EU Microsoft Judgment Sparks IP Law Debate

By Dugie Standeford for Intellectual Property Watch
A European Commission ruling and record fine was upheld Monday against US software giant Microsoft for breaching European antitrust laws in a judgment that will have repercussions for intellectual property owners far beyond the case itself, experts said.

The European Court of First Instance upheld the €497 million fine and the 2004 ruling by the Commission that Microsoft had, among other things, refused access to rivals to IP-protected information needed for developing interoperable products.

The Commission defined interoperability information as a detailed technical description of certain rules of interconnection and interaction that can be used within Windows work group networks to deliver work group services, the court said. The definition did not, however, include source code.

The Commission’s aim in pursuing Microsoft was to remove the roadblock to competition created by the lack of interoperability between Windows domain architecture and others’ work group server operating systems, the court noted. The Commission rejected Microsoft’s claim that the degree of interoperability sought was actually intended to allow rivals to clone or reproduce its products, the court said.

Companies are generally free to choose their business partners, but in some circumstances, the refusal by a dominant enterprise to supply information may amount to an abuse of its position, the court said. Before refusal by an IP rights-holder to license a third party to use a product can be characterised as abuse, however, three conditions must be met, the court noted. The refusal must relate to a product or service indispensable to the exercise of an activity on the neighbouring market; it must be of such a kind as to exclude effective competition on that market; and it must block the appearance of a new product for which there is potential consumer demand. The Commission rightly considered those conditions were met, the court said.

The court rejected Microsoft’s argument that its refusal was justified because the technology is covered by IP rights, saying such a justification would render the principles set by case law ineffective. Moreover, it said, Microsoft failed to show that disclosure of the information would hamper its incentive to innovate.

Tech Industry Fears

The Commission said it would consider the judgment’s implications for future antitrust enforcement but noted that “this is an exceptional case with extremely harmful abuses by a company in a quasi-monopolistic position on a market.”

“You may hear scare stories about the supposed negative consequences of this ruling for other companies and for innovation on the market,” said Competition Commissioner Neelie Kroes. However, she said, the court noted that Microsoft failed to show the decision would harm its ability to innovate. The only company that will have to change its illegal behaviour as a result of the decision is Microsoft, she said; others will benefit from the increased competition.

Several analysts disagreed.

The decision has far-reaching implications well beyond the interoperability issues at stake, said Michel Debroux, an antitrust attorney with Hogan & Hartson in Paris. It will affect every IP holder whose product has become a market standard, he said.

Although the three conditions for considering a refusal to license IP rights abusive must still be met, the ruling gives the impression that they will be “more flexibly interpreted” than they have been, Debroux said. The case is likely to raise a “high degree of expectation” from Microsoft competitors and to spark more requests for access to the company’s interoperability information, he said. It also opens the door, albeit not widely, for rivals to obtain access to IP-protected material related to other leading products, he said.

Anyone who develops a very successful product and wins substantial market share based on it may be forced to give third parties access to integrate with it – not only in situations of near market monopoly but also in situations where a particular player has particular market strength, said David Mitchell, Ovum senior vice president, information technology research. “This has real practical implications,” he said.

Not every product is designed from the ground up to allow third-party access, Mitchell said. Putting in such access at later stages is very difficult, as the Microsoft case shows. The judgment may well mean that many technology companies will have to think differently about their IP assets, pushing interoperability into the very early stages, in case their products become successful. But that raises questions about how interoperable products must be and who decides what adequate interoperability is, he said.

The more disruptive technologies emerge from the research and development labs of large and small players, the more there will be a focus on ensuring that the IP assets are defined from the start with interoperability in mind, said Mitchell. The Microsoft ruling “signals that IP lawyers are going to be very busy over the next few years,” he said.

The European Commission argued that only significant, not dominant, market share is cause for an antitrust investigation, said Jonathan Zuck, president of the Association for Competitive Technology, of which Microsoft is a member. Setting the antitrust bar so low means there is no guarantee that a company’s IP cannot be taken by competitors under the banner of interoperability, he said.

But the Free Software Foundation Europe (FSFE) dismissed charges the decision will harm IP owners.

“This fear-mongering claim is without merit,” said FSFE’s Ciaran O’Riordan. The antitrust case arose because Microsoft abused its dominant position as holder of 95 percent market share with 80 percent profits spanning more than a decade. “There are no other companies in the communications or networking sectors, where interoperability is so essential, that match this profile,” he said.

The judgment can be appealed to the European Court of Justice within two months, on points of law only. Microsoft said Monday it was reviewing the lengthy ruling and had not decided on its next move.

Dugie Standeford may be reached at info@ip-watch.ch.