Summary of Commission Decision of 12 July 2006 fixing the definitive amount of the periodic penalty payment imposed on Microsoft Corporation by Decision C(2005) 4420 final and amending that Decision as regards the amount of the periodic penalty payment (Case COMP/C-3/37.792 — Microsoft) (notified under document number C(2006) 3143)
Date: 2006-07-12
Institutions: European Commission
Subjects: disclosure of information, economic concentration, information technology industry, merger control, restrictive trade practice, technical standard

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Official Journal of the European Union

5.6.2008

Summary of Commission Decision

of 12 July 2006

fixing the definitive amount of the periodic penalty payment imposed on Microsoft Corporation by
Decision C(2005) 4420 final and amending that Decision as regards the amount of the periodic
penalty payment

(Case COMP/C-3/37.792 — Microsoft)

(notified under document number C(2006) 3143)

(Only the English text is authentic)

(2008/C 138/07)

On 12 July 2006, the Commission adopted a decision fixing the definitive amount of the periodic penalty payment
imposed on Microsoft Corporation by Decision C(2005) 4420 final and amending that Decision as regards the
amount of the periodic penalty payment. In accordance with the provisions of Article 30 of Council Regulation (EC)
No 1/2003 (1), the Commission herewith publishes the names of the parties and the main content of the decision,
including the penalties imposed, having regard to the legitimate interest of undertakings in the protection of their busi-
ness interests. A non-confidential version of the full text of the decision as well as of Decision C(2005) 4420 of
10 November 2005 can be found in the authentic language of the case and in the Commission's working languages at
DG COMP's website at:

http://europa.eu.int/comm/competition/index_en.html

1. SUMMARY OF THE CASE

1.1. Background of the case

1. On 24 March 2004, the Commission adopted a decision (C(2004) 900) in a proceeding pursuant to
Article 82 of the EC Treaty (Case COMP/C-3/37.792) addressed to Microsoft. In this decision (‘the Deci-
sion’), the Commission found, inter alia, that Microsoft had infringed Article 82 of the EC Treaty and
Article 54 of the Agreement on the European Economic Area by refusing, from October 1998 until the
date of the Decision, to disclose certain specified ‘Interoperability Information’ (2) to vendors of work
group server operating system products, so that they could develop and distribute interoperable
products.

2. Article 5(a) of the operative part of the Decision reads as follows:

‘Microsoft Corporation shall, within 120 days of the date of notification of this Decision, make the Interoperability
Information available to any undertaking having an interest in developing and distributing work group server oper-
ating system products and shall, on reasonable and non-discriminatory terms, allow the use of the Interoperability
Information by such undertakings for the purpose of developing and distributing work group server operating
system products’.

3. Microsoft's application for interim measures against the Decision was rejected by order of the President

of the Court of First Instance of 22 December 2004 (T-201/04 R).

4. In view of Microsoft's continuous non-compliance with the Decision, after more than one year after the
adoption of the Decision, on 10 November 2005, the Commission adopted a decision imposing a peri-
odic penalty payment pursuant to Article 24(1) of Regulation (EC) No 1/2003 on Microsoft (‘the
Article 24(1) Decision’). Article 1 of the 24(1) Decision reads as follows:

(1) OJ L 1, 4.1.2003, p. 1. Regulation as last amended by Regulation (EC) No 1419/2006 (OJ L 269, 28.9.2006, p. 1).
(2) The term ‘Interoperability Information’ is defined in Article 1(1) of the Decision. It means ‘the complete and accurate specifications
for all the Protocols implemented in Windows Work Group Server Operating Systems and that are used by Windows Work Group
Servers to deliver file and print services and group and user administration services, including the Windows Domain Controller services,
Active Directory services and Group Policy services, to Windows Work Group Networks’. Article 1(2) of the Decision defines a
‘Protocol’ as ‘a set of rules of interconnection and interaction between various instances of Windows Work Group Server Operating
Systems and Windows Client PC Operating Systems running on different computers in a Windows Work Group Network’.

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‘Microsoft Corporation shall ensure that, by 15 December 2005, it fully complies with the obligations set out in
Article 5(a) and (c) of Commission Decision (C(2004) 900) of 24 March 2004.

In the absence of such compliance, a periodic penalty payment of EUR 2 million per day, calculated from that
date, shall be imposed on Microsoft Corporation’.

1.2. Appointment of the Monitoring Trustee

5. Article 7 of the Decision provides that:

‘Within 30 days of the date of notification of this Decision, Microsoft Corporation shall submit a proposal to the
Commission for the establishment of a suitable mechanism assisting the Commission in monitoring Microsoft
Corporation's compliance with this Decision. That mechanism shall include a monitoring trustee who shall be
independent from Microsoft.

In case the Commission considers Microsoft Corporation's proposed monitoring mechanism not suitable it retains
the right to impose such a mechanism by way of a decision’.

6. On 28 July 2005, the Commission adopted a decision pursuant to Article 7 of the Decision and
Article 7(1) of Regulation (EC) No 1/2003 establishing the monitoring mechanism provided for in
Article 7 of the Decision (‘the Trustee Decision’) (1). The Trustee Decision provides, inter alia, for the
appointment of a Monitoring Trustee.

