Microsoft EU Antitrust Case

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Case Details:

Case Code : BENV005
Case Length : 16 Pages
Period : 1998-2006
Pub Date : 2006
Teaching Note :Not Available
Organization : Microsoft
Industry : Information Technology and Related Services
Countries : US, European Countries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We think that the facts will show that there is strong competition and consumer choice. The impact of this case goes far beyond Microsoft. The ability to innovate is important for the success of any company and for the economic success of any country."¹

- Brad Smith, Microsoft's General Counsel, in April 2006.

"The commission is not asking Microsoft to be nice to its competitors. It is asking it to compete on the merits."²

- Per Hellstrom, European Commission's Lawyer, in April 2006.

Introduction

On April 24, 2006, the much-awaited trial between the US based software major Microsoft Corporation (Microsoft) and the European Commission (EC)³ began at the Court of First Instance (CFI)⁴, Luxembourg (Refer Exhibit I for details on Microsoft).

Microsoft was appealing against the ruling given by EC on March 24, 2004, that the company had abused its market leadership status by using its dominant position in the Windows operating system (O/S) to gain market share in the work group server O/S business. The EC ruling also stated that the company had added Windows Media Player (WMP)⁵ software to its Windows O/S and sold it free of cost.

As a punitive measure, the EC imposed a fine of 497 million euros⁶ on Microsoft.

The EC began investigations into Microsoft's business practices following a complaint from Sun Microsystems⁷ (Sun) in December 1998 which stated that Microsoft was trying to illegally gain market share in the workgroup server O/S segment. The EC also brought the WMP issue into the same case and after investigations lasting more than five years, finally gave its ruling against Microsoft. The company appealed against this decision at the CFI in June 2004. A special panel of 13 judges heard the arguments of the two parties between April 24 and 28, 2006 and was expected to give its ruling in the first quarter of 2007 (Refer Exhibit II for chronology of events in the case).

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1] "Microsoft Squares Off with EU,"www.redherring.com, April 24, 2006.

2] Matt Moore, Aoife White, "Microsoft, EU Await Antitrust Decision,"www.miami.com, April 29, 2006.

3] Headquartered in Brussels, the European Commission (EC) is the executive body of the European Union (EU). It has the power to enforce EU competition rules on restrictive trade practices and abuse of market leadership when cross-border trade and competition are affected.

4] Established in 1989, the Court of First Instance (CFI) is an independent court in the European Union. It is the second highest court in the EU after the Court of Justice. CFI has 25 judges with at least one from each of the member states.

5] WMP allows users to see and hear audio and video files on their PCs. Other media players include Real Player, Winamp, etc. It has been a part of Windows O/S since 1990.

6] As of March 24, 2004 1 Euro = 1.23260 US Dollar.

7] Sun Microsystems, founded in 1982, is a leading vendor of hardware, software and IT services. It is the leading manufacturer of UNIX based servers and is the developer of the famous Java programming language. Its products and services comprise servers, storage systems, desktops and workstations, software, etc. For the year ended June 2005, the company's total revenues were US$ 11 billion and net income was US$ 107 million.