Archive for the ‘Market News (and AT Implications)’ Category
Vice-President Almunia has just made it clear that the Commission will accept the third version of Google’s proposed commitments. In his words, ”the new proposal obtained from Google after long and difficult talks can now address the Commission’s concerns. Without preventing Google from improving its own services, it provides users with real choice between competing services presented in a comparable way; it is then up to them to choose the best alternative. This way, both Google and its rivals will be able and encouraged to innovate and improve their offerings. Turning this proposal into a legally binding obligation for Google would ensure that competitive conditions are both restored quickly and maintained over the next years.”
The Commission’s press release is available here.
What happens now is that the Commission will send complainants a letter (pursuant to Article 7(1) of Regulation 773/2004 informing them that the Commission has obtained what it considers adequate commitments and that in its view there are no longer grounds to pursue the case. They will then have a chance to complain again. The Commission will then adopt a number of decisions: one under Art. 9 of Regulation 1/2003 in order to make those commitments binding, and a number of decisions rejecting all complaints received. I suppose that Google’s very active and well funded rivals will want to appeal those decisions before the General Court (with, I believe, arguable chances of success after the Court’s recent ruling in Microsoft/Skype, which was extremely favorable to Google for reasons that I might explain in a later post). This is, by the way, the outcome we always predicted.
In my personal opinion, this is a wise move on the part of the European Commission. However, it’s unlikely that the Institution will receive much praise: some will say that it demanded too much from Google (particularly given the US precedent), many others will say it’s been too lenient, some will say the investigation took too long, others will claim that it was incomplete. The fact that they will be criticized from both sides may actually suggest that perhaps the Commission has done something right.
As you know, I was never a big fan of the case (see here, here or here among others), but I always saw the proposed commitments (even in their first version) as a balanced attempt at putting and end to it getting the Commission what it wanted without introding too much in Google’s innovative business model. For my analysis of those commitments (as forecasted, despite some improvements the essence doesn’t appear to have varied since then) see here and here.
It will be interesting to discuss this development in the course of the upcoming AIJA conference on antitrust and technology in Bruges this weekend.
[Note by Alfonso: A few weeks ago I wrote a brief post regarding one particular aspect of the Commission’s press release about the Microsoft/Nokia decision that caught my attention. Before posting it, I discussed the matter with two of my
bosses’ colleagues: Luis Ortiz Blanco and Marcos Araujo, both with significantly more merger experience than myself, and both of whom initially agreed with the point I was trying to make. A few days ago this question came up again, and I managed to extract from Luis the commitment that he would write his views on a guest post here (all previous attempts to get him to do that and a Friday Slot interview were unsuccessful…). Luis needs no introduction; he’s an exceptional person, professor, lawyer, and was even also one of the best men at my wedding... He’s also the reason why I work in competition law, but that's a long story. I leave you with him].
Readers of this blog may by now be familiarized with Alfonso’s and Nicolas’ well-known “persistence”. I admit to be and old-school guy, more prone to do my writings with time, pen and paper rather than swiftly and informally on blogs, but this time they caught me off guard and suggested an interesting topic, so here I am, giving blogging a try.
Despite the title of this blog entry, my intention is not to comment on the Microsoft/Nokia decision specifically, not the least because the decision is not yet available and I have not directly or indirectly worked on the case. My intention is to discuss an interesting theoretical point that appears to have arisen in that case and that prompts very relevant legal question for practitioners, academics and competition authorities which go beyond the facts of a given matter: do or should merger control rules and remedies apply also to impediments to competition that a transaction may generate on the seller’s side?
Alfonso already touched on this issue in a previous post. In my view, he rightly identified what I also see as an erred reasoning in the European Commission’s press release, according to which:
- “The Commission considers that any possible competition concerns, which might arise from the conduct of Nokia, following the transaction, in the licensing of the patent portfolio for smart mobile devices which it has retained falls outside the scope of the EU Merger Regulation. The Commission cannot take account of such concerns in the assessment of the current transaction. Indeed, Nokia is the seller whereas the Commission’s investigation relates to the merged entity.
Now, do really merger control rules really relate only to the merged entity, to the exclusion of the seller?
Prior to providing you with my answer to this question, I would remark that, in my experience, it is most unusual to see the European Commission (or any other competition authority for that matter) self-limiting its own powers. Competition enforcers often tend to do the contrary, that is, to explore the powers they have, even if at the risk of perhaps going beyond them at times.
