German courts may soon have to entertain a lawsuit by Circus Boralli against the Berlin Zoo for abuse of dominance based on predatory cuteness. The perpetrator is polar bear cub Knut:
Technorati Tags: predatory cuteness
The Financial Times reports (via MSNBC) that they have seen the confidential Statement of Objections Microsoft recently received (we blogged about it here). The SO charges that Microsoft must license technical information about the Windows operating system for next to nothing to rivals. A three-year-old ruling requires Microsoft to make this information available to competitors (see IP/04/382) to remedy Microsoft’s abuse of a dominant position (Article 82) by leveraging its near monopoly in the market for PC operating systems onto the market for work group server operating systems. Microsoft therefore had to disclose complete and accurate interface documentation on “reasonable and non-discriminatory terms”, allowing non-Microsoft work group servers to interoperate with Windows PCs and servers. Recently EU Commissioner Nellie Kroes commented that Microsoft’s intended fees were too high. (Microsoft intended to charge up to 5.95% of rival’s server revenues.) Now it appears that in the Commission’s view “reasonable” means next to nothing:
[T]he confidential statement of objections from the Commission in the long-running dispute makes clear that Microsoft will at best be allowed to levy a tiny fraction of the royalties it is demanding.According to calculations by the Commission’s technical expert, Prof Neil Barrett, Microsoft’s demands would mean that rivals could recoup their development costs after seven years.
The Commission’s expert, who was suggested for the post by Microsoft, goes on to calculate that even an average royalty rate of 1 per cent would be unacceptable for licensees. Prof Barrett states that a 0 per cent royalty would be “better” and adds: “We can only conclude on this basis that the Microsoft-proposed royalties are prohibitively high […] and should be reduced in line with this analysis.”
Three Microsoft rivals that have reviewed the group’s pricing scheme extensively – understood to be IBM, Sun and Oracle – come to the same conclusion: “The prices charged by Microsoft are prohibitive and would not allow them to develop products that would be viable from a business perspective,” the Commission charge sheet says.
Microsoft’s General Counsel commented on March 1 that
“Microsoft has spent three years and many millions of dollars to comply with the European Commission’s decision. We submitted a pricing proposal to the Commission last August and have been asking for feedback on it since that time. We’re disappointed that this feedback is coming six months later and in its present form, but we’re committed to working hard to address the Commission’s Statement of Objections as soon as we receive it.”
More on Microsoft’s reaction here. Financial Times today also reports that
A spokesman for the US group said: “Microsoft will respond to the latest statement of objections in full by April 23. We believe we are in compliance with the March 2004 decision and that the terms on which we have made the protocols available are reasonable and non-discriminatory.”
The European Commission recently published statistics regarding cartels for 2002-2007 (via the EU Law Blog). The EU Law Blog points out that “[t]he statistics seem to show an increase in the number of cartel cases and an increase in the quantum of fines. What they don’t show is how much the Court of First Instance changes the amounts decided by the Commission.” I’d add that the fines from previous years should also be adjusted for inflation.
The European Commission today confirmed its investigation into alleged market divisions in the on-line music industry. The Statement of Objections—a formal document comparable to a complaint in the Commission’s proceedings—was sent to major record companies and Apple. Here is the press release:
The European Commission can confirm that it has sent a Statement of Objections to major record companies and Apple in relation to agreements between each record company and Apple that restrict music sales: consumers can only buy music from the iTunes’ on-line store in their country of residence. Consumers are thus restricted in their choice of where to buy music, and consequently what music is available, and at what price. The Commission alleges in the Statement of Objections that these agreements violate the EC Treaty’s rules prohibiting restrictive business practices (Article 81). Apple operates a series of iTunes on-line stores in the European Economic Area (EEA) which sell music downloads. The Statement of Objections alleges that distribution agreements between Apple and major record companies contain territorial sales restrictions which violate Article 81 of the EC Treaty. iTunes verifies consumers’ country of residence through their credit card details. For example, in order to buy a music download from the iTunes’ Belgian on-line store a consumer must use a credit card issued by a bank with an address in Belgium.
