InsideCounsel » January 2008
Tech Takedown
In the wake of the Microsoft decision, the EU targets tech companies for antitrust violations.
For years Article 82 of the European Community Treaty—the provision that outlines improper conduct for companies with market dominance—languished in a state of uncertainty. Defined through a series of 30-year-old court cases, the article wasn’t the regulatory tool the modern-day European Commission wanted. Several years ago the authority decided to review Article 82 and focus its efforts on “exclusionary abuses”—company conduct that bars competitors from the market.
“[I]t is sound for our enforcement policy to give priority to so-called exclusionary abuses, since exclusion is often at the basis of later exploitation of consumers,” said European Competition Commissioner Neelie Kroes in a 2005 speech on Article 82 policy review. “I will therefore focus on exclusionary abuses.”
The Commission seems to be making good on its promise. Recently it has been targeting market-dominant technology companies for allegedly excluding competition through questionable IP practices. The Commission’s most notorious such matter concluded back in September when the agency defeated Microsoft Corp. on allegations that its refusal to share its IP excluded competitors. To show it meant business, the Commission levied a whopping $613 million fine against the company, which a court upheld.
For U.S.-based market dominators, the Microsoft case should serve as a clear warning—if you’re protecting your IP at the expense of market competition, be prepared to take on the Commission.
“The Microsoft judgment has given a boost of confidence to the Commission in relation to applying Article 82 to the technology sector,” says Ian Forrester, partner at White & Case and co-lead attorney on the Microsoft case.
Lowering the Bar
Winning the Microsoft matter was crucial for the Commission because it established a precedent that gave the regulatory body the ammunition to take down other EU market leaders for their licensing practices.
Specifically, one of the allegations against Microsoft was that the company excluded its competitors from the market by refusing to license IP related to its server software interfaces. Those competitors, which included Sun Microsystems, claimed the lack of disclosure barred them from creating and selling their own additional features to Microsoft’s software.
According to EU case law, a court can compel a company to share its IP with competitors if the facts of the case satisfy a two-pronged test. First, the IP in question must be indispensable for the development and production of a new product for which there is consumer demand in a related market. The facts of the Microsoft case met this part of the test.
The second part of the test is that the refusal to license the IP must give rise to the elimination of the competition in that related market. Prior to the Microsoft judgment, the bar for this portion of the test was set high, requiring exclusion to be imminent. However the Commission argued to weaken this requirement, saying Microsoft’s actions were likely to exclude competitors in the future.
