La Unión de las Dos Riberas

Although commitments concerning interoperability had occurred before, for example in 1984 IBM gave an undertaking to the Commission to provide interface information for its System 370, there seems, post Microsoft, to be an acceleration in the number of decisions by the Commission in which it has imposed interoperability. These have occurred in merger cases and voluntary commitments under Article 9 of the Antitrust Regulation 1/2003. In recent merger cases the Commission appears to have accepted the position that a lack of interoperability has an adverse effect on competition, particularly in network markets.⁴³¹ This could be seen as the Commission using Microsoft to strengthen its arm in negotiations and furthering a culture of interoperability.

In December 2009 Oracle’s acquisition of Sun Microsystems was cleared following Oracle’s public commitment which included addressing licensing and copyright issues relevant to

428 Commission decision in Microsoft, para 244 also see Colin Jackson, ‘The basic technology issues at stake’

Microsoft on Trial ibid, 23. Kerberos had been developed by MIT and the specification for this protocol was in the public domain but Microsoft added a proprietary extension to the public standard.

429 Microsoft had 93 percent share of the PC operating system market and 60 percent of the work group server operating system market. Windows was described not only as dominant but as the “de facto standard”. See Microsoft, paras 31 – 33.

430 See Mirosoft, para 1349 on interoperability leveraging quoting Bill Gates, “What we are trying to do is use our server control to do new protocols and lock out Sun and Oracle specifically... Now, I don’t know if we’ll get to that or not, but that’s what we are trying to do”.

431 The Commission’s position may have been informed by analysis in the Microsoft decision.

142 third-party developers of open source software, MySQL storage engines, promising to maintain the openness and flexibility of MySQL's Pluggable Storage Engine Architecture and not to require commercial licenses to use the storage engine APIs.

In the decision on Cisco’s acquisition of Tandberg,⁴³² the lack of interoperability was seen as a barrier to entry to the market for high-end video conferencing systems. The question in that merger was whether the market would impose interoperability or whether

intervention was required. Perhaps unsurprisingly, the competitors favoured intervention.

End customers, distributors and industry analysts however thought that the market would impose interoperability and that a standard would develop.⁴³³ The market investigation revealed that network effects meant there was a strong case for interoperability. It

confirmed that interoperability was the way forward for the industry, but the merged entity could have an increased incentive to strategically restrict interoperability with new entrants or less important competitors.⁴³⁴ Cisco was required to divest the copyright and

management of its TIP protocol to an industry body before the merger was approved.⁴³⁵ The acquisition of the security software vendor McAfee by Intel raised concerns as competing security software vendors would continue to need good interface information post merger, information which is essential to ensure that their software was not

disadvantaged with regard to performance and power consumption, as that would significantly increase workload on the CPU and affect performance of the computer.⁴³⁶ There was concern that after the acquisition Intel would lose the incentive to disclose

432 Cisco Sytems Inc and Tandberg ASA (Case COMP/M5669) Commission Decision [2010] OJ L-2985

433 Ibid para 71 One important distributor (AT&T) said that Cisco, in acquiring Tandberg, would achieve better interoperability and if interoperability was made more difficult it would diminish the value of the new combined entity.

434 Ibid para 81

435 Ibid para 146-160 Cisco also undertook to make the source code of the TIP protocol available on an open source licence, ensure backward compatibility and support TIP for at least three years after the industry accepts a recognized standard.

436Intel/McAfee Case (COMP M5984) Commission Decision [2011] OJ C 98 -1, para 18

143 information to competing security software vendors and this would foreclose the market.

Given Intel’s large market share, customers would not be in a position to exert pressure on Intel to restore interoperability and reverse engineering was not “commercially viable or technically feasible.”⁴³⁷ This would have a significant adverse effect on the market, acting as a technical tie and foreclosing the market. Intel committed to give equal access to

“Instruction, Interoperability and Optimization” information.⁴³⁸ The Commission co-operated closely with the U.S. Federal Trade Commission throughout the review.⁴³⁹

5.4.5 Does the Exceptional Circumstances Test Provide an Adequate Solution?

The central purpose of competition law is to “speed up the arrival of the long run” (so that firms lose market power faster).⁴⁴⁰ Lock-in due to lack of interoperability is a drag on this process and it is possible that intervention by competition law could give net benefits.⁴⁴¹ The willingness to intervene to promote interoperability in Microsoft and more recent merger cases indicates that the Commission has been convinced by the competitive virtues of interoperability. Arguably, the outcome of Microsoft has strengthened the Commission’s bargaining position in negotiations intended to maintain interoperability post-merger and Article 9 commitments.

437 Ibid para, 160

438Ibid 62 The information seems to extend beyond interoperability to include information necessary to develop and optimise functionality in the Intel microprocessors and chipsets.

439 Press release Mergers: Commission clears Intel's proposed acquisition of McAfee subject to conditions, IP/11/70, 26/01/2011; Daniel J. Gifford, and Robert T. Kurdrie, ‘Antitrust approaches to dynamically

competitive industries in the United States and the European Union’ (2011) 7 (3) J C L & E 695-731 where the appointment of Carl Shapiro’s appointment as Deputy Attorney General in the Obama Administration is discussed and that subsequent action concerning Intel may indicate that the Federal Trade Commission sees no special antitrust status for the new economy.