If among the readers of this blog is the one person that bought my book Market Power in EU Antitrust Law, she or he might recall the criticism I directed (pp. 77-78) at a few cases (ExxonMobil, and particularly at Grupo Villar Mir/EnBW/Hidroelectrica del Cantábrico and EnBW/EDP/Cajastur/Hidrocantábrico in relation to the ‘third-party dominance theory”) in which the Commission had intervened aggressively on the market in order to address effects unrelated to the transaction. In those cases the Commission extended and arguably exceeded its powers because of its will to address what it saw as a competitive problem. In its Microsoft/Nokia press release, however, the Commission does the contrary: it appears to restrain or limit the powers it has in order to justify not evaluating what many saw as a competitive problem.
This stance is all the more surprising if one recalls that in the past the Commission has accepted/required some “soft commitments” in Oracle/Sun and, in a more similar setting, on the part of Google at the time it acquired Motorola Mobility. The theory of harm in both the latter case and Microsoft/Nokia related to the alleged possible anticompetitive use of patent portfolios. If anything, Microsoft/Nokia would seem to give rise to increased suspicion [the deal was structured in a way that has resulted in an unusual situation: Microsoft buys Nokia’s mobile device business but not valuable mobile device patents, which it will only license. Nokia, in turn, will be under pressure to assert its patents aggressively, may possibly also act under the influence of Microsoft, and would be immune from possible retaliatory strategies because it will not manufacture smartphones anymore. The move is smart, but, in my personal view, maybe also a bit obvious too].
The sole argument seemingly adduced by the Commission to justify its different treatment of the two deals seems to be the precisely the one we are discussing in this post. But, think for a second, would it make sense to endorse an interpretation of the merger regulation that would enable parties to avoid scrutiny by carefully tailoring the structure of a deal?
Now, and more importantly, why do I say that the Commission must have the power to assess the effects of a merger on the selling party?
First of all, because it makes sense. If a merger does affect the incentives of the players in a given market in such a way that competition may be significantly impeded, there would seem to be no valid reasons for competition authorities not to look at the problem and, where necessary, accept (i.e. demand) commitments The contrary would undermine the effectiveness of the merger control system. Why could not the Commission condition the authorization of a transaction to a commitment from one of the parties to it (the seller)?
Secondly, because as Alfonso pointed out in his previous post, the letter of the Merger Regulation supports this idea. He referred to recital 25 of the Horizontal Merger Guidelines; I would also argue that the references in articles 6(2) and 8(2) to “modifications [of the concentration] by the undertakings concerned” shall logically encompass the parties to the transaction (the only ones that can modify it), which obviously would include the seller.
Thirdly, because the Commission’s practice reveals that in the past remedies have been required from the selling party. Think of cases such as E.ON/MOL, where the commitments accepted by the Commission concerned the seller (interestingly, the commitment was drafted in a way such that E.ON would “undertake to procure MOL to dispose of [certain shares in the transferred companies]’. Think also of Alcatel/Telettra, where assurances by a third-party (Telefonica) were relied on by the Commission in accepting commitments. This is not to mention the cases in which the Commission relied on Member State’s (i.e. third parties) assertions and declarations of intentions in support of certain commitments.
Perhaps the Commission would benefit from a third party appeal (not that these have been successful lately) prompting the Courts to rule that the Institution has more powers than it now purports to have. Once again –just like it happened in Camera Care regarding interim measures (a story that I always like to tell my students about)- the Commission could experience the serendipity of obtaining increased powers without even seeking them.
As you know, a few days ago the European Commission unconditionally authorized the Microsoft/Nokia deal. I’m looking forward to reading the decision, which isn’t yet public. Whereas I expect to see nothing odd in there, a doubt did spring to mind when reading the press release last week.
When explaining its approach to the concern that Nokia could become a troll-like entity, the Commission’s Press Release says the following:
“The Commission considers that any possible competition concerns, which might arise from the conduct of Nokia, following the transaction, in the licensing of the patent portfolio for smart mobile devices which it has retained falls outside the scope of the EU Merger Regulation. The Commission cannot take account of such concerns in the assessment of the current transaction. Indeed, Nokia is the seller whereas the Commission’s investigation relates to the merged entity. However, the Commission will remain vigilant and closely monitor Nokia’s post-merger licensing practices under EU antitrust rules, in particular Article 102 (…)”. (Emphasis added).
