Luxemburg, 24 April 2006 (12:00 hours) – The Hearing of the European Court of First
Instance on Microsoft’s appeal of the European Commission’s March 2004 Decision opened
here this morning. ECIS is an Intervener in these proceedings and will give evidence in
support of the Commission’s Decision.
This morning, the Court heard evidence from Microsoft and others on its side concerning the
Commission’s finding that Microsoft has illegally tied its Windows Media Player to its
monopoly Windows PC client operating system. The Commission and ECIS will give
evidence on the same finding this afternoon.
STATEMENT BY SIMON AWDE
Chairman, ECIS
“The Commission’s media player ruling is about much more than just one software product.
Video streaming media players are the access point for users to reach most digital content
over the internet. By imposing its player and its format as the standard, Microsoft can
become the gatekeeper, which would allow it to dictate how and at what price digital media
content is created, delivered and played. “
“We have heard nothing new from Microsoft this morning.
“Complex technical explanations of why Windows Media Player isn’t really a separate product
from the Windows monopoly operating system didn’t convince this Court two years ago and
won’t convince it now, because Microsoft’s behaviour in the marketplace tells exactly the
opposite story.
“Windows Media Player is named separately, marketed separately, and updated separately
from Windows. It is the dominant video streaming applications product today only because in
1999 it was tied to the Windows monopoly. Consumers are obliged to accept Windows Media
Player on PCs they purchase and content providers have little choice but to write their content
to work with the ubiquitous technology. Microsoft imposed its media player on the market by
illegally tying it to the Windows monopoly, rather than allowing the market to choose.
“Microsoft likes to point to Apple’s iTunes as evidence that there is vibrant competition in the
media player market. But iTunes is not a fully-featured general purpose streaming media
player. It is the client side for the iTunes music store and iPod, providing jukebox functionality
for these products. As such, it does not compete with WMP. The arrival of iTunes hasn’t
made any difference to the ability of video streaming players to penetrate the market. The
fact that Apple moved away from competing with WMP head on, into the music service niche
does not contradict the Commission’s view that Microsoft’s tying forecloses new competition.
On the contrary, it confirms the Commission’s position.
“Differing business models are likewise beside the point for two reasons. First, no other
company, whatever its business model, has the monopoly power to impose its products
whatever their merits. Second, in the Microsoft business model the purpose of tying software
applications to the Windows monopoly is primarily to eliminate competition. There are no
efficiencies leading to user benefits from tying the media player to the operating system.
“Finally, it is disingenuous to contend that lack of demand for the version of Windows ordered
by the Commission without Windows Media Player shows that the market isn’t interested in
alternatives. If Microsoft had not tied Windows Media Player to the Windows monopoly in
1999 to impose it on the market, it is highly likely that consumer preferences would still be
spread over a number of competing media players. Competition was largely eliminated and
consumer choice as well.”
The European Court of First Instance Hearing on Microsoft’s appeal of the European Commission’s March 2004 Decision opened here this morning. ECIS is an Intervener in these proceedings and will give evidence in support of the Commission’s Decision.
This afternoon, the Court heard evidence from the European Commission and others on its side, including ECIS, concerning the Commission ruling that Microsoft illegally tied its Windows Media Player to its monopoly Windows PC client operating system.
HIGHLIGHTS FROM ECIS TESTIMONY
(Monday afternoon, 24 April)
The Commission’s Decision shows how Microsoft has used its operating system monopoly to gain control over the market for streaming media players. Rather than competing on the merits of its own media player, Microsoft ensured that Windows Media Player would be present on every desktop. This fundamentally and deeply distorted competition.
Microsoft’s decision in 1999 to tie Windows Media Player to the Windows monopoly was motivated by a growing strategic competitive threat, not by the prospect of improved user benefits :
- …streaming media players are “a strategic area and we need to win it.” Bill Gates
- “Winning the streaming battle means three things: winning the file format war, the (player) war, and winning the (media) server war.” Internal Microsoft correspondence
- “RealNetworks is still significantly ahead of us and not slowing down (and is) beating our (Netshow) v3 in reviews and is ahead in a few key feature areas.” Microsoft should therefore “reposition (the) streaming media battle from Netshow vs. Real to Windows vs. Real,” and “follow the (Internet Explorer) strategy wherever appropriate.” Anthony Bay, Microsoft Executive, to Bill Gates
Less than five months later, Microsoft tied Windows Media Player with the new Windows 98, and PC makers where prohibited from shipping previous unbundled versions on new systems.
This morning Microsoft repeated its claim that the Commission’s assessment of foreclosure of the market is speculative. But there is nothing speculative about that assessment. Microsoft specifically intended the foreclosure effect, their internal correspondence shows that they foresaw it, and indeed it had happened by the time of the Commission’s Decision.
Until mid-1999, RealPlayer had many times more users than Windows Media Player, which was losing ground rapidly. Since the tie of Windows Media Player to the Windows monopoly almost 90% of users use Windows Media Player and around 60% do so exclusively.
Microsoft has presented no evidence from 1999 that they tied Windows Media Player to the Windows monopoly in order to improve performance. Technical efficiencies were neither the goal nor the effect of the tie. Rather, the purpose was to ride the wave of the Windows monopoly.
This is a replicable strategy, because the ubiquity obtained through a tie to Windows beats the quality of competing products. Just as this strategy eliminated the Netscape Browser and now Real Player, unless stopped it will do the same to other technologies whenever MSFT deems them to be “strategic” to their business interests.
