EU Court upholds the Commission’s decision on the Microsoft/Skype deal

by Gabriele Accardo

On 11 December 2013 the EU’s General Court (the “Court”) handed down its ruling concerning Microsoft’s acquisition of Skype. The Court held that the Commission rightly considered that the transaction does not restrict competition either on the consumer Internet-based communications market or on the business Internet-based communications market, and is therefore compatible with the internal market.

In their appeal, Cisco Systems and Messagenet claimed that the Commission was wrong in its assessment of the internet visual communications market and the effect of the interoperability between Skype and Microsoft’s business videoconferencing service, Lync.

First, the Court notes that the Commission confined itself in its decision to differentiating internet-based communications for the general public (“consumer communications”) from communications for businesses (“enterprise communications”) and found that the concentration from the proposed acquisition did not give rise to competition concerns even in the narrowest markets. In particular, according to the Court, high market shares (some 80 to 90%) and high degree of concentration in the market for video communications made on Windows-based PCs (a segment of the consumer communications market) are not indicative of a degree of market power which would enable Microsoft to significantly harm effective competition in the internal market.

The consumer communications sector is a recent and fast-growing sector characterised by short innovation cycles in which large market shares may turn out to be ephemeral. Moreover, Microsoft is less present on increasingly important operating devices for consumers, such as tablets and smartphones, so that any attempt to increase prices of communications for users of PCs might encourage consumers to switch to alternative devices. Furthermore, a commercial policy of making users pay would run the risk of encouraging them to switch to other providers who continue to offer their services free of charge. Besides, on devices other than Windows-based PCs, competing operators have sufficiently large market shares to constitute communication networks whose level of use and attractiveness for users are at least comparable to those of Skype and Microsoft, taken together.

Second, the Court held that the harm to competition alleged in the internet-based enterprise communications market was purely speculative, dismissing the appellants’ claim that the Commission did not take account of the foreclosure strategy that the new entity could follow in the enterprise communications market by creating exclusive or preferential interoperability between Lync products and Skype’s large customer base.

In this respect, the Court held, first, that to achieve interoperability between Lync and Skype and to successfully marketing this new product still depends on a number of factors, and it is therefore too uncertain to be considered a direct and immediate effect of the concentration.

Also, according to the Court, the applicants have failed to explain why business users might wish to specifically communicate with users of Skype, since the latter, in fact, are not necessarily their potential customers.

Finally, in the event that the product resulting from the integration of Lync with Skype gives Microsoft a real commercial advantage, Lync would still face competition from other large players on the enterprise communications market, including Cisco, which alone holds a larger share of the market than Microsoft. Competitors could adjust their prices, the quality or functionality of their products or have recourse to the services of other large providers of consumer communications services, such as Facebook, Twitter and Google, thereby countering Microsoft’s alleged market foreclosure strategy. That circumstance considerably reduces Microsoft’s ability to impede competition in that market.

In that respect, the Court further noted that the fact that Lync could be sold in conjunction with other products from Microsoft does not alter that finding, since such a sales strategy is not dependent on the concentration of the market under consideration.