Current trends in EU single firm conduct policy and case law Microsoft and beyond Current trends in EU single firm conduct policy and case law Michel Debroux Hogan & Hartson / ACCE Seminar, London, 13 May 2008 © Hogan & Hartson LLP. All rights reserved.

Reading Microsoft (again) Tying : When is it illegal in EU law ? Summary Reading Microsoft (again) Tying : When is it illegal in EU law ? Pricing : some recent case-law on recurrent issues (margin squeeze, predation, rebates & discounts) EU-US Divergences/Convergences A few words about politics © Hogan & Hartson LLP. All rights reserved.

Reading Microsoft (again) Specific context of the Microsoft judgment The US Netscape precedent A case of “super-dominance” Rather aggressive handling of the case De facto standard setting role of Microsoft Interoperability : refusal to grant a license = a refusal to deal, abusive only in “exceptional” circumstances When is a refusal abusive ? (3 IMS criteria: indispensability, foreclosure effect, new product for which there is a demand)? IMS Health test - more flexibly applied in Microsoft? (in particular, the foreclosure effect on “all competition”) © Hogan & Hartson LLP. All rights reserved.

Reading Microsoft (again) Windows Media Player (Tying) Dominance on the Tying market (easy to show in Microsoft, owing to MS’ “superdominance” on the PC operating system market) Need to identify two separate products, not “intrinsically” linked – this test is driven by consumer demand … but it can evolve very quickly, especially in fast-evolving technologies Foreclosure effect? Customers are “foreclosed”, i.e. have no other choice (CFI : irrelevant that products competing with the tied product (WMP) were downloadable free of charge Market as a whole is foreclosed, i.e. competitors have not much room left to compete (“obvious” or “likely” foreclosure (CFI) ?) And by the way, what about efficiencies ? © Hogan & Hartson LLP. All rights reserved.

Reading Microsoft (again) Is Microsoft too specific to be replicated ? MS “superdominance” Perception of a systematic business model © Hogan & Hartson LLP. All rights reserved.

Reading Microsoft (again) US – EU Divergences: widening the gap again? " “We are concerned that the standard applied to unilateral conduct (…) may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition” " " “In the US, the antitrust laws are enforced to protect consumers by protecting competition, not competitors ..” " © Hogan & Hartson LLP. All rights reserved.

Tying : when is it illegal ? Dominance on the tying market Two distinct products (“tying” and “tied”) Focus on the demand of the tied product : is it separate ? Foreclosure effect Impact on the consumers (how are they “tied” : price-wise, contractually, can they easily switch to a competing tied product?) Impact on the market : “likely” or “obvious” foreclosure effect High standard of proof for objective justification and/or efficiencies : it is not enough to show that consumers want the combination of both tying and tied product, it should be clear that they ask for THIS combination involving both products from the same (dominant) player. © Hogan & Hartson LLP. All rights reserved.

Pricing : recent case-law on some issues Margin Squeeze (Deutsche Telekom, CFI, 10 April 2008) Facts Difference between DT’s wholesale prices to competitors and retail prices to end-consumers too thin to allow an “as efficient competitor” to obtain a reasonable margin Findings Possibility of “dual” regulation (both ex ante and ex post) if the dominant player retains “some” room to set its prices, in spite of the price regulation mechanism Importance of the criterion of an “as efficient competitor © Hogan & Hartson LLP. All rights reserved.

Pricing : recent case-law on some issues Fidelity Rebates & Discounts (British Airways, ECJ, 15/03/2007) Facts Result-conditioned bonuses to travel agencies generating over £500,000 in annual sales of BA tickets Incentives to increase sales of BA tickets Discrimination between travel agencies Findings Competing airlines did not have pockets deep enough to offer a comparable bonus system Foreclosure effect Direct adverse effect on the consumer not shown © Hogan & Hartson LLP. All rights reserved.

Pricing : recent case-law on some issues Predation (Wanadoo, CFI, 30 January 2007) Facts Broadband internet market, quickly evolving Wanadoo’s retail prices lower than its average full costs Foreclosure effect Findings CFI confirms that the Commission does not need to prove that the dominant player will not be able to recoup its losses on the long run Forward-looking analysis of costs (5-years amortization of initial sunk costs) Possibility to have a dominant position even on dynamic and emerging new markets When are dominant players allowed to “align” on competitors’ prices ? © Hogan & Hartson LLP. All rights reserved.

EU – US Divergences / Convergences There are a few “technical” divergences, such as the ability to recoup losses in the predation test (needed in the US, not in the EU), but the true divergences go beyond technicalities : “Dual” regulation (antitrust + sector regulator) is possible in the EU, less so in the US (Trinko) Both regulators claim to have an “effect-based approach ; but EU enforcers insist on foreclosure ; US enforcers care more about efficiencies “Protecting competitors or competition” ? … EU enforcers believe that these two approaches are two flips of the same coin, while US regulators are more reluctant to intervene on market structures, unless a clear consumer harm is proved. © Hogan & Hartson LLP. All rights reserved.

A few words about politics The EC Commission has a policy ; how far is it influenced by “politics” ? Commissioners do have national and political backgrounds, but the Commission as such is supposed not to. Really ? Politics play a greater role when the Commission acts as a law-maker (see for instance the unbundling issue in the energy sector). Increased complexity when nationalities are taken into account. © Hogan & Hartson LLP. All rights reserved.

For Further Information Please Contact… MICHEL DEBROUX Partner, Paris mdebroux@hhlaw.com (tel) +33.1.55.73.23.00 (fax) +33.1.55.73.23.10 © Hogan & Hartson LLP. All rights reserved.

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