Apple acts as the distributor for the record companies; it would seem to me therefore that agreements between the record companies and Apple, under which Apple may only sell songs within territorial restrictions, is a vertical restraint, limiting interbrand competition. Vertical restraints, which are almost always permissible under the rule of reason in the U.S. (unless, for the moment at least, they concern minimum resale-price maintenance), tend to be viewed more restrictively under EU law. Such restraints would come under Regulation 1983/83 (and specifically Art. 3(c)?) Regulation 2790/1999 with regard to the agreements posterior to 1st January 2000 (and specifically Art. 4(b) and 4(c)), but (as commentator Pascal notes) would come under Art. 81. Still, the result is odd that the same distributor, Apple, covers the territories of several member states and the restrictions of the iTunes stores are entirely internal to the distribution by Apple. That is, Apple is not restricted from selling to from someone in France, it just can’t do so through the Belgian iTunes music store. I am curious to what extent the offerings and pricing between the Belgian and French iTunes music stores actually differ. (Do you know? Tell us.)
The Wall Street Journal ($) reported this morning. ABC also had the story, including Apple’s reaction:
Apple spokesman Steve Dowling said Monday the company wanted to operate a single store for all of Europe, but music labels and publishers said there were limits to the rights that could they could grant to Apple. “We don’t believe Apple did anything to violate EU law,” he said. “We will continue to work with the EU to resolve this matter.” The cost of buying a single song across the 27-nation bloc varies among the available iTunes stores in EU nations. For example, downloading a single in Britain costs $1.56, in Denmark $1.44, while in countries using the euro such as Germany and Belgium, a single costs $1.32.
Oh, and in case you were wondering. The EU also said:
The Statement of Objections does not allege that Apple is in a dominant market position and is not about Apple’s use of its proprietary Digital Rights Management (DRM) to control usage rights for downloads from the iTunes on-line store.
It seems that Microsoft is yielding to the EU Commission in the face of threatened fines, as the Redmond Developer News reports.
Microsoft is making key communications protocols available for license, so that third parties, including competitors, can link into the company’s newest enterprise products. Some are available immediately. … [T]o a large extent, Microsoft is bowing to the European Commission, which decreed the company must make the interfaces public so rivals can compete on what they claim will be a more level playing field. “The licensing is part of the settlement with the EU to interoperate,” said Rob Enderle, principal analyst for market researcher Enderle Group. However, if Microsoft officials were hoping the latest licensing steps will be enough to satisfy rivals and critics, that outcome is not in the cards, Enderle predicted.
We’ve blogged about the new threat of European fines here, and about Microsoft’s reaction. HT to /.
Geoff Manne (who is currently acting as the Academic Relations Manager for Law & Economics for Microsoft) writes with more information about Microsoft’s position on the latest EU Statement of Objections, threatening Microsoft with more fines:
In fact, Microsoft does not agree with Ms. Kroes; innovation is actually only one of four bases for pricing, and the EC’s assessment of appropriate pricing is supposed to kick in only once good faith licensing negotiations have broken down–which has not happened.
Also, for what it’s worth, at least 36 patents and many trade secrets read on the supposedly non-innovative protocols. Although there may be a presumption of validity, obviously the mere issuance of a patent does not mean absolutely that the subject matter is innovative. But it does seem odd for the antitrust authority to be making the assertion otherwise without so much as a hearing to assess the assertion.
