EU Court Upholds $1B Fine Against Microsoft

(CN) - Microsoft must pay about $1 billion as punishment for a monopoly that the European Commission concluded had been in place for several years, the EU's General Court ruled Wednesday.

In 2004, the commission found that Microsoft had abused its dominant market position by refusing to share interoperability information with open-source competitors on the work group server operating systems market.

The commission ordered Microsoft to grant access to the information and appointed an independent monitoring trustee to ensure compliance.

It also imposed a fine of more than $621 million and forced Microsoft to pay the trustee's salary. Ongoing talks between Microsoft and the commission broke down in 2006, when the commission found that the company failed to provide a complete and accurate version of the interoperability information.

Microsoft had also charged unreasonable rates for the information, according to the commission, which fined Microsoft another $350 million.

The General Court upheld that penalty in 2007.

Concluding that Microsoft was still overcharging for interoperability information, the commission levied a fresh periodic penalty in 2008 against Microsoft - a whopping $1.1 billion for a 16-month period.

Microsoft appealed and asked for either a complete annulment of the commission's decision or a cancellation or reduction of the periodic penalty. The company said the commission had been unreasonably vague in requiring it to charge "reasonable rates."

The General Court disagreed.

"The use of imprecise legal concepts in making rules, breach of which entails the civil, administrative or even criminal liability of the person who contravenes them, does not mean that it is impossible to impose the remedial measures provided for by law, provided that the individual concerned is in a position, on the basis of the wording of the relevant provision and, if need be, with the help of the interpretation of it given by the courts, to know which acts or omissions will make him liable," the court's 38-page decision states.

"Furthermore, in [the 2004 decision], it is stated that any remuneration that Microsoft might ask in return for access to and use of interoperability information should not reflect the strategic value stemming from Microsoft's market power in the client PC operating system market or in the work group server operating system market," the court added.

"Microsoft declares that it has applied those pricing principles in establishing its remuneration table and indicates that, under [the decision], the monitoring trustee and the High Court of Justice are competent to impose obligations on Microsoft in the event of a breach of the pricing principles," the decision also states.

The pricing principles provide "cumulative, sufficiently precise criteria" for Microsoft to assess whether a given technology has an intrinsic value distinct from its strategic value, but do not give Microsoft a way out of adopting "a course of conduct that complies with [the decision] or for the commission to carry out its task of monitoring that conduct," according to the court.

Microsoft also failed to show that that commission violated its right to effective judicial protection.

"Microsoft is challenging the commission's assessment of the innovative character of the technologies in question and, as a consequence, its assessment of the reasonableness of the rates of remuneration," the decision states. "Microsoft's complaint thus amounts, in essence, to claiming that it would have been able to challenge that assessment sooner if the commission had established, by means of a decision, the appropriate rate. If that had been what Microsoft wanted, 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 such a situation, if the Commission were to consider the rates in question unreasonable, a decision such as the one challenged in the present case would have been adopted earlier. Microsoft's right to effective judicial protection has thus not been affected in any way whatsoever."

The court disagreed with Microsoft's position that the commission applied faulty criteria to assess the innovativeness of the company's technology.

"The intrinsic value of products such as those at issue in fact lies in their innovative character," the decision states. "By contrast, the fact that those technologies were trade secrets by virtue of Microsoft's policy is not an indicator of any value other than strategic value."

"Since the legitimacy of the commission's approach of assessing the innovative character of Microsoft's technologies has been accepted, it cannot be denied that the Commission is entitled to assess their innovative character by reference to its constituent elements, namely novelty and non-obviousness, the latter belonging to the notion of 'inventive step,'" the judges added. "It should be added, in that regard, that in a letter dated 4 May 2006, Microsoft affirms that innovation is to be assessed by reference to the standards of novelty and inventive step, even though it takes the view that the innovation test should not supplant the law of trade secrets. In a letter of 31 July 2006, Microsoft also recognized that the standard of innovation as a 'filter for strategic value' has the meaning attributed to it under patent law and submitted its reports on innovation with that meaning in mind."

Contrary to Microsoft's arguments, the commission decided not to extinguish the value of intellectual property rights or trade secrets, but to stop anticompetitive abuse, according to the court.

Since Microsoft failed to offer better definitions for "novelty" and "non-obviousness," the company also failed to counter the commission's decision, the judges added.

Noting possible confusion caused by a letter sent to Microsoft in June 2005, however, the court shaved $48 million off the commission's penalty assessment.

In the letter, the commission accepted that Microsoft could restrict distribution of products developed by open-source competitors on the basis of nonpatented and noninventive interoperability information until the court's delivery of a 2007 judgment.

"Microsoft has not produced anything to indicate to what extent the anti-competitive effects of the conduct censured by the contested decision would have been produced if Microsoft had acted as described in the letter of 1 June 2005 but had complied with its obligation to offer reasonable prices for non-patented and non-inventive technologies," the decision states. "Nothing indicates that the effects that would have thereby been produced would have been other than marginal. ... In those circumstances, the amount of the periodic penalty payment imposed on Microsoft must be fixed at EUR 860 million."

Microsoft has two months to appeal Wednesday's decision to the Court of Justice, and it must limit its claims to points of law only.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit