Luxembourg, 28/04/2006 (Agence Europe) - On Friday morning as the hearing was drawing to a close, Microsoft and the European Commission started to consider the legal background to the case and Microsoft's appeal against the Commission's fine of EUR 497 million. The case no longer requires the systematic hearing of high level experts or questions from the judge, unlike during the stage when the fundamentals of interoperability were being debated.
For the Commission, Anthony Whelan said that the case was not a matter of refusing intellectual property rights and this argument of Microsoft's 'verged into the realm of the bizarre'. He said the trial was about a 'bridge between 2 products (Microsoft and other products, Ed.) and not the substance of the product.' He said the only justification Microsoft had was the 'secrecy of the technology covered by unspecified intellectual property rights', but the European Commission was seeking interoperability. He called on the judges to answer the question: 'How to deal with secret information not coupled with international property rights when refusal may be considered abusive? Anthony Whelan asked the judges of the European Court of First Instance to decide on criteria to be used when companies with a dominant position on the market have secret information.
James Flynn JF QC, a lawyer for the European Committee for Interoperable Systems (ECIS) and the Software & Information Industry Association (SIIA), said openness was on one of the room and secrecy on the other side. 'For each of the five core interoperability protocols used in work group services, Microsoft has built on a public standard in undisclosed ways. That leaves rivals in the dark. In effect, Microsoft has expropriated these public standards,' he argued.
Jean-Francois Bellis, one of Microsoft's lawyers, focussed on the obligation under Article 7 of the contested 2004 decision by the European Commission to appoint 'an independent monitoring trustee to assist the Commission in ensuring that Microsoft complies with that decision', claiming this to be unlawful on two grounds: 1) the Commission has no authority to delegate to a private person the enforcement powers conferred on its by the Council; and 2) the Commission has no authority to impose on Microsoft the obligation to bear the costs of monitoring its compliance with the contested decision.
Microsoft's lawyer Ian Forrester QC went back over the history of the Commission's decision against Microsoft. It was preceded by an attempt to strike a settlement with Microsoft while parallel negotiations were under way with the United States. At this point, Commissioner Monti had said that settlement was not sufficient and it was essential to have a precedent for abuse of a dominant market position. Hence the Commission's decision penalising the launching of invention and subjecting Microsoft to perpetual constraints and uncalibrated sanctions, he said. Ian Forrester launched into a discussion of case law which may or may not have allowed the Commission to reach its 2004 decision. He cited various Advocate Generals who support these arguments. Microsoft's lawyer then addressed the final part of the appeal case, Microsoft's request for rejection or reduction of the EUR 497 million fine imposed by the Commission for 'very serious, continued abuse over more than five and a half years'. Ian Forrester made the following arguments: the basic fine (of EUR 165,732,101) was determined in an arbitrary manner and lacks adequate reasoning. Next, he explained that the European 'Commission was not justified in doubling the starting amount, for gravity, used in calculating the basic amount of the fine by relying on 'its significant economic capacity' and the need to ensure a sufficient deterrent effect.' 'Microsoft claims that the increase of 50% of the amount in respect of gravity in order to take account of the duration of the infringement is excessive.'
On Thursday afternoon, the 'judge rapporteur', John Cook, against interrogated both parties to get them to explain their arguments, referring to experts where necessary. Anthony Whelan and Ian Forrester came were subjected to tough questioning about the relevant market (where the European Commission argues that Microsoft has abused its dominant position).
Friday afternoon was given over to consideration of intellectual property rights.
Since the start of the written procedure, Microsoft has been criticising the definition of the relevant market as described by the European Commission in its 2004 decision. Microsoft claims that 'no one in the industry uses the term 'work group server' in the way the Commission has used it… and that when 'industry observers' occasionally do refer to work group servers, they generally include in that category servers that perform a wide range of tasks, including Web, database and application serving. Furthermore, none of the major server vendors active on the market sells work group servers limited to performing the tasks identified by the Commission…The Commission's definition of the market is therefore 'artificially narrow'. In response, Anthony Whelan told the judges that Microsoft had misrepresented the relevant market. In the written proceedings, Microsoft states that 'it began to develop a server operating system in the early 1990s, a period in which the server computer market was 'traditionally dominated' by integrated firms, such as IBM and Sun, both of which manufacture expensive servers and supply equally expensive server operating systems that run only on their servers. Microsoft observes that there are several other work group server operating systems presently on the market, some of which were available before it released its first Windows server operating system in 1992.' Microsoft complains that in the contested decision the Commission makes no reference to the efforts it has made to ensure interoperability of its Windows server operating systems with non-Microsoft server operating systems. Microsoft refers to the existence of five methods for ensuring interoperability between its Windows operating system and those of its competitors (communications protocols like TCP/IP, adding a 'block' of software code etc.). Lastly, Microsoft points to a number of considerations concerning 'levels of interoperability. The Commission takes the view that Microsoft's description of the factual background is misleading, taking issue with Microsoft's arguments about interoperability. The Commission 'states that Microsoft does not quantify its alleged increasing reliance on industry standards'. The Commission argues that the solutions suggested by Microsoft to allow interoperability between the new version of UNIX or NetWare and the 'Windows domain architecture' are not solutions, and 'tight coupling' and 'loose coupling' are not clearly defined technical terms. Microsoft and the European Commission also discussed intellectual property rights (patents) and whether server software designers using patented protocols to communicate with Windows clients would be breaching Microsoft's patents. Microsoft explains in the written proceedings that it has obtained more than 30 patents for its communications protocols in the United States and at least three patents for the communications protocols covered by the contested decision in Europe (namely patents 'EP 0661652', 'EP 0438571' and 'EU 0669020'). In addition, another twenty patent applications are pending in the United States, as are two in Europe (one of its two applications in Europe has now been granted, namely patent 'EP 1004193'). Moreover, Microsoft is planning to apply for 'some 130 European patents relating to Windows server operating systems'. The Commission maintains that it was only at the end of the administrative procedure, a few weeks before the adoption of the contested decision, and at the Commission's assistance, that Microsoft identified one patent (patent EP 0669020), without giving any explanation as to whether implementation of its protocols by another undertaking would necessarily entail exploitation of that patent. The Commission notes that patents EP 0661652, EP 0438571 and P 0669020 were filed before 1996, that is to say before the release of Windows NT 4.0 Server. The Commission explains that nothing in the file shows that the communication protocols in relation to which Microsoft will have to disclose specifications contain innovations. 'In any event,' adds the Commission, 'it has not been established that those innovations have been patented.'
Both sides also base their arguments on the 2004 IMS Health ruling. Microsoft submits that none of the Court of Justice's criteria set out in the IMS Health ruling have been met in this case (in the IMS Health ruling, the Court of Justice considered criteria determining when a refusal by undertakings holding a dominant position on a given market to supply to its competitors goods or services are to be considered abusive). The Commission argues that Microsoft has failed to establish that the contested decision does actually interfere with the 'specific subject matter of its intellectual property rights'. In other words, it has not been established that Microsoft's refusal was justified by the exercise to its intellectual property rights, or that the contested decision implies compulsory licensing. Next, the Commission claims that in any event, an 'automatic' application of the criteria set out in IMS Health is problematic for 'other reasons', explained at length. The Commission argues that the IMS Health ruling has to be changed to cater for the hypothesis of trade secrets (is information valuable because it is secret, or is it secret because it is valuable?)