Could the recent German decision be a turning point and the beginning of more investigations into Microsoft’s practices in Europe?
On 28/03/2023 the “Bundeskartellamt” (the German Federal Cartel Office, the “FCO”) initiated a formal proceeding against Microsoft to examine whether the company is of “paramount significance for competition across markets”.
The move which is based on the FCO’s new powers under Section 19a of the German Comp Act (the “GWB”) had been expected already as of autumn 2022.
First official European investigation against Microsoft in a decade
About 15 months later, the FCO finally made its move which implies the first stage of an official investigation by any competition authority against Microsoft in Europe after the giant managed to stay out of the anti-trust investigations limelight. Microsoft has had a rich history of anti-trust violations from the nineties until 2013. There were numerous “tying” and bundling investigations and numerous decisions against Microsoft in the earlier days (context “Windows Media Player”, “Internet Explorer”) of our digital age. Those investigations had resulted in record fines to be paid by Microsoft to the European Commission of around a total 1.6 billion euros ($1.8 billion). However, even the responsible Commissioner Joaquin Almunia at the time recognised that those fines were not sufficient as a deterrent to discourage Microsoft from disregarding the competition rules.
In its press release from 28/03/2023, the FCO noted
“with Windows and its Office products Microsoft has had a long-standing and very strong position with regard to operating systems and office software. Based on this, the company has continuously expanded its product range both for business customers and consumers. More recently, we have seen a strong increase in the importance of the cloud services Azure and OneDrive, which are often linked to other Microsoft applications, and the resounding success of Teams, a software for video conferences and collaborative working. In addition, Microsoft is also active in other areas, including gaming with its Xbox, career networks with its service LinkedIn or internet searching with its search engine Bing. Most recently, the company has attracted attention with the integration of AI applications. In light of this, there are good reasons to examine whether Microsoft is of paramount significance for competition across markets. Such a finding would allow us to take action at an early stage and prohibit possible anti-competitive practices.
The existence of a digital ecosystem which extends across various markets can be an indication that a company holds such a position. It is often very difficult for other companies to contest the positions of power associated with this.”
New German law allowing for competition examination across markets
It is for this reason that the German legislator had introduced new rules specifically for digital markets – as of early 2021 – so that the FCO can act faster and decide on specific prohibitions in a more timely fashion (“ex-ante”) in respect of designated actors. Under the new Section 19a (2) of the German competition act the FCO would then – in a second step – be able to issue very specific prohibitions that can be issued in respect of an actor that has already been designated under Section 19a (1) of the Act.
The case of Microsoft
In the area of productivity and collaboration software, video and cloud offerings (Windows, Office / M365, Teams, Azure & OneDrive etc.) there is no doubt that Microsoft holds very strong positions in those markets. Micosoft365 reportedly reaches market shares approaching 90 % in some of the enterprise productivity markets. A European Commission staff working document from 22/02/2022 entitled ‘EU strategic dependencies and capacities: second stage of in-depth reviews’ already pointed to this issue.
Overall, the author of this article is confident that Microsoft will eventually be designated as holding a position which is of “paramount significance for competition across markets”. It will now be for Microsoft to take a position and submit their comments in the context of the start of this formal investigation by the FCO which may take several months at a minimum. The timeline for reaching a first result of the investigation will – to some extent – depend on how Microsoft will react to the questions that will be raised as part of this first step of the investigation.
Most recent developments in digital markets
Some of the most relevant developments in the digital markets concern the area of artificial intelligence (“AI) and are related to products such as ChatGPT. “OpenAI”, the company that has just launched ChatGPT in late 2022, has been funded in large parts by Microsoft. In a recent article in the Wall Street Journal it appears that Microsoft CEO Satya Nadella was reported as making presentations at Microsoft sales meetings of how companies can increase ‘efficiency’ using AI through its Azure cloud and other Microsoft products, said people familiar with the matter. Furthermore, the WSJ article explains in the same article that “both Microsoft and Google have also said they are injecting the chatbot technology into their office productivity software programs like Microsoft Word and Google Docs.” Competition lawyers familiar with the digital markets may understand what that means.
As can be seen from the most recent market data for Europe as collected by Synergy Research Group in the cloud sector Microsoft holds an increasingly strong position in the cloud sector (number two in Europe and globally, discretely catching up with global and European market leader Amazon Web Services) in addition to office productivity products and gaming.
Overall, it does not appear as if the FCO have added the wrong “player” as part of their meanwhile established list of powerful actors in the digital space such as Alphabet/Google, Meta/ Facebook. For Amazon the process of designation as relevant actor under Section 19a (1) of the German act is well under way but not (yet) definitive or legally binding. Apple has just been designated by the FCO as a relevant actor according to Section 19a (1) and will presumably be subject to specific prohibitions according to Section 19a (2) of the German act.