440 Frank H. Easterbrook ‘The Limits of Antitrust’ (1984) 63 Tex L Rev 1

441 Opponents to any form of intervention for fear of dampening the incentive to innovate remain and criticise the exceptional circumstances test as applied in Microsoft.

144 Interface specifications have been considered an exception under the Software Directive and not covered by copyright.⁴⁴² This would not overturn or invalidate all criticism of Microsoft but arguably Microsoft is not a full frontal attack on the sanctity of IPRs but a step towards a more nuanced and pragmatic approach to interoperability and lock-in.

Interface information has distinct features which mean that it may require different treatment to other IPRs. While the Commission’s Guidance conflates the two in Section III D, objective necessities and efficiencies, it can be argued that in Section III B the Guidance calls for sufficient analysis for the Commission and courts to differentiate between them in practice. This may mean that the law will develop so that undertakings dealing in software and platforms are able to assess when they have to disclose interface information, although this process is likely to be very slow and fraught with difficulties.

The Software Directive permits block box analysis and reverse engineering, but it does not require suppliers to disclose interface information in any form. However, following

Microsoft, once a supplier becomes dominant it may have to compile and disclose such information. We are faced with two levels of interoperability, in which the level of

interoperability that can be required of dominant companies will be at a higher level than for other suppliers. This may be justified given the impact of network effects, but the very existence of the remedy implies that the interface information available under the Software Directive is inadequate for interoperability.⁴⁴³ There will continue to be prospective

suppliers unable to achieve interoperability for their software, and users locked in to incumbent suppliers. SAS Institute is just the tip of the iceberg and software in the 3D CAD industry is another example. It could be argued that the cumulative effect of this does not affect the market and is inappropriate for a remedy under competition law, but it is a serious problem for the user and a cost to the economy and should be addressed as part of the IPR regime.

442 SAS Institute

443 The level of interoperability required from Intel and Cisco before their respective mergers were cleared was certainly more than could be achieved by reverse-engineering. See e.g. M.5984 Intel/ McAfee, para 145.

145 In Microsoft the Court considered that competitors would not want to replicate exactly the same work-group server operating systems as Microsoft, but to offer something innovative and different. This supports the requirement under the “essential facilities test” for a secondary market with a new product or an advance in technical development. By contrast in Navitaire and SAS Institute the aim was to produce software with the same “look and feel”, to help users swap to the new supplier. It is ironic that a competitor has to establish a new product or technological advance to interoperate with a dominant company but can emulate the software of any other competitor.

The benefits of using competition law as an ex post regulation of IPRs is that it should provide a flexible solution after analysis on a case by case basis. This allows for the balance between openness and control to be struck. However it is said the exceptional

circumstances test has developed to provide a rigid framework which is neither flexible nor appropriate for the particular factors relevant to interoperability and standardisation.⁴⁴⁴ The considerations relevant to standards and interface information include that firms may be competing for the market rather than within the market. Competition for the market is arguably not harmful to consumer welfare per se but has different considerations which may not fit within a rigid application of the exceptional circumstances test. The IPRs in interfaces are often of a low innovative value, but give control to network markets, locking in customers and shutting out competitors. When balancing the incentive to innovate it may be incorrect to focus solely on the value of the interface innovation but to consider the innovation incentive that can flow from the resulting control.⁴⁴⁵

The merger and Article 9 Commitments post Microsoft have seen competition law turning into an ex ante remedy. This is appropriate as the problems that are being remedied are structural and foreseeable. Competition law is therefore playing a valid and important role on a case-by-case basis to provide a flexible remedy that will encourage interoperability and competition.

444 Ashwin van Rooijen The Software Interface between Copyright and Competition Law (Kluwer Law International 2010, 132-133

445 Ibid

146 Competition law as an effective remedy is limited to merger and Article 9 Commitments.

The disadvantages of the exceptional circumstances test have been analysed above. The 3D CAD industry has additional hurdles to overcome before the exceptional circumstances test could be applied to the undertakings. The industry is oligopolistic with 3 or arguably only 2 suppliers in the high end of the industry. On the surface there appears to be competition in the industry although users suffer from supplier lock-in. Before the issue of failure to supply interface information could be challenged it would be necessary to show either that the supplier was individually dominant or two or more suppliers were collectively

dominant. The lack of interoperability would be very relevant to this determination. It has been argued that Amazon’s Kindle and Kindle e-books are a distinct market due to

Amazon’s restrictive e-book format which because of DRM protection features could until recently only be read on Amazon’s devices.⁴⁴⁶ If the market for 3D CAD could be defined at the individual supplier level because of interoperability the evaluation of dominance and abuse for failure to supply interface information could be applied. Alternatively the

industry, as a tight oligopoly, could be considered collectively dominant and then subject to review under the exceptional circumstances test. This Chapter will continue with an

analysis as to whether the products of individual suppliers in the 3D CAD industry could be considered distinct markets, or whether the industry is collectively dominant.