For example, the EC stated in one of February 27 releases that the money that it confiscates from Microsoft will be "paid into the EU Budget" and that this "reduces the contribution from Member States".

A fourth hypothesis would be that the EC seeks to establish itself as the global regulator and planner of new technologies. For example, Kroes, the EC Competition Commission, stated in a speech earlier this month that "we want to exercise appropriate political influence on the global scene" and "we have to ask ourselves how best to keep a grip on global actors in a global economy". Perhaps Kroes believes that Brussels bureaucrats would be good at planning the global economy. Alternatively, perhaps she believes that getting a grip on global technology companies would increase the business opportunities of Brussels based lawyers, lobbyists, consultants, and regulators.

TLJ offers no assertions as to which, if any, of these hypotheses are correct.