Microsoft fined €561m for failing to offer browser choice

By Sam Chadderton

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Microsoft’s failure to adhere to the European Commission’s ruling on its promotion of rival web browsers will not cause competition commissioner Joaquin Almunia to backtrack on his preference for ‘commitments’ over litigation.

That’s according to international competition lawyers who have been closely watching the case – in which Microsoft had to offer alternatives to Internet Explorer for its EU customers in order to avoid a fine for stifling competition.

Joaquin Almunia
(pic: Agencia Brasil)

Despite introducing a browser choice pop-up screen in March 2010, a ‘technical error’ resulted in this being dropped from the Windows 7 update in February 2011 – for a further 14 months until anyone noticed.

The unprecedented breach by Microsoft lead to a $731m fine and raised pertinent questions about the effectiveness of the EC’s monitoring processes. Even commissioner Almunia admitted naivety in the watchdog’s enforcement of commitments in IT.

Yet industry experts believe Almunia will continue to avoid lengthy and costly litigation in similar abuse of market dominance cases, especially in fast-moving sectors that demand prompt resolutions. He recently stated that these decisions are the ‘favoured mechanism’ to close abuse of dominance proceedings, saving resources and bringing a quick conclusion.

That stance is likely to be tested by the current Google investigation. The EC is investigating whether the search giant has unfairly promoted its own services, following complaints made by rivals, including Microsoft.


   The European Commission is sending a firm signal that it will not tolerate failure by a company to comply with the commitments it gave to settle an antitrust infringement procedure. It is the company’s responsibility and it will cost them a lot of money if they fail’

Tony Woodgate
Antitrust partner, Simmons and Simmons

Deadlines for a settlement have already been pushed back, and claimants will be lobbying for a big fine and an official ruling.

However, legal sources suggest Google will avoid a similar multi-million dollar fine, in exchange for a promise to curb its anti-competitive behaviour. One lawyer close to the case revealed: ‘It’s fair to say that commitment decisions are still relatively new and the Commission is feeling its way as it goes. Not many of these agreements have been tested and there are some cases where they haven’t solved the problem.’

‘But I can see the reasons for using commitments for abuse of dominance cases. It is a lengthy procedure to come to a cease and desist order and a fine. It is not the best way to go if the company is prepared to accept and offer commitments.’

Critics have questioned whether the EC has a strong enough grip on powerful global conglomerates, given Microsoft went more than a year without its ‘serious breach’ being discovered. After it issued an apology, restored the facility and blamed an ‘engineer problem’, Microsoft avoided a potential $7.4bn fine – 10 per cent of its global annual revenue.

However, Simmons & Simmons antitrust partner Tony Woodgate believes that the lesson to be learned from the Microsoft case is that it is a company’s responsibility to ensure it is adhering to any agreement.

 


 Commitments are certainly attractive to the competition authorities and the companies under investigation as they avoid the possibility of being tied up in years of expensive litigation’

Adrian Magnus
Competition partner, Berwin Leighton Paisner


He said: ‘I think the wider message from this fine is that it is not the Commission’s job to monitor these cases – that they don’t see it as their role, nor do they have the time or people to do so. The European Commission is sending a firm signal in this first case of its type that it will not tolerate failure by a company to comply with the commitments it gave to settle an antitrust infringement procedure,’ he explained.‘It is the company’s responsibility and it will cost them a lot of money if they fail.’

Another source said one reaction from the EC to the Microsoft breach could be to put monitoring trustees in place on every Article 9 commitments decision. ‘The trustee in the Microsoft case couldn’t have seen that the system was not effective unless they went out and bought PCs and tested it out. Trustees are no substitute for proper internal compliance procedures,’ the source said, adding that trustees in every Article 9 decision would be a ‘watershed’ step too far, and that they are only needed in cases which aren’t easily monitored.

Some critics argue that complainants exploit any on-going investigation into a rival by drowning the EC in additional submissions in a bid to sink an Article 9 agreement - therefore encouraging excessive remedies and a large fine. Yet it is those same rivals and complainants that can effectively act as the trustee – by making sure the company – such as Microsoft or Google – don’t breach their commitments.

Adrian Magnus, competition partner at Berwin Leighton Paisner in London, underlined the challenge for the EC of imposing and monitoring compliance with commitments, and suggested that in future, it will require an independent person or body with the technical ability for the role.

He said: ‘The commitments process is relatively new and like all innovations, it will take some time to develop and bed down. The Microsoft case is an illustration of a need for an enhancement of the process – Commissioner Almunia has been on record to say that.’

‘The commitments process is essentially forward-looking. It enables the authorities to close the file and it doesn’t take up endless resources. For the parties under investigation, it is also beneficial in avoiding a finding of infringement and a huge fine. It also means there is no decision on which to base a claim for follow-on damages.’

The rise in follow-on damages claims in the UK is bringing the UK closer to the US practice of seeking compensation from companies which are found to have broken competition law, for example by fixing prices with competitors.

It is one of the boom areas in the competition sector and Google’s lawyers will be keen to avoid an EC infringement ruling – which would open up the search engine giant to follow-on damages claims from major rivals.

Magnus said: ‘Commitments are certainly attractive to the competition authorities and the companies under investigation as they avoid the possibility of being tied up in years of expensive litigation. The disadvantage is that there is no retrospective redress for the complainants. In the world of IT, things that have happened several years ago could already have changed the market permanently, so there’s no remedy for those affected by market abuse.’

Magnus concluded: ‘It is not easy to rule when markets are changing and adapting. One month a company may be ahead and the next month they may be behind.’

Lawyers expect a decision on the Google investigation by June.


Sam Chadderton is a freelance journalist and contributor based in the North West of England and can be contacted at news@samchadderton.co.uk