The European Commission has opened an investigation to determine whether Microsoft failed to comply with its 2009 commitment to the Commission to encourage Internet browser competition by providing Windows users in Europe with a screen showing the 12 most popular browsers.

In December 2009, the Commission’s competition office found that Microsoft’s practice of offering only its browser, Internet Explorer, to Windows users was anticompetitive.  The Commission made legally binding Microsoft’s commitments, including the browser-choice screen, to address the antitrust concerns.

According to the Commission, however, it appears that Microsoft has not fulfilled this commitment.  “Since the launch of Windows 7, in February 2011, the choice screen has no longer been displayed,” said Joaquin Almunia, Commissioner for Competition, at a press conference .  “As a result about 28 million users may not have seen the choice screen at all.”

This new investigation is the latest in an extended series of antitrust enforcement actions taken by the Commission to rein in what it perceives to be Microsoft’s continuing market power in personal computer operating systems.

In 2004, the Commission found that Microsoft’s tying of Windows Media Player to the Windows operating system was an abuse of a dominant position, and ordered the company to share interoperability information.  In addition to fining Microsoft 497 million euros in 2004, the Commission slapped Microsoft with penalties – for non-compliance with the 2004 decision – of 280.5 million euros in 2006 and 899 million euros in 2008.  In 2012 the European General Court upheld the 2008 finding of non-compliance, but reduced the penalty to 860 million euros.

If the investigation finds Microsoft guilty of failing to fulfill its 2009 commitment, the Commission can impose an antitrust fine of 10 percent of the company’s annual turnover, according to Almunia.

The proposed Universal-EMI merger could lead to another remix of antitrust and copyright law as regulators grapple with consolidation in the recorded-music business.

Notably, the proposed acquisition could affect digital sampling, the technique musicians use to digitally copy and remix sounds from existing albums into a new sound recording.

As described in a previous Antitrust Today post, the FTC and the European Commission are reviewing the proposed merger and the antitrust subcommittee of the U.S. Senate Judiciary Committee will hold a hearing on the controversial acquisition.  The idiosyncrasies of the music industry, however, as well as the challenge of defining the relevant market, make the analysis of the proposed merger’s likely effects on competition difficult. 

This analysis is complicated by the fact that current copyright law, at least under the Sixth Circuit’s reasoning in Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th Cir. 2005), eliminates certain defenses when a plaintiff claims the defendant’s digital sample infringed a copyright in the sound recording.  In support of this conclusion, the Sixth Circuit stated, “[t]he sound recording copyright holder cannot exact a license fee greater than what it would cost the person seeking the license to just duplicate the sample in the course of making the new recording.”  

A recent article by a Constantine Cannon attorney explores the antitrust overtones of the Sixth Circuit’s statement and examines how the proposed consolidation of record labels might affect the practice of digital sampling and the potential market of licensing sound recordings for sampling.

The European General Court in Luxembourg, the European Union’s second-highest court, has upheld a decision by the European Commission that MasterCard’s multilateral interchange fees on cross-border transactions unfairly restrict competition and harm retailers and consumers.

In MasterCard and Others v. Commission, the General Court ruled that MasterCard has violated EU competition laws with its interchange fees for processing payment transactions across borders, such as when a German resident uses a credit or debit card in Italy.

Under MasterCard’s multilateral interchange fee structure, for each purchase made, the cardholder’s issuing bank charges the merchant’s acquiring bank to process the transaction.  MasterCard sets the rates for these interchange fees, which are passed through by the acquirers to the merchants.  In December 2007, the European Commission decided that these fees “inflated the cost of card acceptance by retailers without leading to … objective efficiencies that could balance the negative effects on price competition between [MasterCard’s] member banks,” and left consumers paying higher retail prices.

Although the fees are set by MasterCard, the cardholders’ banks retain the profit.  The European Commission determined that this gives banks an incentive to offer cards with high interchange fees, which limits price competition among banks.

Six different banks, including HSBC and the Royal Bank of Scotland, joined MasterCard in the appeal of the 2007 decision.  MasterCard and the group of banks argued that because the interchange fees are necessary to operate the cashless payment system, any lowering of rates would cause consumers to pay more to make up the difference.

In the dismissal of the appeal, the General Court expressed skepticism of the financial institutions’ arguments.  The Court held that successful examples of lowering interchange fees do exist, and would not necessarily have a negative effect on consumers.