Please correct me if I’m wrong, but isn’t that a wrong/arguable over-simplification? (although, to be sure, it wouldn’t be a crime for a press release to over-simplify). Does merger control really relate solely to the merged entity to the exclusion of other actors in the market? Isn’t it rather about the effect that the transaction may have on the structure of the market? I mean, can’t the Commission assess the effects that a concentration would cause on the market power of parties to the transaction as well as on that of third parties? Perhaps the press release only intended to refer to the Commission’s remedial powers, and not to its assessment powers, but even assuming that, the short explanation may be incorrect. Although infrequent, third party post-merger conduct may be potentially relevant in deciding a case.
Look, for instance, at recital 25 of the horizontal merger guidelines “under certain circumstances, concentrations involving the elimination of important competitive constraints that the merging parties had exerted upon each other, as well as a reduction of competitive pressure on the remaining competitors, may even in the absence of a likelihood of coordination (…) result in a significant impediment to effective competition”.
Don’t get me wrong: I’m not challenging the outcome of the Decision (it seems prima facie reasonable for the theory of harm at issue in that case to be monitored ex post), but, in my view, the explanation would have had to do with “causality” (à la Tetra Laval or GE/Honeywell), not with the scope of merger control. Perhaps this would seem to make no practical difference in principle
(as we’ve learnt recently, in real life ends justify means, and reasonings aren’t really worth paying attention to), but inconsistencies in the formulation of policy positions might eventually come at a cost.
P.S. Following the advice of some of you, last night I created a Twitter account: @LamadridAlfonso; it’d now be nice to know how to use it and what for!
[Image possibly subject to copyright]
[Guest post by Pablo Ibañez Colomo]
It would seem that the Spanish super-quango is more active than one would have assumed (in particular given what is currently going on within the tax authority of the country). The newly-created CNMC has fined four football teams (including Real Madrid and Barcelona) and the broadcaster Mediapro EUR 15 million for concluding exclusive licensing agreements for a period exceeding three years. Such terms contravened a previous decision adopted by the – then – CNC in 2010.
The case is interesting, first, because the Spanish government passed (in 2010, at pretty much the same time that the original decision was adopted) legislation that set a four-year term for exclusive licensing agreements between teams and broadcasters. One could claim that, insofar as the contentious agreements complied with the relevant sector-specific legislation, they were concluded in good faith. Accordingly, the fine would be unjustified. In light (pun intended) of Consorzio Industrie Fiammiferi (pun intended, I’m on fire!), it is clear, however, that this is not a valid defence. Legislation did not preclude undertakings from concluding agreements for a shorter period and thus from complying with Article 101 TFEU (which was clearly applicable in this case).
A second reason why the case is interesting is because it shows that the three-year limit for exclusive licensing agreements is now set in stone. There is no reason why this should be the case. A three-year term is not necessarily pro-competitive. It all depends on the context in which the licensing agreement is concluded. If the goal of this bright-line rule is (as I assume) to preserve the contestability of markets for the acquisition of television rights, then it may sometimes be too short. A new entrant (as BSkyB was back in the early 1990s) may need a longer period to reduce uncertainty and recoup its investments. By ruling out any flexibility, a rigid interpretation of Article 101(1) TFEU can very well have the perverse effect of protecting the incumbent. These are the problems of applying competition law as regulation, which I highlighted elsewhere, and of assuming that UEFA Champions League, Bundesliga and Premier League were rightly decided, in spite of the overwhelming evidence suggesting the opposite.
Even though the allegations over the free distribution of Android have predominantly caught the public’s eye, the complaint also appears to argue that Android is a “Trojan Horse” (a non-innovative yet effective metaphor…) used to pre-load Google apps. According to FairSearch’s press release, “Android phone makers who want to include must-have Google apps such as Maps, YouTube or Play are required to pre-load an entire suite of Google mobile services and to give them prominent default placement on the phone”.
This is, at least at first sight, more interesting than the allegations about predatory pricing. Tying/bundling issues in the smartphone industry have so far received some attention from enforcers -remember the investigation involving Apple and Flash?- and academics, but not so much. And yet they raise antitrust questions that take the discipline outside of its comfort zone.
One of the problems with this leg of the complaint is that publicly available info is scarce and that some issues are fairly technical. So don’t take what we say for granted. This is no more than an exercise for me to brag about Enrique’s industry/technical knowledge to discuss a case in detail on the basis of knowledge that not everybody has (at least I didn’t), and that I thought was worth publishing here. At the very least it has helped me learn about the industry (for some odd reason I only reflect properly about things when I write about them…). As always, happy to discuss. Btw, the post is again lenghty because I haven’t had time to write a shorter one.
