Relaxing whilst doing Competition Law is not an Oxymoron

Case T-167/08, Microsoft v European Commission

with one comment

I’ve just returned to Brussels after spending a great day of immersion into Korean culture in Frankfurt. The Korean Fair Trade Commission invited me to speak about international cartels to approximately 100 Korean executives of Korean companies operating in Europe within the framework of an Anti-Cartel Workshop [check out the program: Anti-cartel workshop :)]  I had a great time in our very unorthodox and fun session as well as in the different social events with which they treated me afterwards. To all of them: 감사합니다 !!   We have more things to tell you about this event and about recent trends in cartel case-law, but, first, let’s deal with today’s big news:

This morning the General Court issued its judgment with regard to the periodic penalty payment of 899 million euros that the Commission imposed on Microsoft for not complying adequately with the Commission’s 2004 infringement decision and, in particular, with the obligation to provide interoperability information under reasonable and non-discriminatory conditions. (Click here to read the Judgment).

We believe this post is the first hastily written analysis of the Judgment. Apologies for the long post, but this time we think we have something interesting to say.

[btw, you might recall that in previous posts we talked about the Hearing in this case (here), and even provided you with the report for the hearing (see here)].

I have only had time to skim through the Judgment, but here’s how I think its main points can be interpreted:

The crux of Microsoft’s arguments was that the Commission should not be entitled to consider that the remuneration rates proposed by Microsoft were unreasonable because it had not provided it with indications as to the specific rates that would be considered reasonable. The idea, in other words, was that the Commission could not impose a periodic penalty payments aimed at forcing Microsoft to comply with its obligations if it wasn’t prepared to indicate positively and precisely how to comply.

The Court has sided with the Commission in holding that it is not incumbent upon the latter to prescribe specific rates but rather to ensure that any rates proposed by Microsotft were reasonable, non-discriminatory and that they reflected their inherent value and not the economic value derived from Microsoft’s dominance.

I see Microsoft’s point but, frankly, I don’t think the problem (i.e. the uncertainty as to the legality of the conduct) was greater here than in any substantive abuse of dominance case or than in many other competition cases, including the earlier substantive Microsoft decision. Let me explain what I mean:

In Art. 102 TFEU proceedings companies very often have no intention to breach the law and are not aware of the fact that they may be incurring in abusive conduct. (e.g. judging by the previous case-law there were good reasons to believe that the refusal to deal and/or the tying sanctioned in the 2004 decision were not abusive). Moreover, when adopting their strategic decisions, and even in case of doubt, companies have no way of obtaining certainty as to whether they are entitled to adopt a given conduct. This situation fits oddly with the requirements stemming from the principle of legality: if a company does not know what is legal and ilegal, how then can it be the target of huge, criminal (in the ECHR sense of the term at least), sanctions for breaching the law? Nulla poena sine lege, right?

[Btw, the Commission is aware of this problem, and this awareness may account for the change of approach that we have discussed in recent posts (see here and here)].

In my view, the obligations that had been imposed on Microsoft in this case coupled with the subsequent instructions and clarifications provided by the Commission were equally or more clear as to what equated to complying and what not than Art. 102 and its official interpretations (guidance, case.-law, decisional practice) are as to what is abusive and what not.

In my opinion, this is the key point for understanding the Judgment. Had the Court considered that Microsoft’s obligations in this case weren’t clear, then consistency and logic should have (at least theoretically) obliged it to rule in future cases that the nebulous content of Art. 102 also precludes sanctions.

If you read the discussion about “imprecise legal concepts” featured in paras. 82-94 of the Judgment you will realize that the Court had this in mind. Paragraph 91 is quite illustrative:

“(…) the use of imprecise legal concepts within a provision does not prevent liability being established as against a person who contravenes it. As the Commission points out, if it were otherwise, an infringement of Article 101 or 102 TFEU – which are themselves drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position – could not give rise to a fine without the prior adoption of a decision establishing the infringement“.  [this paragraph is my highlight of the Judgment; we’ll come back to it a few lines below]

Paragraph 94 insists on this line of reasoning stating that: “there is no reason to state with different degrees of precision what an undertaking must do or not do to comply with the competition rules before either a decision imposing a fine or a decision imposing a definitive periodic penalty payment is adopted in its regard“.

The General Court has therefore made very clear that in the nebulous field of competition law the principle of legallity has more vaporous contours (there’s a lot of steam in this phrase, but oh well).

If I were the Court (or the Commission) I don’t think I would have made the reasoning/argument in para. 91 so explicit. I’m frankly surprised that the Commission, Judge Rapporteur Forwood and the Court have pointed out black over white at one of the deficiencies particular features of EU competition law. This is one of the aspects of the system that we lawyers generally criticize and that enforcers and Courts typically contest or, rather, ignore. Are the Commission and the Court so confident to state so clearly that in our enforcement system huge (quasi-criminal) penalties are imposed for breaching “imprecise legal concepts”??  If not, they have committed an important strategic erorr. I wonder whether the ECJ and the ECtHR in Strasbourg would endorse such an explicitly relaxed interpretation of the principle of legality.  Companies who have received huge fines -like Intel- most probably share my curiosity; thet have just been given a new and potentally very good argument.

Another factor that may contribute to understand the outcome of the case lies in the second part of paragraph 97. My take is that its drafting reveals that the Court shares the Commission view that, in reality, Microsoft had not complied on purpose in order to win time hoping that the initial decision would be quashed in appeal.

There’s some other interesting stuff in the Judgment, but I’m off to watch Spain play Portugal in the EuroCup.

P.S.  Those involved in cases involving FRAND conditions should be aware that expecting the Commission to formally and specifically indicate what is FRAND in a specific case will not work.

P.P.S. Both lawyers acting for Microsoft in this case (J.F. Bellis and I. Forrester) as well as one acting against Microsoft (M. Dolmans) have featured in this blog’s Friday Slot (see, respectively, here, here and here). We like them all, and we would be glad to open the floor to any of them who may want to express his views on the Judgment.

Written by Alfonso Lamadrid

27 June 2012 at 8:10 pm

One Response

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  1. You asked for my views on the judgment. It took a while, but here they are (in a postscript to this article).

    The judgment is not easy to understand when read without context. It is understood better when one knows the history of the whole case, and especially taking into account the specific context. The postscript warns that this case concerns a remedy, rather than an excessive pricing case. This has implications: The purpose of the remedy is to approximate the rates that would have been charged in a counterfactual world that would have existed absent the abuse. (This is actually quite conservative; some would argue that the purpose of the remedy would be to restore that world.) The abuse in this case was non-disclosure of interop info, a form of defensive leveraging that (according to the 2004 Commission Decision and confirmed by the 2007 Judgment on appeal) had the effect of desktop OS monopoly maintenance. The counterfactual is therefore a world where MSFT never interrupted supply of interop info, where alternative platforms developed, and MSFT lost its platform monopoly, forcing it to continue licensing interop info at the rate it charged when it had no platform dominance — a low or zero royalty. Before it had dominance on the desktop OS and before it had a “good enough” server OS, MSFT licensed its interop information at zero/low rates to maximize the attractiveness of its platform by encouraging the development of fully interoperable complementary products. That is what any rational non-dominant platform owner would do.

    Maurits Dolmans

    27 September 2012 at 2:14 pm

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