Anyway, here’s Microsoft’s brief initial response:
Microsoft Statement on European Commission Action on Protocol Pricing Third-party analysis finds proposed prices are at least 30 percent below market rate for comparable technology. REDMOND, March 1, 2007 — Microsoft Corp. issued the following statement, attributable to Senior Vice President and General Counsel Brad Smith, after the announcement today that the European Commission has issued a Statement of Objections regarding the royalties Microsoft has proposed for its protocol technology licensing program in Europe: “Microsoft has spent three years and many millions of dollars to comply with the European Commission’s decision. We submitted a pricing proposal to the Commission last August and have been asking for feedback on it since that time. We’re disappointed that this feedback is coming six months later and in its present form, but we’re committed to working hard to address the Commission’s Statement of Objections as soon as we receive it. “We do have a different perspective on the underlying facts and the proposed findings. “First, we believe we have been fair in setting proposed protocol prices, and an analysis by PricewaterhouseCoopers found that our proposed prices were at least 30 percent below the market rate for comparable technology. “Second, other government agencies in both the United States and Europe have already found considerable innovation in Microsoft’s protocol technology. US and European patent offices have\nawarded Microsoft more than 36 patents for the technology in these protocols, which took millions of dollars to develop, and another 37 patents are pending, so it’s hard to see how the Commission can argue that even patented innovation must be made available for free. “Third, the proposed findings suggest that unless our intellectual property is innovative and patentable, it has to be made available royalty free. That has never been the standard for software or other intellectual property, and it misstates the test agreed to by the Commission and Microsoft in June 2005, which has been available on Microsoft’s website since that time. “Fourth, the findings appear to attempt to regulate the pricing of our intellectual property on a global basis and not just within the EU. We believe it’s unwise for governments to regulate pricing beyond their borders and that if other authorities all took similar views of their power, companies would be unable to comply with contradictory rulings. “And fifth, we’ve always said we are willing to entertain any reasonable price offer from any potential licensee, and that we are willing to be flexible to meet any unique business needs of potential licensees. Currently, we’re in negotiations with a number of potential licensees.” Information on the pricing principles agreed to by the Commission and Microsoft is available for download from Microsoft.com at the following link: WSPP Pricing Principles, Scenarios Royalty Table, and Available Protocols
A transcript of Brad Smith’s remarks is here, you can listen to the webcast here.
The BBC reports that Microsoft may be facing more antitrust fines in the EU, for not having changed its ways since the large fine imposed in 2004.
The Commission said that Microsoft’s actions constituted the worst breach of an anti-trust ruling in 50 years.
“This is a company which apparently does not like to have to conform with antitrust decisions,” said EU Commission spokesperson Jonathan Todd.
The latest move comes after the Commission not only fined the firm but also ordered the firm to make aversion of Windows available without Media Player software.
“You have to look at their attitude faced with other antitrust authorities in other jurisdictions”
In response, the firm said: “It is hard to see how the Commission can argue that even patented innovation must be made available for free”.
Here is an excerpt from the Commission’s press release:
The European Commission has sent a Statement of Objections (SO) to Microsoft for failing to comply with certain of its obligations under the March 2004 Commission decision (see IP/04/382). Part of that decision found Microsoft to have infringed the EC Treaty rules on abuse of a dominant position (Article 82) by leveraging its near monopoly in the market for PC operating systems onto the market for work group server operating systems. Microsoft therefore had to disclose complete and accurate interface documentation on “reasonable and non-discriminatory terms”, allowing non-Microsoft work group servers to interoperate with Windows PCs and servers. The SO indicates the Commission’s preliminary view that there is no significant innovation in the interoperability information, rejecting as unfounded 1500 pages of submissions by Microsoft from December 2005 onwards, and hence that the prices proposed by Microsoft are unreasonable. Microsoft has four weeks to reply to the SO, after which the Commission may impose a daily penalty for failure to comply with the March 2004 decision. The issue of whether the interoperability information is complete and accurate is still under consideration by the Commission.
Competition Commissioner Neelie Kroes said, “Microsoft has agreed that the main basis for pricing should be whether its protocols are innovative. The Commission’s current view is that there is no significant innovation in these protocols. I am therefore again obliged to take formal measures to ensure that Microsoft complies with its obligations.”