1) In search of the bundle
Our understanding is that Google does not preload its apps in Android (like Microsoft actually does, for instance, with Skype and SkyDrive in Windows). This means that OEMs are free to take the Android OS without having to pre-install any of Google’s Apps (for example, Amazon has done so with the Kindle, and so has Barnes&Noble with Nook; a number of other examples are mentioned here). Android’s code is publicly available here and all OEMs can do what they please with it.
If our understanding is correct, it’s only when OEMs wish to pre-load the Google Mobile Services suite (“GMS”) that they need to pre-install its “core-apps”. In sum, if OEMs want a non-Google Android experience they can have that. If they want a sort-of-Google experience on Android (i.e. if they want the GMS) then Google asks them to preload (on a non-exclusive basis: they can preload any others) a minimum set of apps. Accordingly, it’s difficult to argue that there is a bundle of Android+Apps; at most there could be only a bundle of apps.
[Intermission 1: It’s not easy to find out exactly what’s included in the GMS/ “core apps”. The references that we’ve found (page 12) seem outdated as, for instance, they refer to Android Market (now Google Play), Google Talk (now Hangouts) and call “apps” things that we understand are rather non-user facing services (like the service that synchronizes contacts or the calendar with the cloud)].
But is there really a bundle of apps? In order for “pure bundling” to exist it would be required that the components of the bundle are not also available outside of the bundle, but that doesn’t seem to be the case either. Most of the apps in the GMS can be obtained separately from the bundle and for free (that’s the case of Youtube or Google Maps).We may be wrong here, but we think that Google Play may be the only exception, or at least the only relevant one (on this, see our point number 2 below).
Finally, since OEMs’ decision will not be affected by any financial incentive on the part of Google (because the “core apps” in the GMS are all free of charge apps), there’s no mixed-bundling either.
[Intermission 2: in my view, and in contrast to this case, mixed bundling of proprietary non-free software by certain dominant firms can actually pose serious competition problems (due to the existence of market power, the ability to toy with monopoly prices, resale prohibitions, switching costs and higher barriers to entry) and nevertheless remains mostly unaddressed by enforcers, but that’s another story].
That said, the complainants may have a point in that most OEMs will in practice want to have the GMS (see below).
2) It’s all about Play
If any of the complainants were to read the reasoning above, they would probably respond: “sure, the choice for OEMs is theoretically there, but OEMs that choose Android would always want to have the GMS, because otherwise they wouldn’t have Google Play, which means that they’d be renouncing to the very large number of apps written for Android (indirect network effects, etc)”
[A bit of background: Google Play is an application clearinghouse, an Appstore or app marketplace. These apps are a repository of other apps that you can download with a simple click. This avoids users having to obtain software from every developer; instead, there’s an intermediary that facilitates finding/acquiring/installing software. The intermediary (Google in the case of Play, Apple in the case of Appstore, etc) obtains a percentage of sales of non-free apps and facilitates the sale of free ones].
We don’t know whether the complainants have focused on that point of not. If not, they should hire us to give them more ideas ;) . If they have –as we’d assume- then that’s a fair point.
And so what? On the other hand, however:
This is the second post in a series; click here for Post 1 (on background and dominance)
According to FairSearch (see here) “Google’s predatory distribution of Android at below-cost makes it difficult for other providers of operating systems to recoup investments in competing with Google’s dominant mobile platform“.
Unsurprisingly, this claim has spurred very strong reactions from the FOSS community, which regards it as a direct attack to the Open Source/FreeSoftware development model (see notably here, here and here). Android is indeed FreeSoftware, meaning not only that it is distributed for free, but also that it adheres to the so-called 4 freedoms: (i) the freedom to run the program, for any purpose; (ii) the freedom to study how the program works, and to adapt it to the user’s needs; (iii) the freedom to redistribute copies; and (iv) the freedom to improve the program and release the improvement to the public. This means that asking Google to start charging for Android would be akin to force it to stop supporting FreeSoftware.
A quick look, however, would reveal that this is a non-issue. It is undisputable that given Android’s FreeSoftware/public good nature Google doesn’t have the ability to set a price. The price is 0.
There are certainly interesting pricing issues to be discussed in the software industry, but, in our view, they arise with respect to proprietary software, not free software.
