Antitrust
Another EU Antitrust Action Against Microsoft: A New Chapter in a Longstanding Saga
On June 26, 2024, the European Commission issued a Statement of Objections to Microsoft, indicating its preliminary view that the tech giant has violated EU antitrust laws by tying MS Teams, its communication, collaboration, and conferencing platform, to its popular productivity and corporate software suites, Office 365 and Microsoft 365. This move marks the latest development in the EU’s ongoing scrutiny of Microsoft’s market practices, particularly concerning its software bundling strategies, one which has ongoing for the better part of two decades.
The Commission notes that Microsoft’s bundling of Teams with its core SaaS (Software as a Service) productivity applications limits consumer choice and stifles competition. The integration of Teams within Microsoft’s widely used productivity suites ostensibly provides it an unfair distribution advantage over competitors, who provide individual software solutions. This practice, the Commission argues, restricts competition and innovation in the market for communication and collaboration tools, potentially violating Article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits the abuse of a dominant market position.
The Commission’s investigation began following complaints from Slack Technologies, Inc., now owned by Salesforce, Inc., in July 2023. Slack, a competitor in the communication and collaboration software market, argued that Microsoft’s bundling of Teams with Office 365 and Microsoft 365 unfairly restricted competition. A second complaint from alfaview GmbH in July 2023 raised similar concerns, prompting the Commission to open proceedings against Microsoft regarding both complaints.
Despite Microsoft’s recent changes to offer some suites without Teams, the Commission believes these adjustments are insufficient. The preliminary findings suggest that further actions are required to restore competitive balance in the market.
However, it should be remembered that a Statement of Objections does not prejudge the outcome of the investigation.
Microsoft and EU Antitrust Issues
This is not the first time Microsoft has faced antitrust challenges from the European Union. The company’s history with EU regulators dates to the early 2000s, with the EU trying to appropriately regulate the Microsoft Windows operating system. In 2004, when different releases of Microsoft Windows amounted to nearly 95% of the total market share, the European Commission fined Microsoft €497 million for bundling its Windows Media Player with the Windows operating system. Competitors and regulators argued that this practice to bundle it gave Windows Media Player an unfair advantage over other media players, as it was pre-installed on nearly all personal computers. The Commission fined Microsoft €497 million and required the company to offer a version of Windows without Windows Media Player (Windows XP N). Microsoft was also required to share information with competitors to ensure their products could interoperate with Windows as seamlessly as Microsoft’s own products. The fine was increased to €899 million in 2008 for Microsoft’s failure to comply, ultimately being decreased to €860 million by the General Court in 2012.
In 2009, Microsoft reached a compromise with the European Commission concerning its bundling of the Internet Explorer browser with its Windows operating system. This bundling practice was seen to maintain its dominance in the browser market by limiting the distribution and market share of competing web browsers. In response, Microsoft agreed to offer a “browser choice” screen, which allowed users to select from various web browsers upon the installation of Windows, where the browsers listed were randomly ordered. However, in 2013, the Commission had to fine Microsoft €561 million for failing to comply with this commitment to offer users a choice in their browser during setup, as their update package, from May 2011 to July 2012, had neglected to include this choice for consumers.
In addition, Microsoft, as with all other tech giants, has had frictions with GDPR, even to the extent where the European Data Protection Supervisor found that the European Commission themselves had infringed on several key data protection rules when using Microsoft 365, in particular concerning the transfer of personal data outside the EU/European Economic Area.
Implications and Next Steps
The issuance of a Statement of Objections is a formal step in EU antitrust investigations. Microsoft now has the opportunity to respond to the Commission’s findings, examine the investigation file, and present its defense. If the Commission concludes that there has been an infringement, it could impose fines up to 10% of Microsoft’s annual worldwide turnover and require changes to its business practices.
For corporate lawyers and businesses utilising Microsoft products, the implications of this investigation are significant. The convenience that corporate Europe gets out of bundled subscriptions is undeniable. Whether the service that bundled software provides is up to par is however questionable. Given that this is not the first (or even the second) time that Microsoft and the European Commission have a dispute over software bundling, such software today that is offered as SaaS can potentially impact the judgment. The Commission does allege that Teams potentially has a distribution advantage, as customers do not have a choice whether to acquire Teams when subscribing to Microsoft’s productivity offerings. In addition, the rest of Microsoft’s Office suite is heavily integrated into Teams, as individuals can upload their Microsoft PowerPoint presentations, that have a proprietary file extension, directly into Teams and interact with them through the software.
As the investigation progresses, it will be essential to monitor the Commission’s findings and any subsequent actions taken against Microsoft. The outcomes of this case could have far-reaching implications for how software is distributed and consumed, influencing the strategies of both incumbent firms and new market entrants in the SaaS ecosystem.