Another chapter in the strained relationship between the Commission and Microsoft. And it comes on top of the nearly $7 billion Microsoft has paid in antitrust fines and settlements over time.
Wouter P.J. Wils has a new paper out on The European Commission’s 2006 Guidelines on Antitrust Fines: A Legal and Economic Analysis. Here is the abstract:
On 1 September 2006, the European Commission published new Guidelines on the method it will use when setting fines for undertakings that have infringed the competition rules laid down in Articles 81 and 82 of the EC Treaty. This paper discusses the questions what the purpose is of guidelines, and how foreseeable the amount of fines should be, and analyses the method set out in the new Guidelines in the light of the Commission’s past practice, the case-law of the Community Courts and the theory on optimal fines.
And here is a taste:
The 2006 Guidelines appear to differ in three respects from (the practice under) the 1998 Guidelines. First, not only earlier findings by the European Commission of similar infringements of Articles 81 or 81 EC are now taken into account, but also such findings by the competition authorities of the EU Member States. This is a logical evolution, following the establishment by Regulation No 1/2003 of the European Competition Network (ECN), in which the European Commission and the competition authorities of the EU Member States share the task of investigating and prosecuting infringements of Articles 81 and 82 EC. Second, whereas the practice under the 1998 Guidelines was to increase the basic amount by 50 % on account of repeated infringement, the 2006 Guidelines provide for an increase ‘by up to 100 %’. Third, this increase applies ‘for each [earlier] infringement established’.
Antitrust Review enjoys several vices innocent pleasures; foremost among them, as recently disclosed, is a fondness for quality beer.
Thus, we feel obliged to note that the European Court of Justice upheld a 42.4 million Euro fine on Groupe Danone as a result of cartel activity in the Belgian beer market. Forbes.com also reports that:
According to the commission, Danone unit Alken-Maes was involved in various market-sharing arrangements with Interbrew (now InBev), another key player in the brewing industry, between 1993-1998. Their alleged activities included a general pact on investments, advertising, customer allocation, price-fixing and the exchange of information on monthly sales volumes. … A spokesman for EU competition commissioner Neelie Kroes said the ruling is significant as it is the first time the ECJ has ‘clearly confirmed the commission’s policy of increasing fines for repeat offenders’.
Now, if we can just do something about better distribution of Duff.
Ryanair, the Irish low-fare airline that has been shaking up the European air travel market in the past years, has filed a suit against France, and has also petitioned the European Union. As the BBC reports, RyanAir claims that France has passed legislation that puts non-French airlines at a competitive disadvantage:
“Ryanair has filed a legal action in the French Conseil d’Etat requesting it to overturn this unlawful and anticompetitive labour decree,” said Jim Callaghan, Ryanair’s head of regulatory affairs. “This decree is clearly designed to discourage foreign airlines from establishing a base of operations in France in order to compete with the high fare monopoly, Air France,” he added.
Ryanair is reported not have specified what labor restrictions it objects to. Ryanair flies to and from 18 French airports, and has previously made similar allegations, which the French government denied.
Yesterday, Lufthansa announced it had settled 80 class action lawsuits related to air cargo price fixing for $85 million. Bloomberg reports:
If approved by the court in New York, the settlement would make Lufthansa the first carrier to resolve all its U.S. cargo- related suits. Lufthansa announced the settlement today in a statement. Lufthansa Cargo was among nine airlines accused in U.S. civil lawsuits of fixing prices in the $50 billion global air- cargo market. The suits were filed after European Union and U.S. officials requested information from at least 12 carriers in February about surcharges for fuel and security risks. “There are further lawsuits in Canada, and this doesn’t change those,” said Michael Goentgens, a spokesman for Cologne, Germany-based Lufthansa. “But this way it’s taken care of in the U.S., and that’s a big advantage.” Lufthansa received conditional immunity in the U.S. and EU, protecting it from any penalties from those governments or from other countries, Goentgens said. He declined to say which other countries are involved. … UAL Corp.’s United Airlines, Japan Airlines Corp., British Airways Plc and Air France-KLM Group, Korean Air Co., SAS Group’s Scandinavian Airlines and others also were named in the suits. The carriers were accused of conspiring to fix prices by coordinating surcharges for the increased costs of fuel, post- Sept. 11 security and insurance related to the war in Iraq. The defendants “really reached an agreement by express understanding and handshakes to raise prices above what it should have been had they been competitive,”‘ said Michael Hausfeld, partner at Cohen, Milstein, Hausfeld & Toll PLLC in New York who represented Niagara Frontier Distribution, which settled with Lufthansa.
