Back to Microsoft I and II: Tying and the Art of Secret Magic

Petit, Nicolas; Neyrinck, Norman

doi:10.1093/jeclap/lpq080

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Back to Microsoft I and II: Tying and the Art of Secret Magic

Petit, Nicolas; Neyrinck, Norman

2011 • In Journal of European Competition Law and Practice, 2 (2), p. 117-121

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https://hdl.handle.net/2268/149663

DOI
10.1093/jeclap/lpq080

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Keywords :

Tying; Behavioral economics; Coercion

Abstract :

[en] This paper seeks to uncover an inconvenient truth. The Microsoft decisions are not tying cases. Rather, the two decisions taken by the EU Commission against Microsoft – i.e. the Windows Media Player (“WMP”) case of 2004 and the Internet Explorer (“IE”) case of 2009 – mark departures from conventional tying analysis (I). First, they deviate from standard tying law in that in the Microsoft cases, a key component of abusive tying, namely coercion, is missing (II). Second, the Microsoft decisions share many analogies with “essential facility” cases. One may thus question to what extent the Commission has not pursued disguised refusal to supply cases (III).

Research Center/Unit :

Institut d'Etudes Juridiques Européennes

Precision for document type :

Analysis of case law/Statutory reports

Disciplines :

European & international law

Author, co-author :

Petit, Nicolas ; Université de Liège - ULiège > Département de droit > Droit européen de la concurrence

Neyrinck, Norman ; Université de Liège - ULiège > Département de droit > Droit européen de la concurrence

Language :

English

Title :

Back to Microsoft I and II: Tying and the Art of Secret Magic

Alternative titles :

[fr] Retour sur Microsoft I et II : le jumelage et l'art de la magie clandestine

Publication date :

April 2011

Journal title :

Journal of European Competition Law and Practice

ISSN :

2041-7764

eISSN :

2041-7772

Publisher :

Oxford University Press, Oxford, United Kingdom

Volume :

Issue :

Pages :

117-121

Peer reviewed :

Peer Reviewed verified by ORBi

Available on ORBi :

since 02 June 2013

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136 (9 by ULiège)

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7 (3 by ULiège)

