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EU court rejects Microsoft appeal against interoperability fine

Out-Law News | 27 Jun 2012 | 12:14 pm | 4 min. read

Microsoft has lost its appeal against a ruling that it had not complied with the EU competition regulator's demands that it do more to help rival technologies achieve interoperability with its technology.

The Second Chamber at the EU General Court said that Microsoft should be fined but reduced the fine due from €899 million to €860m.

The Court made that decision after determining that the European Commission had led the company to "believe that it could continue to restrict the distribution of products developed by its competitors on the basis of non-patented and non-inventive interoperability information" until the EU General Court's Court of First Instance had made its original ruling on the question of non-compliance with the Commission's instructions.

Microsoft was fined because of its failure to comply with a 2004 decision from the Commission which found that Microsoft had behaved in an anti-competitive manner. That decision contained instructions for Microsoft on how it had to behave in the future, however the Commission found that it was not until October 2007 that the US software giant complied with those instructions. It fined it €899 million for that non-compliance on top of the €497 million fine originally levied in 2004.

The original sanction was connected to Microsoft's dominance of the market for personal computer operating systems. The Commission had said that it had used its 95% market share to stop rivals' technology from gaining a foothold. It, and the General Court in its original ruling, found that Microsoft had failed to give rivals the information needed to make sure their technology worked with Microsoft Windows operating systems on reasonable terms. It also found that the inclusion of media playing software in the Windows package undermined competition from other media software producers.

The Court of First Instance backed that ruling in September of 2007 and the Commission issued its €899m fine in February 2008.

The Second Chamber has now upheld the Court of First Instance's findings, but revised down the total fine Microsoft will have to pay for its non-compliance with the Commission's 2004 orders.

The Court said that, subsequent to the 2004 decision, Microsoft had declined to license rivals access to "non-patented elements" connected to its software without forcing them to take a license for its "patented technologies" too.

"The Commission made it clear to Microsoft that the tying of licences for non-patented and patented technologies was contrary to Microsoft's obligations under Article 5 of the 2004 decision in the absence of any objective justification for such tying," the General Court said in its ruling. 

"The Commission also made clear that, if a potential licensee did not believe that it was necessary to have a licence over Microsoft's patented technologies in order to develop products that would interoperate with Microsoft's client PC operating systems, that licensee had to be free not to take such a licence and run the risk of proceedings being taken against it before the national courts if it infringed those patents," it added.

"In those circumstances, the agreement given by the Commission following Microsoft's clarification [of the issue in July 2005] expressed only the Commission's interpretation, namely that the clarification in question allowed potential licensees the right to choose the elements in respect of which they wished to take a licence, while a refusal on their part to take a licence for the patented elements did not mean that Microsoft could refuse to grant a licence for the non-patented elements."

"Thus, the re-emergence of the issue in January 2007 is merely the consequence of Microsoft continuing to interpret its clarification in a way contrary to that intended by the Commission and potential licensees and not the consequence of any alleged agreement given by the Commission on 13 July 2005," the ruling said.

Microsoft's claim that the restriction was justified on the basis that some of the terms protected rivals from being subject to legal action by the company was rejected by the Court.

"Irrespective of the fact that licensees are in a better position than Microsoft to make the most appropriate choices for protecting their interests, it is for licensees to assume the risks related to their assessment of what are necessary patent claims in the context of the development of products that are interoperable with Microsoft products," it said. "As it is, the Commission clearly stated from the start that the grant of licences under the No Patent agreement was without prejudice to Microsoft's patent rights under its patents."

In revising the fine due to be paid by Microsoft the General Court took into account a letter sent by the Commission to the company in June 2005.

The letter expressed concern that Microsoft was not complying with a part of its 2004 decision to allow rivals access to its interoperability information on non-discriminatory terms. However, the General Court said that the Commission's letter could be viewed as permitting Microsoft to place a temporary restriction on the distribution of 'open source' software stemming from rival developers' reading of its interoperability information. This was a factor the Court took into account when revising down the fine owed by the company.

As well as the €497m fine in 2004, the Commission had previously also fined the company €280.5m for its failure to supply complete interoperability information to the regulator. The fine was levied at a rate of €1.5m a day for each of the 187 days of non-compliance that had elapsed between the original order and that fine.

The European Commission is responsible for investigating possible abuses of dominant market position under the Treaty on the Functioning of the European Union (TFEU).

Such abuse can include by "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage" amongst other possible abuses, the TFEU states.