This should be enough to end the discussion, but if this interests you, click on the hyperlink below for more developed thoughts (if you’re lazy you can just stick to the arguments in bold to get the general idea):
At Chillin’Competition we have paid considerable attention to a number of IT-related competition developments, and –like most other followers of these matters in Europe and elsewhere- we have shown predilection to comment on the pending EC investigation over Google’s search practices. Nicolas, Pablo Ibañez-Colomo and myself have devoted tenths of posts to offering our –often conflicting- views on a number of issues raised in that case.
We –or at least I- had until now not really paid attention to the more recent FairSearch complaint regarding Android, and this despite the repeated warnings of Enrique Colmenero (our new associate and a geek who knows a bit about Android (he says not sufficiently well, I say it’s unbelievable), who was also the real author of my Google ppt), and who kept on telling me that the allegations in this complaint merited some public discussion. I first looked into it last week while writing the post about Skype’s integration with Windows, and realized that he’s right.
Given that all things Google raise the number of visits to the blog and spur more debate than other topics, we’re decided to comment on this yet non-case. We devoted a weekend to writing our preliminary views, and since the result is fairly lengthy we’ll be breaking the discussion into three separate posts: Today we will provide some background and deal briefly with market definition issues. Tomorrow we’ll discuss the predation claims. And Monday we’ll address the bundling allegations.
Before getting into substance, four disclaimers are necessary. The first is that by myself I wouldn’t have had the required technical knowledge to comment about this, so I’m borrowing Enrique’s (any errors, however, are only mine). The second is that we are not working for any party interested in this case and therefore comment on the basis of publicly available info (for fuller disclosure, some time ago I had two chats with someone on the complainants side as well as with someone working for Google; in both cases they let me know their views on the complaint). The third is that since we don’t want this blog to be a place to discuss cases in a seemingly one-sided way (much less when they are ongoing, like this one), we’ll be happy to open this platform to anyone willing to reason any disagreement with the opinions provided below. We don’t intend to defend a given position, but to reflect on issues that interest the antitrust community, and we are more than open to be persuaded that what we say is wrong. The fourth is that even if now criticize a complaint lodged by Microsoft FairSearch in the past we’ve also heavily critized complaints targeting Microsoft, like this one.
Bored already? If you’re stil reading I guess not, so let’s get started:
Some background to the complaint
Back in April the anti-Google alliance FairSearch (in this case only two of its members Microsoft and Nokia [Note: after I was done writing this post I learnt the news that Microsoft is acquiring Nokia’s mobile business] seem to have a real interest in the case) lodged a complaint with DG Comp alleging: (a) that by giving Android to device-makers for “free” Google engages in predatory conduct (making it difficult for rivals to recoup the investments made in developing competing mobile operating systems; and (b) that “phone makers who want to include must-have Google apps such as Maps, Youtube or Play are required to pre-load an entire suite of Google mobile services, and to give them prominent default placement on the phone”. Click here for FairSearch’s Press Release.
Rumor has it that the Commission recently sent out requests for information in relation to this complaint.
A business problem model?
In our view, this complaint can only be properly understood once one is aware about the existence of essentially 3 different business models for mobile operating systems (OSs). One is Apple’s vertically integrated model (iPhones run on Apple’s own iOS), another is Microsoft’s licensing model (OEM’s wishing to have smartphones running on Windows have to pay for a license), and the third is Android’s free software model (Android is distributed for free under a an open source license which enables licensees to do whatever they wish with the code), which has also been the model adopted by all new market entrants (Ubuntu, Firefox OS, Jolla’s Sailfish or Tizen –backed among others by Samsung and Intel-); Nokia’s Symbian (the market leader until 2011, now maintained by Accenture) was always and is also open source.
Manufacturers that are not vertically integrated at the OS level like Apple or Blackberry had to find a competitive OS, there being, until now, essentially two reliable options: Microsoft’s Windows (which they had to pay for), and Android (which OEMs obtain on a free-license basis; even if they have to pay some royalties….to Microsoft! ; some even say that Microsoft makes more money from Android than from the Windows mobile OS). Not surprisingly, the market tends to favor the open source model and, quite logically, Microsoft doesn’t like that (you’ll recall that it also “had issues” with open source OS for PCs). It’s against this background that the complaint comes, in what some see as an attempt to reverse the course of the business model that is proving most successful.
On market power/dominance as a pre-requisite.