7. By letter of 12 August 2005, Microsoft proposed four candidates for the position of Monitoring
Trustee. Having interviewed all four candidates, the Commission appointed one of the candidates
proposed by Microsoft, Professor Neil Barrett, as Monitoring Trustee (the ‘Trustee’) by letter of 4 October
2005.

1.3. Procedural steps

8. On 21 December 2005, in the light of reports provided by the Trustee on the technical documentation
submitted by Microsoft and sought to contain the Interoperability Information, the Commission came
to the preliminary conclusion that Microsoft had not yet complied with the obligations set out in
Article 5(a) and (c) of the Decision. Accordingly, the Commission issued a Statement of Objections
stating that it intended by a decision pursuant to Article 24(2) of Regulation (EC) No 1/2003 to fix the
definitive amount of the periodic penalty payment which was imposed on Microsoft by the Article 24(1)
Decision for non-compliance with its obligation to make Interoperability Information available to inter-
ested undertakings pursuant to Article 5(a) and (c) of the Decision, for the period between 15 December
2005 and the date specified in a decision pursuant to Article 24(2) of Regulation (EC) No 1/2003.

9. After having been granted a time extension, on 15 February 2006 Microsoft replied to the Statement of

Objections.

10. On 10 March 2006, the Commission sent Microsoft a letter enclosing further reports from the Trustee
and from the Commission's technical experts on the technical documentation provide by Microsoft and
invited the Microsoft to submit comments, which it did on 14 April 2006.

11. On 30 and 31 March 2006 an oral hearing was held in Brussels.

12. On 11 April 2006, Microsoft submitted a revised version of the technical documentation sought to

contain the Interoperability Information.

13. On 19 May 2006, the Commission sent Microsoft a letter enclosing new reports on the revised tech-
nical documentation submitted in April from the Trustee and from the Commission's technical experts,
and invited the Microsoft to submit comments, which it did on 9 June 2006.

(1) Commission Decision of 28 July 2005 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/C-3/37.792

— Microsoft — C(2005) 2988 final).

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1.4. The company and product concerned

14. Microsoft is a software company based in Redmond, State of Washington, USA. Its turnover for the
fiscal year
full business year, was
USD 39 788 million. Microsoft employs 55 000 people around the world. Microsoft is present in all
countries within the EEA.

July 2004 to June 2005, which is Microsoft's

latest

15. The products concerned by the present procedure are the ‘Windows Work Group Server Operating Systems’

as defined in Article 1(9) of the Decision.

1.5. The nature of the non-compliance

16. As set out in recital 1003 of the Decision, the objective of the Decision ‘is to ensure that Microsoft's
competitors can develop products that interoperate with the Windows domain architecture natively supported in the
dominant Windows client PC operating system and hence viably compete with Microsoft's work group server oper-
ating system’.

17. The Commission has assessed Microsoft's compliance with Article 5(a) and (c) of the Decision on the
basis of an evaluation of the completeness and accuracy of the December 2005 version of the technical
documentation, as well as of the versions of the technical documentation provided by Microsoft up to
April 2006. The Commission has been assisted by the Trustee as well as by its own technical experts.
The Commission has come to the conclusion that Microsoft, more than two years after the adoption of
the Decision, has not yet complied with the disclosure order laid down in that Decision as it has not
provided complete and accurate technical documentation containing the Interoperability Information
that would allow competitors to develop servers that could interoperate with Microsoft's dominant PC
and work group server operating systems.

2. DEFINITIVE AMOUNT OF THE PERIODIC PENALTY PAYMENT

2.1. Relevant period of non-compliance

18. This decision only concerns the period from 16 December 2005 to 20 June 2006, the date on which
the draft decision was sent to the members of the Advisory Committee in accordance with Article 14(3)
of Regulation (EC) No 1/2003 (‘the relevant period’).

2.2. Definitive amount of the periodic penalty payment for the relevant period

19. Article 24(2) of Regulation (EC) No 1/2003 provides that, where the undertaking concerned has satis-
fied the obligation which the periodic penalty payment was intended to enforce, the Commission may
fix the definitive amount of the periodic penalty payment at a figure lower than that which would arise
under the original decision. The Commission must also have the power to fix a definitive amount for a
given period of time in a case where an undertaking has not yet satisfied, by the end of such period,
the obligation which the periodic penalty payment was intended to enforce. Otherwise, an undertaking
could escape from paying periodic penalty payments imposed on it by continuously failing to comply,
which would void Article 24 of its useful effect.

20. In the Article 24(1) Decision, the Commission imposed a periodic penalty payment of EUR 2 million
per day. In doing so, the Commission took into account the necessity of imposing a sufficiently high
periodic penalty payment to ensure Microsoft's compliance with the Decision and the extent to which
Microsoft's failure to meet its obligations under Article 5(a) and (c) of the Decision had reduced the
effectiveness of the remedy. While the Statement of Objections, related exclusively to one aspect of
Microsoft's non-compliance, namely its failure to provide complete and accurate technical documenta-
tion that embodies the Interoperability Information, it made clear that the level of the periodic penalty
payment should reflect the extent to which this aspect of Microsoft's non-compliance had reduced the
effectiveness of the remedy.

