Microsoft cases in the US and Europe. Mikko Välimäki

Transcription

1 Microsoft cases in the US and Europe Mikko Välimäki

2 Structure Competition policy and IPRs US v. Microsoft Bundling, and other issues Commission v. Microsoft Bundling and interoperability Comparison - what next?

3 Competition policy and IPRs

4 Levels of regulation No global competition policy! (political impossibility) Regional policies: EU policy and US policy National policies elsewhere (also within Europe)

5 US Sherman Act, 1 & 2 Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

6 EU art 81 1/2 (1) The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. (2) Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

7 EU art 81 2/2 (3) The provisions of paragraph 1 may, however, be declared inapplicable in the case of: - any agreement or category of agreements between undertakings; - any decision or category of decisions by associations of undertakings; - any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

8 EU art 82 Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

9 Are IPRs anti-competitive? An exclusive right as such is deemed to be in accordance with competition policy The use of the right may be deemed anticompetitive in specific factual situations Written laws are very abstract and high-level, to answer a practical question one must look into case law And even here, most cases are based on individual facts of the case...

10 US v. Microsoft

11 Context: browser wars

12 Windows 95 + Internet Explorer

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14 Case history Filed 1997, based on violation of an anticompetition agreement approved in 1995 Ruling 2000: MS monopolized markets, attempted to monopolize them and bundled Explorer to Windows against anti-trust laws Remedy: company must be split in two: operating systems and other software Appeal later that year: only monopolization claim remained

15 In light of the monopoly maintenance section, obviously, we do not find that Microsoft s integration is welfareenhancing or that it should be absolved of tying liability

16 Spreadsheet market: did Microsoft compete fairly?

17 Market share Source: Liebowitz & Margolis (2001)

18 Prices

19 Quality (ratings)

20 Word processor market: did Microsoft compete fairly?

21 Market share

22 Prices

23 Quality (ratings)

24 so...?

25 Microsoft price effect

26 Dear President Clinton: Antitrust is supposed to be about protecting consumers against higher prices and other consequences of monopoly power... The current spate of heightened antitrust activism seems to suggest that anti-competitive business practices abound... However, consumers did not ask for these antitrust actions rival business firms did. Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new products and innovations... these same developments place heavy pressures on rival businesses, which must keep pace or lose their competitive races. Rivals can legitimately respond by improving their own products or by lowering prices. Increasingly, however, some firms have sought to handicap their rivals races by turning to government for protection. Antitrust protectionism means that market decisions about how to compete for consumers favor are displaced by bureaucratic and political decisions. More of the energies of firms are directed to politics, less to production and innovation. Successful innovators are penalized, scale economies are lost, and competition is thwarted, not enhanced. Instead of preventing prices from rising, antitrust protectionism keeps prices from falling... We urge anti-trust authorities to abandon antitrust protectionism and refrain from such speculative enterprises when actual consumer harm cannot be shown. NY Times, June 2, 1999, signed by 240 economists

27 The economic analysis presented by the government was internally inconsistent, based on unsound economic theory, and conflicted with the facts. The government refused to acknowledge that the relevant antitrust market was software platforms - not operating systems narrowly defined - even though its case was mainly about Microsoft s efforts to ensure that Windows would remain the leading platform... In the end, the court found a relatively narrow set of actions to be anticompetitive... there was no evidence in the record that the subset of actions found unlawful had a material effect on Netscape, let alone on consumers or competition. Schlamansee et al, Microsoft s economic advisors

28 Final error I think [Mr Gates] has a Napoleonic concept of himself and his company, an arrogance that derives from power and unalloyed success, with no leavening hard experience, no reverses Judge Jackson gave a series of secret interviews to the New York Times and the New Yorker magazine in the months leading up to his final judgement in June last year. Published after his judgement was released, the interviews clearly show that the judge regarded Microsoft with distaste while the original case was proceeding, the appeals court said. BBC news

29 Also of note...

30 Settlement Late 2001 Microsoft settled the case with the Department of Justice No company split-up No bundling restrictions (as far as other applications can be installed) A three-judge panel set to monitor Microsoft keeps programming interfaces open to rivals

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32 Commission v. Microsoft

33 Context: media player war

34 Case history As in the US, rivals complain to competition law authority that Microsoft is extending its operating system monopoly to the markets of application software Real Media complains of media player integration However, also another argument is further developed: Sun and others complain about secret interfaces that make interoperable programs difficult to develop

