“Imprecise legal concepts” are no excuse

The second chapter of the Microsoft saga unfolded on 27 June 2012, when the General Court largely upheld the €899 million periodic penalty payment imposed on Microsoft for failing to share adequate interoperability information with its competitors. However, it also offered some comfort to proprietors of intellectual property rights, with the Court seemingly retreating from some of the more expansive views expressed in Microsoft I.

See Case T-167/08 Microsoft Corp. v European Commission.

The case follows the Commission’s 2004 decision that Microsoft had abused its dominant position by withholding interoperability information, upheld by the General Court in Microsoft I. As part of the remedy, Microsoft was required to provide access to the information on reasonable and non-discriminatory (“FRAND”) terms, to allow interoperability between the dominant Windows architecture and rival servers. It failed to do so, and in February 2008 the Commission imposed the penalty which is the focus of Microsoft II.

The judgment is important for two reasons.

I. “Imprecise legal concepts” are no bar to penalties

Much of the judgment turned on Microsoft’s complaint that the Commission had failed to provide it with any guidance as to the sort of terms which would be FRAND-compliant, and that it was therefore difficult to know how to comply with its obligations.

The Court gave fairly short shrift to that concern, holding that “the use of imprecise legal concepts in making rules […] does not mean that it is impossible to impose the remedial measures provided for by law” ([84]). However, despite that rather bold statement, it appears that the Court was heavily influenced by its conclusions on the facts. It found that the bilateral negotiations had identified “sufficiently precise criteria” to inform Microsoft of what was required of it, namely “assess[ing] whether a given technology has an intrinsic value distinct from its strategic value” ([87]). In light of the significant uncertainty on all sides as to the precise form of FRAND-compliant licensing conditions (as to which there generally remains divergence between major technology companies), or the contours of ‘intrinsic’ or ‘strategic’ value, the Court’s conclusion is surprisingly firm.

Microsoft’s failure to provide an accurate and complete version of the information while the negotiations with the Commission were ongoing appears to have influenced the Court’s reasoning on specificity ([93] and [97]), its finding that the rates imposed on competitors were unreasonable ([115]) and its assessment of the fine ([217], [220] and [229]). In stark terms, the Court felt (at [97]) that if Microsoft had wanted to challenge the Commission’s assessment of the reasonableness of the remuneration rates:

it could – instead of entering into a long dialogue with the Commission and gradually reducing the rates charged – first of all, have made available at the earliest opportunity an accurate and complete version of the interoperability information and then have definitively adopted the remuneration rates that it considered appropriate.

In contrast, the Court did not enquire why it was that the Commission had allowed things to continue for so long if it felt that Microsoft was acting so reprehensibly.

II. A return to form in the IP context

The case also appears to mark a return to the Court’s earlier case-law, rowing back from some of the more expansionary statements in Microsoft I.

In a series of earlier cases the CJEU had established a test for “exceptional circumstances” in which a proprietor’s exercise of intellectual property rights would constitute abusive conduct contrary to Article 102 TFEU: (1) the refusal to license relates to a product or service indispensable to the exercise of a particular activity on a neighbouring market; (2) the refusal is of such a kind as to exclude any effective competition on that neighbouring market; (3) it prevents the appearance of a new product for which there is potential consumer demand; and (4) it is not objectively justified (see for example Magill (C-241/91 P RTE and ITP v Commission [1995] I-743), Bronner (C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7791) and IMS Health (C-418/01 IMS Health GmbH & Co v NDC Health GmbH & Co [2004] ECR I-5039)).

However, in Microsoft I the General Court held (at [647]) that:

“[t]he circumstance relating to the appearance of a new product . . . cannot be the only parameter which determines whether a refusal to license an intellectual property right is capable of causing prejudice to consumers within the meaning of [Article 102(b) TFEU]. [S]uch prejudice may arise where there is a limitation not only of production or markets, but also of technical development”.

The concept of “technical development” was much broader and vaguer than previously envisaged, and raised the possibility of a greater judicial willingness to find abuse. Without reference to “production or markets”, discerning technical development would be a difficult task. In contrast, in Microsoft II, the Court glossed over this change and recalled the earlier formulation (at [139]). The Court also held that the classic conditions had been satisfied on the facts (at [140]) although that was not the case in Microsoft I. It appears that the approach in Microsoft I was merely a glitch, and that the general line of authority provided by the Court of Justice remains the standard to which proprietors of IP rights will be held.

The possibility of an appeal remains, notably as the Court conflated its approach to fines with that for penalties despite the fact that the latter are concerned with ending ongoing conduct, for which “sufficiently precise criteria” would arguably be easier to identify. Moreover, the reduction of the fine gave only limited weight to the fact that the Commission had appeared to permit Microsoft to provisionally implement a practice with anti-competitive effects ([226]). Whether the Court of Justice has some light to shed on these questions is still to be seen…

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Filed under Abuse, Penalties

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