The Court’s decision could affect other credit and debit card payment networks, including Visa Europe, whose fee system is currently being investigated.  And its reach may have an effect on pending litigation against Visa, MasterCard and certain of their member banks in other countries, such as the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation in the United States.

Microsoft’s restrictions on third-party web browsers in its upcoming Windows RT mobile operating system is drawing criticism from the general counsel of the Mozilla Foundation, the non-profit organization responsible for the development of the popular Firefox web browser.

Google, which has developed its own Chrome web browser, has wasted no time in joining Mozilla’s criticism. 

Windows RT is a slimmed-down version of Windows 8, the next-generation Windows operating system due late this year.  Windows RT is specifically designed for ARM microprocessors, which are commonly used in mobile devices like tablets and smartphones.  It represents the first version of the Windows operating system not intended for the x86 architecture used in desktop and laptop computers for decades.  In short, Windows RT is Microsoft’s response to the runaway successes of Apple’s iOS and Google’s Android operating systems. 

The restrictions at issue allegedly prevent other browsers from running in Windows RT’s “classic” Windows mode, although other browsers can be used in the new Windows Metro “tiled” mode.  The controversy evokes memories of 1998, when Netscape, Mozilla’s predecessor, accused Microsoft of illegally bundling Internet Explorer with Windows 95.  The controversy led to a series of lawsuits against Microsoft, including United States v. Microsoft, and the European Commission’s investigation. 

However, 14 years have gone by, and the operating system landscape has shifted dramatically.

Nevertheless, and perhaps not surprisingly, Microsoft’s decision to restrict third-party web browsers immediately attracted the interest of the United States government and the European Commission.  The U.S. Senate Judiciary Committee is reportedly looking at Mozilla’s and Google’s allegations, and the European Commission is exploring the issue as well.  The EC is likely to invoke Microsoft’s commitment to give European Union consumers a choice of browsers, implemented as the so-called “browser ballot” agreement with the European Commission.  However, both the European and U.S. cases involved desktop and laptop operating systems, and their applicability to Windows RT is debatable. 

In addition, Microsoft’s announced restrictions on third-party applications are hardly unusual for mobile devices.  For example, through its popular App Store, Apple exerts complete control over which applications can be installed on iPhones and iPads, and Apple’s policies have been repeatedly criticized for allegedly restricting competition from third-party applications and services.

The Autorite de la Concurrence, the French competition authority, has slapped fines on three leading French pet food manufacturers that restricted competition in premium dry dog and cat food sold in specialty outlets such as pet shops and veterinary offices. 

The manufacturers are Nestle Purina Petcare France SAS, Royal Canin SAS (owned by Mars, Inc.), and Hill’s Pet Nutrition (owned by Colgate Palmolive Co.).  Collectively, they sold 70 percent of Frances’ premium dry pet food during the relevant period of 2004 to 2008.   

Nestle Purina and Royal Canin sell their pet food to wholesale distributors, who then sell it to retailers, who in turn sell it to pet owners.  Their wholesaler agreements restricted resale territories and prices, and “set up distinct and impenetrable distribution systems” that “partition[ed] the markets . . . for some product ranges.”  The results were reduced choices and increased costs, which were passed on to consumers.

Hill’s, which markets its pet food only through veterinary offices and specialty stores, prohibited its distributors from exporting its products outside France.  This prohibition had little or no impact, however, because it pertained only to veterinary offices and was never actually applied.  

Nonetheless, the Autorite noted that on the whole, these agreements could cause significant damage because the price elasticity of demand for pet food is low.  The reason is that pet food “elicit[s] an emotional investment for end consumers, who are vulnerable to brand loyalty.”      

Nestle Purina was fined 19.5 million euros, Royal Canin 11.6 million, and Hill’s 4.6 million, for a total of 35.3 million euros ($46.7 million).

In setting these fines, the Autorite considered the duration of the restrictions and each company’s global reach and financial resources.  It also considered prior offenses – which probably hurt Royal Canin, which was sanctioned in 2005 for abusing its dominant position.  Hill’s, on the other hand, likely owes the comparatively small size of its fine to the minimal impact of its restriction.  Nestle Purina’s and Royal Canin’s fines also were reduced, by 18 and 20 percent respectively, because they declined to dispute the Autorite’s allegations and committed to reinforce their competition compliance programs.