[Update: Additional airlines have reached settlement agreements.]
Yesterday, the Association of European Airlines requested that national and EU antitrust regulators
investigate what they claim are unfair monopolies in the jet fuel market. Oil companies are raising the price of refined jet fuel faster than the increase in crude oil prices, said the Association of European Airlines, which represents 31 European airlines. “The industry is suffering already from today’s exceptionally high fuel costs. The last thing we need is for those costs to be further inflated by unfair commercial practices,” said AEA Secretary General Ulrich Schulte-Strathaus. Jet fuel costs increased 37% from last year, and airlines are spending up to a quarter of their operating costs on jet fuel, the AEA said in a statement.
The AEA also issued a press release.
Technorati Tags: antitrust, price fixing, jet fuel
The HotchPotch has the news that “Professor Damien Neven has been appointed by the European Commission as the new Chief Economist at DG COMP.” Congratualtions to Professor Neven.
The ChronicleHerald.ca reports that EMI Group abandoned its proposed acquisition of Warner Music Group over antitrust uncertainty, after the Court of First Instance had recently shed doubt on the Sony-Bertelsmann deal:
“The board of EMI has decided not to pursue a combination with Warner Music for the time being,” the company said in a statement. “The board will review this position in the light of future developments.” …But a ruling from the European Court of First Instance two weeks ago threw doubt over whether a merger between EMI and Warner would obtain regulatory clearance. The court said evidence couldn’t rule out that a 2004 merger between the music units of Sony Corp. and Bertelsmann AG violated antitrust rules. That court cited a “manifest error of assessment” by EU antitrust authorities, who had earlier cleared the deal. EU officials at the time said Sony and BMG would have to resubmit their application for antitrust clearance. … A combination of EMI and Warner Music would have controlled about 25 percent of the recorded music market, leapfrogging Sony BMG in the rankings and leaving the joint entity second only to Universal, according to the International Federation of the Phonographic Industry.
EMI and Warner Music had been in negotiations for the past two months, after EMI made an initial $4.2 bn offer.
And more grief for the Commission from the European courts. Here is a bit about the decision in which the Court of First Instance annuled the clearance of the Sony BMG deal:
The Court observed that, according to the Commission’s decision, the absence of a collective dominant position on the market for recorded music may be inferred from the heterogeneity of the product concerned, from the lack of transparency of the market and from the absence of retaliatory measures between the five largest companies. However, the Court found that the theory that promotional discounts have the effect of reducing the transparency of the market to the point of preventing the existence of a collective dominant position was not supported by a statement of reasons of the requisite legal standard and was vitiated by a manifest error of assessment. The elements on which that argument was founded were incomplete and did not include all the relevant data that ought to have been taken into account by the Commission. They were therefore not capable of supporting the conclusions drawn from them. The Court further pointed out that the Commission relied on the absence of evidence that retaliatory measures had been used in the past, whereas, according to case-law, the mere existence of effective deterrent mechanisms is sufficient, since where the companies comply with the common policy there is no need to have recourse to sanctions. In that context, the Court stated that the decision and the case-file revealed that such credible and effective deterrent measures appeared to exist, in particular the possibility of sanctioning a deviating record company by excluding it from compilations. In addition, even if the appropriate test in that regard were to consist of determining whether retaliatory measures had been exercised in the past, the Commission’s examination was inadequate. At the hearing it was not in a position to indicate the slightest step which it had completed or undertaken for that purpose. As those two grounds constituted the essential grounds on which the Commission concluded that there was no collective dominant position, each of those errors would in itself constitute sufficient reason to annul the decision. Furthermore, as regards the possible creation of a collective dominant position after the concentration, the Court of First Instance criticised the Commission for having carried out an extremely cursory examination and for having presented in the decision only a few superficial and formal observations on that point.
