Microsoft and beyond
Current trends in EU single firm conduct policy and
case law
Michel Debroux
Hogan & Hartson / ACCE Seminar, London, 13 May 2008
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Summary
1. Reading
2. Tying
Microsoft (again)
: When is it illegal in EU law ?
3. Pricing
: some recent case-law on recurrent
issues (margin squeeze, predation, rebates &
discounts)
4. EU-US
5. A few
Divergences/Convergences
words about politics
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Reading Microsoft (again)


Specific context of the Microsoft judgment

The US Netscape precedent

A case of “super-dominance”

Rather aggressive handling of the case

De facto standard setting role of Microsoft
Interoperability : refusal to grant a license = a refusal
to deal, abusive only in “exceptional” circumstances

When is a refusal abusive ? (3 IMS criteria: indispensability,
foreclosure effect, new product for which there is a demand)?

IMS Health test - more flexibly applied in Microsoft? (in
particular, the foreclosure effect on “all competition”)
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Reading Microsoft (again)

Windows Media Player (Tying)

Dominance on the Tying market (easy to show in Microsoft,
owing to MS’ “superdominance” on the PC operating system
market)

Need to identify two separate products, not “intrinsically”
linked – this test is driven by consumer demand … but it can
evolve very quickly, especially in fast-evolving technologies

Foreclosure effect?


Customers are “foreclosed”, i.e. have no other choice (CFI :
irrelevant that products competing with the tied product (WMP)
were downloadable free of charge

Market as a whole is foreclosed, i.e. competitors have not much
room left to compete (“obvious” or “likely” foreclosure (CFI) ?)
And by the way, what about efficiencies ?
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Reading Microsoft (again)

Is Microsoft too specific to be replicated ?

MS “superdominance”

Perception of a systematic business model
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Reading Microsoft (again)
US – EU Divergences: widening the gap again?
“We are concerned that the
standard applied to unilateral
conduct (…) may have the
unfortunate consequence of
harming consumers by chilling
innovation and discouraging
competition”
“In the US, the antitrust laws are
enforced to protect consumers by
protecting competition, not
competitors ..”
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Tying : when is it illegal ?
• Dominance on the tying market
• Two distinct products (“tying” and “tied”)
– Focus on the demand of the tied product : is it separate ?
• Foreclosure effect
– Impact on the consumers (how are they “tied” : price-wise,
contractually, can they easily switch to a competing tied product?)
– Impact on the market : “likely” or “obvious” foreclosure effect
• High standard of proof for objective justification and/or
efficiencies :
– it is not enough to show that consumers want the combination of
both tying and tied product, it should be clear that they ask for
THIS combination involving both products from the same
(dominant) player.
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Pricing : recent case-law on some issues
Margin Squeeze (Deutsche Telekom, CFI, 10 April 2008)
Facts
– Difference between DT’s wholesale prices to competitors and
retail prices to end-consumers too thin to allow an “as efficient
competitor” to obtain a reasonable margin
Findings
– Possibility of “dual” regulation (both ex ante and ex post) if the
dominant player retains “some” room to set its prices, in spite
of the price regulation mechanism
– Importance of the criterion of an “as efficient competitor
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Pricing : recent case-law on some issues
Fidelity Rebates & Discounts (British Airways, ECJ,
15/03/2007)
Facts
– Result-conditioned bonuses to travel agencies generating
over £500,000 in annual sales of BA tickets
– Incentives to increase sales of BA tickets
– Discrimination between travel agencies
Findings
– Competing airlines did not have pockets deep enough to
offer a comparable bonus system
– Foreclosure effect
– Direct adverse effect on the consumer not shown
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Pricing : recent case-law on some issues
Predation (Wanadoo, CFI, 30 January 2007)
1. Facts
•
•
•
Broadband internet market, quickly evolving
Wanadoo’s retail prices lower than its average full costs
Foreclosure effect
2. Findings
•
•
•
•
CFI confirms that the Commission does not need to prove that the
dominant player will not be able to recoup its losses on the long
run
Forward-looking analysis of costs (5-years amortization of initial
sunk costs)
Possibility to have a dominant position even on dynamic and
emerging new markets
When are dominant players allowed to “align” on competitors’
prices ?
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EU – US Divergences / Convergences
There are a few “technical” divergences, such as the ability to
recoup losses in the predation test (needed in the US, not in the
EU), but the true divergences go beyond technicalities :
– “Dual” regulation (antitrust + sector regulator) is possible in
the EU, less so in the US (Trinko)
– Both regulators claim to have an “effect-based approach ;
but EU enforcers insist on foreclosure ; US enforcers care
more about efficiencies
– “Protecting competitors or competition” ? … EU enforcers
believe that these two approaches are two flips of the same
coin, while US regulators are more reluctant to intervene on
market structures, unless a clear consumer harm is proved.
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A few words about politics
– The EC Commission has a policy ; how far is it influenced
by “politics” ?
– Commissioners do have national and political backgrounds,
but the Commission as such is supposed not to. Really ?
– Politics play a greater role when the Commission acts as a
law-maker (see for instance the unbundling issue in the
energy sector).
– Increased complexity when nationalities are taken into
account.
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For Further Information Please Contact…
MICHEL DEBROUX
Partner, Paris
[email protected]
(tel) +33.1.55.73.23.00
(fax) +33.1.55.73.23.10
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