
Vol. 1, N° 2, Summer 1994 EC COMPETITION POLICY NEWSLETTER PAGE 17
Press releases issued on the most important developments
FOLLOWING AN UNDERTAKING BY MICROSOFT TO CHANGE ITS LICENSING PRACTICES, THE
EUROPEAN COMMISSION SUSPENDS ITS ACTION FOR BREACH OF THE COMPETITION RULES.
Mr. Karel Van Miert, the Commissioner responsible for
competition policy, has obtained an undertaking signed 15
July 1994 from Microsoft to modify its licensing practices.
This followed a period of intense negotiations involving
Microsoft and a team of senior officials drawn from the
European Commission and the United States Department of
Justice. These negotiations also resulted in Microsoft settling
charges brought by the US DoJ by signing a consent decree.
This undertaking is very significant at least in two respects.
It is the most important case in the software industry until
now. It opens up the market for the operating system
software which is at the heart of the estimated 150 million
computers in use worldwide and is of strategic importance
to the development of some of the fastest growing sectors of
the Information Technology industries. Furthermore, the
negotiation of the undertaking was a historic and
unprecedented piece of co-operation between the EC
Commission and the United States Department of Justice. It
serves as an important model for the future, as it shows how
the two authorities can combine their efforts to deal
effectively with giant multinational companies. The success
of this joint approach sends a strong signal to all
multinational companies, including those in other sectors.
Background
Microsoft, founded in 1975 and based in Redmond,
Washington, has become the largest developer, manufacturer
and supplier of PC software in the world, with a worldwide
turnover of US $ 3.7 billion and a net profit of almost US $
1 billion in 1993, a third of which was derived within the
European Union. Microsoft supplies the MS-DOS and
Windows operating systems used in more than 120 million
personal computers and therefore enjoys a virtually
unchallenged leadership in this market.
The Commission launched an investigation of Microsoft's
licensing practices following a complaint dated 30 June 1993
from Novell, the world's second largest PC software
company based in Provo, Utah. Novell is mainly known for
its networking software, but also supplies operating system
software in competition with Microsoft. Novell alleged that
Microsoft blocked competitors out of the market for PC
operating system software by certain anticompetitive
practices. In particular, the structure of Microsoft's standard
agreements for licensing software to PC manufacturers was
said to exclude competitors from selling their products.
Manufacturers were required to pay royalties to Microsoft
based on the number of PCs shipped regardless of whether
such PCs contained preinstalled Microsoft software, a
competitor's software, or no software at all.
After investigating the complaint, the Commission was
concerned that:
- the use of "per processor" and "per system" licences, i.e.
clauses requiring payment of a royalty on every computer
produced by a PC manufacturer either containing a particular
processor type or belonging to a particular model series
designated by that manufacturer, regardless of whether a
particular computer is shipped with preinstalled Microsoft
software;
- the use of "minimum commitments" in these contracts, ie
requirements that licensees pay for a fixed minimum number
of copies of a particular product regardless of actual use; and
- the duration of Microsoft's licence agreements,
had the effect of foreclosing the European market for PC
operating systems software, thereby infringing Articles 85 and
86 of the EC Treaty .
At the same time the United States antitrust authorities were
investigating similar concerns. Investigations had been
launched by the Federal Trade Commission. When, in early
1993, this body was split on the issue on whether or not to
take action, the case was continued by the Antitrust Division
of the US Department of Justice. During these investigations,
Microsoft consented to the exchange of information between
the Commission and the US Department of Justice by waiving
its right to secrecy with respect to both authorities. A number
of contacts between DG IV and the DoJ followed in which a
coordinated approach was prepared. However, this type of
joint action was independent of the Cooperation Agreement
in competition matters concluded in 1991 between the EC
Commission and the US Department of Justice whose validity
is still under scrutiny by the Court of Justice.
At the time when the Commission was about to open the
formal procedure and to issue a statement of objections,
Microsoft indicated its willingness to reach a settlement with
the authorities concerned. In order to reach such a settlement,
the Commission and the US Department of Justice agreed to
negotiate jointly with Microsoft. To this end, trilateral talks
were held both in Brussels and in Washington DC. They
resulted in an Undertaking from Microsoft to both authorities.
The Undertaking
The Undertaking obtained by the European Commission and
the US Department of Justice provides that Microsoft will not
enter into licence contracts with a duration of more than one
year, will not impose minimum commitments on licensees
and will not use per processor clauses any longer. Per system
licences will be allowed only if licensees are clearly given
flexibility to purchase non-Microsoft products and to avoid
payment of royalties to Microsoft in such instances.
In addition, any provisions of existing licence contracts
which breach these provisions will not be enforced, and
licensees have an option to end existing contracts.
This Undertaking has a duration of six and a half years.
(
A similar press information was issued by the US
Department of Justice for immediate release on Saturday, 16
July 1994
). IP/94/653
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