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Bibliography

GC, 17 Sept. 2007, T-201/04, Microsoft v Commission [2007] ECR II-03601.
Guidance on the Commission's Enforcement Priorities in Applying Article 82 EC (n 2) p. 22, para. 50.
1.787 exactly. This represented less than 0.005% of the copies of all retail sales of Windows XP in Europe (results for the period between the offering of the naked version of Windows and the time of the hearing before the GC). C. Ahlborn and S. Evans, 'The Microsoft Judgment and its Implications for Competition Policy towards Dominant Firms in Europe' (2009) 75 (3) Antitrust Law Journal 24 (available at,www.ssrn. com. (last accessed March 13, 2011)).
Microsoft Begins Defense of Self Against EU, April 24, 2006, Ed Sutherland,,www.internetnews.com. (last accessed March 13, 2011).
K. O'brien, 'European Antitrust Deal with Microsoft Barely Affects Browser Market' New York Times, 10 October 2010.
In Europe, IE market share fell to 40.26% in September this year from 46.44% in September last year. StatCounter, 'Microsoft's Internet Explorer browser falls below 50% of worldwide market for first time' 5 October 2010, (available at ,http://gs.statcounter.com/press/microsoft-internet-explorer-browser-falls-below-50-perc-of-worldwide-market-for-first-time. (last accessed March 13, 2011)).
N. Farrel, 'Microsoft IE loses more market share. March of the Firefox' TechEye, 22 March 2010 (available at ,http://www.techeye.net/software/microsoft-ie-loses-more-market-share. (last accessed March 13, 2011)).
The rulings of the EU courts in Hoffmann La Roche and Hilti cast light on this issue. The judgments of the Community courts are replete with references to the fact that coercion entails a restriction of customers' freedom of choice. In Hoffmann La Roche, for instance, the ECJ held that the dominant firm tied its customer in a way to '[d]eprive the purchaser or restrict his possible choice of sources of supply and to deny other products access to the market' (ECJ, 13 February 1979, Case 85/76, Hoffmann-La Roche v Commission [1979] ECR, 461, para. 60). The Commission reached a similar finding in Hilti, where it concluded that tying the sale of cartridge strips to the sale of nails constituted an unlawful abuse because customers that had acquired the dominant firm's nails, had irremediably forgone their freedom of choice regarding the source of their nails which, in turn, excluded independent nail makers (Commission Decision of 22 December 1987 (IV/30.787 and 31.488-Eurofix-Bauco v Hilti), OJ, 11 March 1988, L 65/19, para. 75.
Commission Decision of 22 December 1987 (IV/30.787 and 31.488-Eurofix-Bauco v Hilti)(n 11).
This assumes that all consumers needs are fulfilled. Otherwise, rival operators would be able to compete for that portion of the market where consumers still exercise their freedom of choice and, hence, would not be excluded. For instance, the Van den bergh Foods ruling seems to imply-a contrario-that a 6% foreclosure would have been de minimis. GC, 23 October 2003, Van den Bergh Foods Ltd v Commission, T-65/98 [2003] ECR II-04653.
We slightly stretch the classic definition of what a rivalrous good is here. Traditionally, rivalry relates to a situation where 'Everyone technically can use the good, but the use of the good by one person detracts from the ability of others to enjoy the good' (J. Taylor and A. Weerapana, Economics, 6th edn (South-Western College Publishing, Chula Vista, CA 2009) 435). We shift from a situation where the use of one good limits the ability of another person to use that same good, to a situation where the use of one good limits the ability of that same user to use another good.
The decision indicates that 'customers are not given a choice' because Microsoft softwares come 'pre-installed' with Windows and cannot 'be un-installed'. Hence, the Commission found that the third constituent element of illegal tying pursuant to Article 102 TFEU-i.e. the fact that 'the conclusion of contracts is made subject to the acceptance of supplementary obligations'-would be met. GC, 17 Sept. 2007 (n 3) para. 827.
On its side, the Commission stated that no monetary sacrifice was required for a tying abuse to be proven as 'the wording of paragraph (d) of Article 82 does not include a reference to “paying” when introducing the element of a “supplemental” obligation' (Media Player Decision (n 1) para. 831). This brings some perspective with the GC's odd assertion that consumers had to pay for WMP an extra fee included in the total price of the Windows OS,GC, 17 Sept. 2007, T-201/04, Microsoft v Commission (n 3) paras 967-968.
J. Tirole, 'The Analysis of Tying Cases: A Primer' (2005) 1 (1) Competition Policy International 12: '[I]n a two-sided market in which the cost of multi-homing for users facing the tie is small, the tie on that side of the market need not preclude competitors from profitably competing, even when competitors' technology is undifferentiated from the tied technology from their point of view'.
See also J. Gabszewicz and X. Wauthy, Two-Sided Markets and Price Competition with Multi-homing, Université Catholique de Louvain, 2004, mimeo. In a multi-homing market, there is a priori no reason why a buyer should choose to acquire a single product only, at the exclusion of the other.
M. Benett, J. Fingleton, A. Fletcher, L. Hurley, and D. Ruck, 'What Does Behavioral Economics Mean for Competition Policy ?' (2010) 6 (1) Competition Policy International 121: 'Behavioral economics suggests that even small switching costs can have significant effects on consumer behavior in the presence of consumer inertia, endowment effects, and default bias. This can, in turn, make foreclosure more likely to occur through tying and bundling.' According to behavioral economics, dominant firms may also leverage market power absent coercion, simply by exploiting customers' intrinsic biases, such as inertia, hassle costs, availability heuristics, and risk aversion.
People provide different answers when the same questions are presented in different ways. See A. Tversky and D. Kahneman, 'The Framing of Decisions and the Psychology of Choice' 211 (4481) Science 453;
M. Salinger, 'Behavioral economics, consumer protection and antitrust' (2010) 6 (1) Competition Policy International 71.
If nudging customers may be the sole solution to open markets, consumer law may be a more appropriate tool than competition law to achieve that aim. See E. Garcès, 'The Impact of Behavioral Economics on Consumer and Competition Policies' (2010) 6 (1) Competition Policy International 150, which stresses that remedial interventions may generate inefficiencies.
In the WMP case already, the competition issue related to the privileged distribution channel that Microsoft enjoyed thanks to Windows. See Media Player Decision (n 1) paras 844-849. See also J.-Y. Art and G. McCurdy, 'The European Commission's media player remedy in its Microsoft decision: compulsory code removal despite the absence of tying or foreclosure' (2004) 25 (11) ECLR. 696.
N. Economides and I. Lianos, 'A Critical Appraisal of Remedies in the EU Microsoft Cases' [2010] 2 Columbia Business Law Review 389 (available at,www.ssrn.com. (last accessed March 13, 2011)).
From a factual standpoint, it is doubtful that rival software producers ever requested access to Microsoft's OS. From a historical standpoint, this was also the path that had been envisioned in the USA (see for example: United States v Microsoft, District Court for the District of Columbia, 11 May 1999, Civil Action No. 98-1232 (TPJ);
D. Evans, A. Nichols, and R. Schmalensee, 'United States v. Microsoft: did consumers win?' (2005) 1 (3) Journal of Competition Law & Economics 497).
ECJ, 26 November 1998, C-7/97, Oscar Bronner v Mediaprint [1998] ECR I-7791, para. 41.
A. Jones and S. Sufrin, EC Competition law. Text, Cases and Materials, 3rd edn (Oxford University Press, Oxford 2008) 516 and 520.
Article 7 of Council regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty states that the Commission may impose 'any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end'.
ECJ, 29 June 2010, C-441/07 P, Commission v Alrosa, para. 48 [not yet reported in ECR].
D. Géradin and N. Petit, 'Price Discrimination Under EC Competition Law: Another Antitrust Doctrine in Search of Limiting Principles?' (2006) 2 (3) Journal of Competition Law and Economics 530-1.
A. Candeub, 'Trinko and Re-Grounding the Refusal to Deal Doctrine' 66 University of Pittsburgh Law Review 821, who argues that an order to supply will be successful only if the transaction and governance costs of the remedy are relatively low.
N. Petit, Oligopoles, collusion tacite et droit communautaire de la concurrence, Bruylant-LGDJ, Bruxelles-Paris, 2007, 685 pp.