Every press-clip citing FairSearch’s allegations refer to the claim that Android enjoys a market share of 70%. This is a bit equivocal. In reality, the fact appears to be that 70% of smartphones (leaving tablets, led by Apple, aside on the assumption that they belong to a different market) shipped in the last quarter of 2012 had Android. And in reality, usage market shares appear to show a duopoly of iPhones and Android phones (see here or here) rather than an Android monopoly; moreover, revenue-baded market shares clearly tilt the balance in Apple’s favor (as explained here) [As to the future trend: Android is certainly doing spectacularly well lately, but we bet iPhone sales will increase once Apple abandons its (rather Steve Job’s) exclusive-good marketing strategy, which is very profitable (see previous hyperlink) but has costs in terms of market share. Android phones sell very well, among other reasons, because they are often subsidized by operators; iPhones on the other hand have traditionally been quite costly. The moment iPhones are cheaper Apple's share should increase significantly] So, in reality, Android seems to face rather intense competition from Apple’s iOS, Windows, Blackberry; even its main customer (Samsung) has also developed its own OS Bada/Tizen (it also “multi-homes” by licensing Windows for some devices).
Against the background of what would appear to be a competitive smartphone market, the way to come up with a monopoly-like share would require 1) to distinguish separate markets for tablets (where Apple is the leader) and smartphones; and 2) to also take Apple and Blackberry out from the smartphone-only calculation by defining a relevant market for licensable mobile OSs, which intuitively seems a bit of a Procrustean move.
More importantly, forget about market shares for a second. The truly relevant question is: does Android enjoy significant market power? Can it profitably raise prices or decrease output or innovation? Because Android is OpenSource/FreeSoftware (obtainable for free, its source code is entirely disclosed, it can be freely modified/”forked” [see here for “what the fork is forking”?] and appropriated by third parties: just look at Replicant, CyanogenMod, MIUI or at Amazons’ Kindle) we don’t see how Google would be able to exert market power in any way. Even Microsoft and Nokia could take Android and do what they please with it (they could even try to fork/improve it and compete with Google).
Actually, could we even say for sure that there is a “market” for licenseable OSs when all licenses (except Microsoft’s) are FreeSoftware licenses?
Moreover, and as regards innovation, there are very few markets with innovation cycles as fast as the one for smartphones’ OSs having featured a number of leaders in recent years: Palm, Symbian, iPhone, Blackberry and now Android. And this is because given the prevalence of FreeSoftware barriers to entry are extremely low. The moment someone comes up with a more innovative (better) product (including an improved version of Android unrelated to Google), Google would also lose its current lead.
But, for the sake of discussion, let’s assume that Android is dominant and look at the theories of harm, which bring up some interesting issues In our second post we’ll discuss the predatory pricing claims, and in our third post we’ll deal with the bundling aspects of the case.
On 15 August Microsoft announced on a blog post that Skype will come installed by default in Windows 8.1, and that it will be prominently displayed in its “Start” Menu (see Skype-right from (the) “Start”)
And, of course, given my involvement in Skype-related competition matters, when I returned from my summer holidays I had a good number of emails from students, journalists, lawyers, friends and even family who were sending me the news and asking for an opinion. Since it would not be practical to reply to all those emails separately, I have decided to do it here.
[A disclaimer first: as frequent readers of this blog know I represent the two companies who chose to challenge the Commission’s decision authorizing the Microsoft/Skype deal. This means that I certainly am not an impartial observer, but it does not mean that the views set out here are to be attributed to my clients or my firm; they are exclusively mine. These views also refer to a conduct which is post-decision and therefore not the subject of the pending case].
My first comment is: Did anyone really not see this coming?
During the past few months Microsoft has pervasively integrated Skype with most of its products. Skype is now closely integrated with, for instance, Office, Office 365, Outlook, Outlook.com (formerly Hotmail), Windows Phone 8, Xbox, Lync (as announced only minutes after our Court hearing ended), and it was only a matter of time that it would come pre-installed in Windows. In the meanwhile, Skype’s only meaningful competitor in the consumer world (WindowsLiveMessenger) has disappeared and its users have been migrated to Skype. As a result, Skype’s user base has skyrocketed since the merger (going from approx. 150 to over 300 million unique monthly users), and rapidly growing.
