Commission tackles Microsoft again over product bundling

The Commission has sent a statement of objections to Microsoft outlining its case that the software giant is acting in breach of EU competition law.

The case mirrors that which the Commission took against Microsoft over its bundling of media player software with Windows. In 2004 it imposed sanctions and fined Microsoft €497 million over the market abuse, a decision that was later backed by the courts. In 2007 it fined Microsoft a further €899 for failing to comply with the sanctions. Microsoft is appealing that fine.

A copy of the web browser Internet Explorer (IE) is included in all copies of Windows. The Commission said that this erodes competition in the market for browser software.

"The evidence gathered during the investigation leads the Commission to believe that the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world's PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match," said a Commission statement.

"The Commission is concerned that through the tying, Microsoft shields Internet Explorer from head to head competition with other browsers which is detrimental to the pace of product innovation and to the quality of products which consumers ultimately obtain," it said.

The move was prompted by a complaint from Opera, a small, Norwegian web browser company. "We commend the Commission for taking the next step towards restoring competition in a market that Microsoft has strangled for more than a decade," said Opera chief executive Jon von Tetzchner. "The Commission’s Statement of Objections demonstrates that the Commission is serious about getting Microsoft to start competing on the merits in the browser market and letting consumers have a real choice of internet browsers."

Opera's complaint was not just about competition, though. It said that Microsoft should be forced to make its browser comply with the same technical standards as other browsers so that web developers could be sure that their code worked on all browsers and would not have to write code particular to IE.

The Commission said that the tying of IE into Windows did change the way producers of information behaved.

"The Commission is concerned that the ubiquity of Internet Explorer creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer which ultimately risks undermining competition and innovation in the provision of services to consumers," it said.

The action is being taken under Article 82 of the EC Treaty and the Commission will follow recently-formulated guidelines on how to conduct those kinds of action.

"The Commission has recently published new guidance on its enforcement priorities under Article 82," said competition law specialist Christina Day of Pinsent Masons, the law firm behind OUT-LAW.COM. "The key message here is the consumer welfare issues are central to the Commission's initiation of any Article 82 investigation."

Day said that the Commission had been given new powers in 2003 to deal with competition breaches which allowed it to impose structural remedies when lengthy proceedings were likely to cause harm to consumers. Day said, though, that those new rules were unlikely to be used in this case against Microsoft.

Day said that companies which might one day fall under investigations such as this should be careful about how they discuss their plans, even internally.

"The competition authorities have very wide-ranging powers to get hold of documents.  Accordingly, those companies with a potential dominant position should be cautious when documenting their strategic plans in reports and presentations as these may fall under the Commission's scrutiny if it attempts to gather evidence of any anti-competitive strategy," she said. "For example, in [the previous Microsoft case regarding Windows Media Player (WMP)], the Court considered certain internal documents which the Court considered to be direct evidence of Microsoft's intention that integrating Windows and WMP would make WMP more competitive with RealPlayer."

The Commission's argument over IE was made previously by the US Government. In 1998  the Department of Justice brought antitrust proceedings against Microsoft over the company's bundling of IE with Windows. The Government argued that its bundling eliminated competition, including from the former market leader, Netscape Navigator. In 2001 the parties reached a settlement that was approved by court in 2004. The terms of settlement required the supply to third parties of certain interoperability information, but included neither a fine nor a restriction on its bundling of IE.