The General Court judgment in
Case T-79/12 Cisco v Commission
• Johannes Lübking
• DG Competition
•
London, 12 May 2014
•
All views expressed are strictly personal and do not necessarily reflect the official position of the European
Commission
Introduction
• Rejection of the appeal brought by Cisco and
Messagenet against the 2011 Commission decision
clearing the acquisition of Skype by Microsoft in
Phase I without conditions
• Important policy messages for Phase I clearance
decisions in merger cases regarding:
• mergers in new markets and technologies
• the standard of proof and reasoning of decisions
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The Microsoft/Skype decision
• The parties
• Microsoft:
– Leading/dominant in PC operating systems ("Windows")
– Provides communication services for consumers ("Windows Live
Messanger") and enterprises ("Lync")
• Skype: market leader for video calls for consumers
• Horizontal assessment:
• Consumer communication services
– Market definition left open
» Possible segmentation by functionalities/platform/operating system
– Shares high in certain segments (especially video calls on Windows-based
PCs), but volatile and numerous competitors with strong brands
– Nascent and dynamic sector, services offered free of charge
– Competitive contraints from other platforms (tablets, smartphones…)
• Enterprise communications: Skype not seen as a market player
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The Microsoft/Skype decision (cont'd)
• Conglomerate assessment
• Possible concerns:
– Degradation of Microsoft and Skype products with third parties
– Bundling of Microsoft products with Skype products
• But: limited impact on consumers
– Microsoft has limited presence in Skype’s market
– Skype already closed system
– Communication software depends on network effects
– Alternatives to Skype on web available
• Outcome: Phase I clearance without remedies
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The judgment: General remarks
• The Court:
• carries out a thorough analysis of the arguments raised by the
plaintiffs
• based on general principles of the effects of mergers on
competition:
• High market shares may indicate market power unless
counterveiled by other factors
• Conglomerate effects cannot be presumed but must be based on
specific indications and a plausible theory of harm
• within a the context of an adversarial procedure:
• Arguments/facts brought forward by the plaintiffs can be
dismissed by uncontested statements in the Commission decision
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The judgment: horizontal overlap in market
for consumer video communications
• Presumption of dominance in case of market
shares of 50% or more only if a relevant market
has been defined
• Narrowest segment considered: consumer video
communications on Windows-based PCs
• Precise product market definition left open by
Commission
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The judgment: horizontal overlap (cont'd)
• High shares in specific segments of emerging technology
markets are less indicative of market power
• In particular with volatile market shares and presence of strong
competitors
• Market for consumer video communication:
– Presence of strong competitors
– Increasing use of mobile phones and tablets, where Microsoft was a
relatively small player
• High combined 80-90% share no indication for market power
• Short innovation cycles
• Competitive pressure from players using tablets, smartphones,
Facebook
• Network effects no additional advantage to merged entity
• Policy by Microsoft of making users of PCs pay would make them
switch to other providers of free products
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The judgment: conglomerate effects
• Plaintiffs challenged Commission assessment of conglomerate
effects in the enterprise communications market
• Microsoft would be able and have the incentive to reserve to its
product Lync preferential interoperability with Skype (including its
large user base)
• The Court:
• Lync faces competition from other large players on enterprise
communications market (e.g. Cisco)
• Thus a strategy of limiting interoperability would not be profitable
• Applicants' claim rejected that the Commission had not given sufficient
reasons for conglomerate assessment
• Very succinct discussion of the conglomerate aspects of the case …
• … but: context of the decision, need for speed in merger cases, far-fetched
theory of harm brought forward by complainants
• No need to discuss arguments clearly not relevant for the decision
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The judgment:
Standard of proof in Phase I/ Phase II
• The plaintiffs:
• "Serious doubts" test means that standard of proof for a
clearance in Phase I is higher than in Phase II
• The Court:
• Same assessment criteria and standard of proof in Phase I
and II: balance of probabilities ("more likely than not")
• Whether the Commission is able to clear a merger in Phase
I or Phase II "only depends on the period in which the
evidence becomes available but does not alter the standard
of that evidence"
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Some conclusions
• The Commission can clear a merger in phase I if balance of
probabilities for absence of competition concerns – opening of
phase II depends on when evidence becomes available
• Important clarification of standard for third-party appeals
against Phase I merger decisions (following precendents in
Sun Chemical, Spar)
• How to respond to complaints?
• Need for speed: no need to discuss every possible aspect
• But: The Commission must respond to arguments brought forward by
complainants unless clearly irrelevant
• Plausibility test regarding theory of harm
• Overall message:
The requirements regarding standard of proof and reasoning of Phase I merger
clearance decisions should not be exaggerated
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