[By the way, all this obviously voluntarily enhances the already powerful network effects at play in the only communication markets where interconnection is not mandatory, with obvious consequences]
Microsoft’s decision to bundle Skype pervasively with other Microsoft products, including – as just announced – Windows, may actually have come as a surprise to the European Commission. In its Microsoft/Skype decision, the Commission concluded that Microsoft would not have the incentive to tie Skype to other Microsoft “leading/dominant” products (e.g., para 155). No kidding.
Now let’s cut to the chase, can the integration of an application with a dominant operating system run afoul of the competition rules?
The European Commission itself has held various seemingly contradictory views over time. Microsoft, too, appears to have opposite views on this question. Let me explain this:
In the light of the spirit and the letter of the Microsoft’s 2004 infringement decision, the 2007 Microsoft Judgment, the 2009 Microsoft commitment decision, Skype’s integration with Windows would likely raise some antitrust flags (notably concerning the market for video calls, given that currently over 3 out of 4 video calls are made using PCs). As you know, in all of those precedents, the Commission and the General Court observed that pre-installation resulted in an unparalleled distributional advantage that could not be offset by the downloading of competing applications.
The Microsoft/Skype 2011 decision, however, arrived at exactly the opposite conclusion. The comments voiced out in the past few days in the media seem to have overlooked the fact that the Microsoft/Skype Decision – despite denying Microsoft’s incentives to tie Skype to its products – did actually address the possibility that Skype could be tied to Windows, and that it ruled out any competition concerns. The Decision acknowledged that pre-merger Skype was already present on approximately 60% of Windows PCs pursuant to agreements with OEMs, but alleged that there was data -not cited- showing that in practice pre-installation resulted only in a small share of Skype users (para 162). In other words, the Commission considered that pre-installation does not offer that much of a competitive advantage because users could easily and freely download Skype and other competing applications.
Query: does anyone see any inconsistencies between the Commission’s approaches to downloading? The Commission is certainly entitled to change approaches, but since the reasons for this change were not set out in the Decision, it’s difficult to identify with clarity what the Commission’s current approach to pre-installation vs. downloading is.
If you want to play more “find the differences”, try comparing the Commission’s prospective analyses and approaches to technical tying/bundling (and, for that matter, to interoperability degradations too) in Intel/McAfee (2011) and Microsoft/Skype (2011).
And whereas the Commission’s shifting viewpoints are remarkable, what is more striking is that Microsoft is, as of today, advocating two opposite legal standards, one for itself and another for Google:
As you may remember, back in April the FairSearch coalition (led in this case by Microsoft and Nokia) lodged a complaint against Google arguing that Google is abusing Android’s alleged dominance in the market for mobile operating systems by bundling certain “core Apps” with its operating system.
[The way I see it, in the case of Android the dominance and the bundlling are much more doubttful, but that is another story, and one interesting enough -I've just realized- to deserve some specific comments in the coming days].
So, in one case Microsoft is claiming that the pre-installation of Google apps on Android phones constitutes an abuse of a dominant position in the market for mobile OSs (no matter if users are free to download any competing application; btw, Skype for Android has no less than 100 million users!), but, at the same time, having Skype pre-installed in the dominant PC OS poses no problem (precisely because users are free to download other applications).
Anyone else sees any issue conflict?
Last week one of the most knowledgeable people in the EU competition law world (Commission official whose name I can’t disclose) tipped me to a new series of blog posts:
His words were “someone should one day write on a blog the story of competition cases that could have had a significant impact on the law had they not been withdrawn”. Since the number of competition law bloggers is not that high (even though it’s rapidly increasing…), and since I was the addressee of the message, I sort of got the point.
Actually, I very much like the idea of writing about cases that never were or, rather, that never will be.
There are a few candidate cases to be discussed; a non-exhaustive tentative list of non-cases could include: Siderca, Chi Mei, Suez-Environment, Formula One, Oulmers, BIC Deutschland, Balog or Van der Weerd. [Additional suggestions would be welcome].
Today we’ll start with Hynix (Rambus), a case in which the hearing was scheduled for 2 July but that was withdrawn a few days ago following a settlement.
The Judgment that will never come to light in this case would have constituted a most important precedent in relation to some important general enforcement issues, as well as in relation to an eventual judicial review of the current investigations concerning Google or Samsung.
A bit of background:
In 2002 Hynix filed a complaint alleging that Rambus had engaged in deceptive conduct in a standard setting procedure in relation to DRAM chips by not disclosing the existence of the patents and patent applications which it later claimed were relevant to the adopted standard, and that it had later charged excessive royalties for the use of those patents (i.e. royalties higher than those that it would have been able to claim had it not engaged in deceptive conduct). This is what is generally referred to as “patent ambush”.