(Source: EU press release)
Credit Card Lawsuits. Bloomberg reports that MasterCard Inc. and other credit card companies will pay $336 million to settle consumer antitrust lawsuits. The lawsuits involved the fees MasterCard et. al. charged on foreign transactions.
MasterCard said it will pay $72.5 million to settle a federal lawsuit and a related California case over the fees, the Purchase, New York-based company said in a filing with the Securities and Exchange Commission. Visa International Inc. was also a defendant in the lawsuits.
Telecom mergers. The Tunney-Act review of the telecom mergers of SBC & AT&T and Verizon & MCI is delayed while the judge requests further materials. The Chigago Tribune reports:
“The court is firmly of the opinion that it is premature to hold evidentiary hearings,” [USDJ Emment] Sullivan said. Instead, Sullivan will let the government and the phone companies file additional documents with the court to justify whether the Justice Department’s antitrust division approval of the mergers was in the public interest.
EU. Meanwhile, in Europe:
EU regulators said Wednesday they had closed an antitrust probe into plans by China International Marine Containers to take over Dutch company Burg Industries BV after the two firms called off a deal that the EU said would create a quasi-monopoly. CIMC said last week that it and Burg had abandoned the tie-up after the EU filed formal charges, saying it believed the deal would cause significant antitrust problems. A tie-up would have brought together the world’s two largest producers of tank containers for liquid cargoes. Both companies make and sell standard tanks used to transport liquids _ such as hazardous chemicals _ in container ships where they can easily be piled next to standard freight container boxes.
Chron.com has the full story. The Commission’s press release is here.
Speaking of Europe, in case you’ve missed it: Last month, the Commission published its 2005 Annual Report on Competition Policy. Here is a taste form the press release:
In the field of EC Treaty rules on restrictive business practices and abuse of dominance, policy developments in 2005 include publication of a Green Paper on damages actions for breach of these rules (see IP/05/1634 and MEMO/05/489), as well as a Discussion Paper on exclusionary abuses of dominance (see IP/05/1626), which is part of a drive to develop antitrust policy on a sound economic footing. Major sector inquiries were launched in key sectors of the economy - gas and electricity (see IP/05/716 and MEMO/05/203) and financial services (see IP/05/719 and MEMO/05/204)– in order to identify current barriers to competition and evaluate possible solutions. The crackdown on cartels continued, with five cartel decisions adopted, imposing fines totalling some €680 million (see MEMO/05/493). With respect to abuse of dominance, in 2005 the Commission notably adopted a decision fining the pharmaceutical company AstraZeneca for misusing the regulatory system in order to delay market entry of generic drugs (see IP/05/737). Concerning the EC rules on merger control, a major study on merger remedies was published in 2005, assessing the remedies which have been accepted by the Commission in past cases. The number of mergers and acquisitions notified to the Commission under the EU Merger Regulation rose again - to 313. The Commission adopted five decisions following in-depth investigations, resulting in two unconditional clearances and three clearance decisions which required commitments from the merging parties (Siemens/VA Tech (see IP/05/919), Johnson & Johnson/Guidant (see IP/05/1065), E.ON/MOL (see IP/05/1658)).
Technorati Tags: antitrust, Mastercard, SBC, AT&T, Verizon, MCI, CIMC, Burg Industries, EU Commission, competition policy
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