35 Settlements SAN FRANCISCO, CA, April 2, 2004 Microsoft Corporation (NASDAQ: MSFT) and Sun Microsystems, Inc. (NASDAQ: SUNW) today announced that they have entered into a broad technology collaboration arrangement to enable their products to work better together and to settle all pending litigation between the two companies. SEATTLE Oct. 11, 2005 Microsoft (Nasdaq MSFT ) and RealNetworks, Inc. (Nasdaq RNWK ) today announced three agreements valued at $761 million to RealNetworks to settle their antitrust case and create a new partnership to innovate and promote consumer choices in digital music and games.

36 Commission decision Commission decision 2004: Microsoft must remove Media Player Microsoft must open up, license and document Windows interfaces While Real, Sun and others have left the case, Commission continues with new interventions, most notably Free Software Foundation Europe

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38 Interoperability is the secret > 90%

39 Software copyright directive Article 6: The authorization of the rightholder shall not be required where reproduction of the code and translation of its form... are indispensable to obtain the information necessary to achieve the interoperability of an independently created computer program with other programs Conditions: legal copy, information not available, only interoperable parts, only interoperability as goal... Main limitation: only software copyright

40 Prior competition cases In exceptional circumstances it is possible to grant a compulsory license when a dominant company refuses to license (ECJ cases Magill 1995, IMS Health 2004) its intellectual property Refusal prevents introduction of a product for which there is potential demand Refusal monopolizes a separate secondary or downstream market There is no objective justification

41 Real problem: patents Microsoft considers that the software source code developed by recipients of the interoperability information that implements the Microsoft protocols should not be published under a so-called open source licence. The Commission nevertheless considers that, if the Court of First Instance rules in favour of the Commission in the pending application for annulment filed by Microsoft (case T-201/04), this should be possible for the protocols that do not embody innovations.

42 2004 decision More interventionist approach: on balance, the possible negative impact of an order to supply on Microsoft s incentives to innovate is outweighed by its positive impact on the level of innovation of the whole industry (including Microsoft). As such, the need to protect Microsoft s incentives to innovate cannot constitute an objective justification that would offset the exceptional circumstances identified. Existence of patents is not a valid objection? Competition within market > competition for the market?

43 Court of First Instance 2007 Essentially affirmed commission s decision Both tying and interoperability issues Decision is based on the facts of the case! Commission need not wait until competitors are eliminated from the market United States attorney general commented that the European Microsoft decision may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.

44 Windows Media Player (WMP) is not part of the multimedia infrastructure 19

45 WMP is a multimedia application 20

46 Comparison - what next?

47 Comparison In the US, competition policy is closer to politics A key event in the MS case was the election of a new president European approach emphasizes the benefits to both the consumers and the industry: if the industry as a whole would lose more from limited competition compared to the benefits of lower prices etc. to consumers, it makes sense to intervene; in the US, this may not imply intervention under the current administration

48 What next? A settlement after the CFI decision made between Commission and Microsoft so not appeal processes; licensing terms based on the settlement now public In the US, department of justice continues to monitor MS and other companies in the high tech industry but any actions are unlikely under the current administration

49 Windows Vista January 2007, Microsoft decided make a number of changes for upcoming service pack 1 under commission pressure: Open security interfaces Transparent search engine choice File format license allows free software implementations

50 (1) On bundling: These changes now ensure for users that they are able -- through a series of windows and options -- to make a clear, conscious, and open decision on their default search provider. Furthermore, users will retain at all times the ability to change this and all further defaults in the operating system at will, Microsoft said. (2) On compatibility: In response to the Commission s concerns, the company has made fundamental changes to the licensing structure of the XPS fixed-format technology and has committed to submit the technology to an international standards body for adoption as an open standard

51 In line with the Commission s obligations under the EC Treaty and its practice, the Commission will closely monitor the effects of Vista in the market and, in particular, examine any complaints concerning Vista on their own merits.

52 Competition and IPRs MS cases shows how slow, weak, and uncertain competition law enforcement is in practice The main effect obviously comes from voluntary measures and informal compliance Court of First Instance decision has started a debate how companies can best comply with competition law requirements