The case was interesting because the deceptive conduct at issue had made Rambus acquire dominance (it preceded dominance), and the charging of high royalties could be regarded as the natural consequence of such dominance. Given that EU law does not target “monopolization” practices (those use to achieve dominance), the Commission had attempted to close this enforcement gap by targeting exploitative pricing under Art. 102 under the argument that dominance had been unlawfully attained. This was a brave and controversial move on the part of the Commission.
On 27 July 2007 the Commission adopted a statement of objections setting out its concerns. Rambus responded to the SO and a hearing was held.
Almost two years later, however, Rambus submitted preliminary commitments, those were later market-tested, revised, and eventually made binding on December 2009 (in a nutshell, Rambus committed (i) not to charge royalties for the two standards adopted while Rambus engaged in the deceptive conduct; (ii) to set a maximum royalty of 1,5% for the later generation of standards and to offer thus maximum rate to all market participants). (Note that the commitments concerned only future payments, not those already made).
As you know, in a case like this (or in a case like Google’s), once the Commission accepts commitments it must (a) adopt an Article 9 decision making them binding; and (b) adopt a decision rejecting any complaints stating that there are no longer grounds for action.
Hynix appealed both of these decisions.
In essence, Hynix argued that the Commission violated Article 9 of Regulation 1/2003 by choosing the procedure envisaged in that article where its concerns related to a serious violation of Art. 102.
In its SO, the Commission had envisaged a finding that the charging by Rambus of capped royalties is incompatible with Article 102 (82 back then). However, the corollary of the commitment decision was to make royalty caps binding, thus endorsing their legality.
The Judgment that will never on this case would have shed light on some of the hottest current topics in EU competition law (abuse of dominance in high-tech sector, misuse of patents, the circumstances in which the Commission can or cannot adopt commitment decisions…). In the past we have devoted lots of ink pixels to discussing these issues, and it’s a pity for the law that questions like the following will, for the time being, remain unaddressed:
What constitutes an abusive practice with respect to standardization, in particular so far as concerns patent ambushing?
Were commitments in the form of future royalty caps sufficient to eradicate the competitive problems found by the Commission?
What guiding principles (beyond Alrosa) are to be taken into account when assessing the appropriateness and adequacy of commitments?
Can the Commission address what it had perceived as a serious violation by means of a commitments decision? In that context, may the Commission adopt remedies which are only prospective in nature? Is the Commission entitled to have recourse to a commitment (Article 9) decision after having adopted a Statement of Objections? And in this case, can a Statement of Objections be considered as a valid “preliminary assessment” for the purposes of Art. 9 of Regulation 1/2003?
As long anticipated, here are some comments on the proposed commitments in the Google case (I graciously granted myself an extension, like the one other third parties have received; it actually is convenient because I can comment on others’ comments as well).
Four caveats are in order:
- The views expressed below are written against the background of the Commission’s concerns as set out in the press release and the Q&A doc. accompanying the market testing of Google’s proposal. The relevant question to keep in mind is whether the proposed commitments –in their current form- are apt to address the concerns identified by the Commission in its preliminary assessment, not whether they are apt to lead to candy world for satisfy the wishes of all third parties.
- My views are necessarily incomplete and they’re also work in progress. I’ve only read the limited publicly available information and have not had access to any confidential info or documents that might be contained in the case-file. Moreover, I have allocated two flights time to draft this (and I should ideally also do some billable work, you see), so I’ll (i) update and improve this document on the basis of any new thoughts or possible feedback and (ii) refine my thoughts for a forthcoming piece on Oxford’s Journal of Competition Law and Practice
- My views are mine (sounds like a tautology, but don’t always take this for granted in our area of work…); some of my colleagues and clients may well have different opinions.
- I haven’t worked nor for Google nor for any of the 17 complainants.
In case I haven’t yet got you tired before even starting, here is a methodological explanation. This will be a five-pronged analysis; I will very succinctly summarize (i) DG Comp’s concerns; (ii) my take on the substantive concerns; (iii) the content of the proposed commitments; (iv) third-party criticism of the proposal (notably that read here, here, here or here) (I actually read some favorable comments as well); and (v) my take on the proposed commitments. And this for each of the four concerns flagged by the Commission (although only the two first ones raise interesting issues).
The structure will make this post longer. In order not to cram the page, click if interested.