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21. In this respect, regard must be had to the fact that the continuing failure by Microsoft to comply with
the Decision and to bring its very serious breach of Article 82 of the Treaty and of Article 54 of the
EEA Agreement to an end (1) (2) is liable to further increase the risk of elimination of effective competi-
tion in the work group server operating system market identified in the Decision (3). It is necessary to
set periodic penalty payments at a level which reinforces the incentive to comply with a decision taken
pursuant Article 7 of Regulation (EC) No 1/2003 by rendering it economically rational for the under-
taking concerned to comply with such a decision rather than to reap the benefits of non-compliance.
Similarly, the Commission must take into account the necessity of setting periodic penalty payments
which are proportionate and sufficient to compel compliance from an undertaking such as Microsoft,
with its very substantial size and financial resources.

22. The Commission concluded that throughout the relevant period the technical documentation was
incomplete and inaccurate to such an extent that it was not a suitable basis for an interested under-
taking to start developing work group server operating systems which interoperate with Microsoft's
products, as envisaged by the Decision. Therefore, it is established that during the relevant period, the
effectiveness of Article 5(a) and (c) of the Decision was entirely or at least largely eliminated, irrespective
of whether or not the remuneration charged by Microsoft was reasonable with regard to the informa-
tion provided. In view of this, the Commission would be fully entitled to fix the definitive amount of
the periodic penalty payment for the sole aspect of non compliance established by this decision on the
basis of EUR 2 million per day throughout the relevant period.

23. However, it is possible that the Commission will also conclude that Microsoft has failed to comply with
Article 5(a) and (c) of the Decision as regards the reasonableness of the remuneration charged after
15 December 2005 for information provided. At this stage, for the purposes of effective enforcement, it
is therefore necessary to retain the possibility of fixing a definitive amount for this aspect of non-com-
pliance from the date fixed in the Article 24(1) Decision.

24. The definitive amount of the periodic penalty payment in respect of Microsoft's failure to comply with
the obligations regarding the provision of complete and accurate technical documentation embodying
the Interoperability Information pursuant to Article 5(a) and (c) of the Decision, was therefore calculated
on the basis of an amount of EUR 1,5 million per day throughout the relevant period.

2.3. Conclusion

25. The definitive amount of the periodic penalty payment imposed on Microsoft, pursuant to Article 24(2)
of Regulation (EC) No 1/2003, for failing to comply with the obligations regarding the provision of
complete and accurate technical documentation embodying the Interoperability Information laid down
in Article 5(a) and (c) of the Decision was fixed at EUR 280,5 million for the period from 16 December
2005 to 20 June 2006 inclusive.

3. INCREASE OF THE PERIODIC PENALTY PAYMENTS

26. Microsoft's delay in complying with its obligations under the Decision is liable to further increase the
risk of elimination of effective competition on the market for work group server operating systems,
where, at the time of the Decision, Microsoft had already achieved a dominant position and was likely
to eliminate all competition (recital 1070 of the Decision). Market data indicate that Microsoft's market
share continues to grow steadily. Since the market for work group server operating systems is charac-
terised by high barriers to entry (recitals 515 to 525 of the Decision), due among other things to
indirect network effects that reinforce each other (see recital 653 of the Decision), this deterioration in
the market structure risks becoming irreversible. As such, ensuring Microsoft's compliance is now a
matter of even greater urgency than before.

(1) See recitals 1068-1074 of the Decision.
(2) See in this regard also the Judgment in Joined Cases 46/87 and 227/88, Hoechst [1989] ECR 2859, at paragraph 64, where
the Court refers to the ‘obligation imposed upon all persons subject to Community law to acknowledge that measures adopted by the
institutions are fully effective so long as they have not been declared invalid by the Court and to recognize their enforceability unless the
Court has decided to suspend the operation of the said measures […]’.

(3) See recitals 590 to 692 of the Decision.

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27. Following the Article 24(1) Decision, which imposed a periodic penalty payment of EUR 2 million per
day, Microsoft has not taken the necessary measures for at least seven months. In the light of the urgent
need to establish the level of the periodic penalty payment is increased to EUR 3 million, with effect
from 31 July 2006. Since it is possible that the disclosure order in Article 5(a) and (c) of the Decision
can be entirely or largely deprived of its effectiveness either through Microsoft's failure to provide
complete and accurate technical documentation embodying the Interoperability Information or by
Microsoft requiring an unreasonable remuneration, this amount should apply equally to both aspects of
Microsoft's non-compliance preliminarily identified in the Article 24(1) Decision. Consequently,
if
Microsoft does not comply with its obligations by 31 July 2006, the Commission may decide to fix
definitively the full amount of this increased periodic penalty payment for any subsequent relevant
period of non-compliance in respect of either aspect of Microsoft's non-compliance, taken in isolation,
or for both, taken together.