Microsoft says there are successful competitors to Windows Media Player, and specifically cites Adobe’s Flash as a media player which has been successful competing with Windows Media Player. Technically, this is comparing apples and oranges. But the more important point is that this actually conforms to the established pattern of Microsoft behavior, because the highly-regarded Flash is itself today pre-installed in Windows, just as Real Player was before Microsoft bundled Windows Media Player. Meanwhile, Microsoft is busy trying to develop the functionality which Flash provides but Windows Media Player cannot.
There are two alternatives to the closed, proprietary Windows video streaming standard, either a de facto standard emerging through a process of free and fair competition, or an industry-created open standard. Both would preserve the incentive to innovate which is destroyed by Microsoft standardization through monopolization.
Microsoft supporters complain that their products will not run on, or with, an unbundled Windows with a third party player. But the root cause of their problems, if any, is not the Commission’s unbundling order, but Microsoft’s behavior. They have had little option but to invest in Microsoft’s format, and now they are hooked. This addition cannot be accepted as a justification for Microsoft’s tying.
In summary, Microsoft’s position is that there should be no limits to its tying and that it knows what is best for users and PC makers. ECIS says that when innovators create new markets, Microsoft should not be allowed to appropriate them by tying and foreclosing consumer choice. Consumers, and not super-dominant firms, should be allowed to decide what solutions ultimately succeed. That’s what competition law is all about.
ECIS is an Interested Party in the European Commission’s legal proceedings concerning Microsoft, and will give evidence supporting the Commission during next week’s Hearing before the European Court of First Instance pursuant to Microsoft’s appeal of the Commission Decision of March 2004.
The European Commission’s March 2004 Decision intends to put an end to a recurring pattern of illegal behaviour by which Microsoft exploits its monopoly position in the Windows PC client operating system to eliminate competition in related markets identified as having strategic interest. In so doing, Microsoft eliminates competition on the merits, stifles innovation and denies consumers any
real choice among competing products.
These anti-competitive practices violate fundamental and long-standing principles of European Union competition law. The Commission’s Decision focuses on two markets where this pattern of behaviour and its damaging effects are clear, work group server systems and media streaming players.
In both, Microsoft first welcomed innovative new technologies of others which complemented the Windows platform, then Microsoft assumed the functionality of these technologies and finally sought to eliminate this third-party competition once Microsoft’s own products on the relevant markets were deemed to reach a marketacceptable quality level. This was achieved by tying Microsoft’s products to its dominant Windows PC Client operating system and by reserving privileged interoperability to Microsoft’s own offerings.
Statement by Simon Awde
Chairman, ECIS
“We are confident that at the end of these judicial proceedings, the Court will uphold the Commission’s Decision. The applicable EU law is clear and the relevant jurisprudence well-established. The facts of the case are equally clear and all procedures have been respected. There is no basis for overturning the Commission’s Decision.
“On the eve of this five-day hearing, it is important to go back to basics. This case involves a clear abuse of market power by a super-dominant company using its monopoly power in one market – PC client operating systems – to foreclose competition on the merits in two others – media streaming applications and work group servers – as well as to eliminate potential threats to its existing monopoly power in PC client operating systems.
“The EU is not alone in these findings. In every jurisdiction where a verdict has been rendered, including the United States and the EU but also more recently Japan and South Korea, Microsoft has been found guilty of anti-competitive practices.
“Competition drives innovation, which in turn produces consumer choice. By foreclosing competition in these markets, Microsoft has directly harmed consumers.“Failure to uphold this Commission Decision will allow Microsoft to continue these anti-competitive practices in the markets addressed in the current case, and would open the way for an extension of the monopoly into new areas. Elimination of competition on the merits, further reduction in consumer choice, and Microsoft control of the fundamental technology platforms of the information society would be the unfortunate result.”
The European Committee for Interoperable Systems (ECIS) will present its arguments before the European Court of First Instance (CFI) in support of the European Commission and its 24 March 2004 Decision finding Microsoft abused its overwhelmingly dominant position in PC operating systems by preventing interoperability by refusing to provide interface information and tying Windows Media Player with the Windows operating system. ECIS strongly supports the Decision’s conclusions with regard to refusal to provide interoperability information and illegal tying, which both address Microsoft practices aimed at eliminating consumer choice.
The CFI hearings start on 24 April 2006 and are expected to last until 28 April 2006.
ECIS is admitted as a third party intervener in the case in support of the Commission. ECIS is closely coordinating its contribution with the other interveners supporting the Commission, the Software and Information Industries Association (SIIA), multimedia software provider VideoBanner.com , and the Free Software Foundation Europe (FSFE).
The European Committee for Interoperable Systems (ECIS) has filed comments on the Commission’s consultation on future patent policy in Europe.
In its submission, ECIS advocates a patent policy that is based on the fostering of competition and innovation for the benefit of consumers, accomplished by ensuring appropriate standards of patentability and examination, as well as by appreciating the important role played by interoperability.
ECIS also urged the Commission to ensure adequate safeguards against misuse of the patent system. The greatest threat to an effective and credible patent system that serves all interests is the use of the patent system in a manner that subverts it, for example, by allowing entities to accumulate patents for the mere purpose of extricating royalties by threatening to stop the commercialisation of a product utilising the patent, without the entities implementing the patented
technologies themselves, by using patents to prevent interoperability with dominant products or platforms, or by late disclosure of standards-related patents.