Judgments nº T-79/12 of The General Court, December 11, 2013

• Resolution Date: December 11, 2013
• Issuing Organization: The General Court
• Decision Number: T-79/12

(Competition – Concentrations – European markets for internet communications services – Decision declaring the concentration compatible with the internal market – Manifest errors of assessment – Obligation to state reasons)

In Case T‑79/12,

Cisco Systems Inc., established in San Jose, California (United States),

and

Messagenet SpA, established in Milan (Italy),

represented by L. Ortiz Blanco, J. Buendía Sierra, A. Lamadrid de Pablo and K. Jörgens, lawyers,

applicants,

v

European Commission, represented by N. Khan, S. Noë and C. Hödlmayr, acting as Agents,

defendant,

supported by

Microsoft Corp., established in Seattle, Washington (United States), represented by G. Berrisch, lawyer,

intervener,

APPLICATION for annulment of Commission Decision C(2011) 7279 of 7 October 2011, declaring the concentration between undertakings involving the acquisition of Skype Global Sàrl by Microsoft Corporation (Case COMP/M.6281 – Microsoft/Skype) to be compatible with the internal market and the Agreement on the European Economic Area (EEA),

THE GENERAL COURT (Fourth Chamber),

composed of S. Papasavvas, acting as President, M. van der Woude (Rapporteur) and C. Wetter, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written procedure and further to the hearing on 29 May 2013,

gives the following

Judgment

Facts

Parties to the proceedings

1 The applicants, Cisco Systems Inc. (‘Cisco’) and Messagenet SpA (‘the applicants’), are undertakings that provide, inter alia, internet-based communications services and software for, respectively, undertakings and the general public.

2 The intervener, Microsoft Corp., designs, develops and markets a wide variety of software products for different kinds of computing devices. Those products include internet-based communications services and software.

3 Skype Global Sàrl (‘Skype’) provides internet-based communications services and software. Its products enable instant messaging, voice calls and video communications over the internet.

Administrative procedure

4 On 2 September 2011, Microsoft – acting in accordance with Article 4 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (OJ 2004 L 24, p. 1) – notified a concentration by which it intended to acquire control of Skype.

5 The applicants participated in the investigation conducted by the European Commission. In this respect, Cisco, before Microsoft had even filed its formal notification of the concentration, participated in a meeting with the Commission on 1 August 2011 and replied to the Commission’s questions on 12 and 18 August 2011, then provided supplementary replies on 9 September 2011. Cisco also responded to further questions raised by the Commission on 13 September 2011, supplying additional information during a video conference held on 14 September 2011 and written observations on 19 and 26 September 2011. For its part, Messagenet sent written observations to the Commission on 20 September 2011, participated in a telephone conference on 4 October 2011 and supplied additional information on the same day.

6 On 7 October 2011, pursuant to Article 6(1)(b) of Regulation No 139/2004, the Commission adopted Commission Decision C(2011) 7279, in which it found that the concentration by which Microsoft would acquire Skype was compatible with the internal market and the European Economic Area (EEA) Agreement (Case COMP/M.6281– Microsoft/Skype; ‘the contested decision’).

Content of the contested decision

7 In the contested decision, the Commission held that a distinction should be drawn between internet-based communications services aimed at the general public (‘consumer communications’) and those aimed at undertakings (‘enterprise communications’) (recitals 10 to 17 of the contested decision). The Commission did not consider it necessary, for the purposes of its competition analysis, to segment these two broad categories of communications further as it took the view that the notified transaction did not give rise to any competition concerns, even on the narrowest possible definition of the markets (recitals 18 to 63 of the contested decision). The Commission therefore conducted its analysis by examining the impact of the concentration on each of the two markets that it had identified.

8 As for the geographical dimension of the markets, since the Commission considered that the transaction did not give rise to competition concerns – even with respect to the narrowest possible market, namely that of the European Economic Area (EEA) – it did not take a view on the precise definition of the relevant geographical market (recitals 64 to 68 of the contested decision).

9 As regards the horizontal effects of the concentration on the consumer communications market, after examining the characteristics of the market (recitals 69 to 95 of the contested decision), the Commission examined the narrowest possible segments with the greatest overlap between the services offered by Microsoft and those offered by Skype, namely the segment of instant messaging on personal computers (‘PCs’) functioning on the Windows operating system (‘Windows’), the segment of voice calls on Windows‑based PCs and that of video calls on Windows‑based PCs. The Commission took the view that the transaction did not give rise to serious doubts as to its compatibility with the internal market, even in those narrow segments (recitals 96 to 132 of the contested decision). In particular, in the segment of video calls on Windows‑based PCs (‘the narrow market’) where the new entity would have a market share of between 80 and 90% with the services of Skype and Microsoft offered under the brand ‘Windows Live Messenger’ (‘WLM’), the Commission considered that Microsoft would face competition.

10 The contested decision also examined whether the concentration would give rise to conglomerate effects on the consumer communications market, having regard to, in particular, the important position held by certain Microsoft products, such as Windows, the Windows Internet Explorer browser and the Microsoft Office software, on other computer software markets. In this respect, the Commission held that the new entity had the ability, but not the incentive, to use that position to distort competition in favour of Skype and Microsoft products by degrading the interoperability of those products with competing products or by resorting to bundling or tying practices. In the Commission’s view, even if the new entity attempted to pursue such a foreclosure strategy, the anti-competitive consequences would be limited or even non-existent (recitals 133 to 170 of the contested decision).

11 As to the horizontal effects of the concentration on the enterprise communications market, the Commission concluded that the transaction did not give rise to serious doubts as to its compatibility with the internal market. The presence of Skype on the enterprise communications market is limited and the new entity would not become market leader, even in the narrowest segments of the market where Skype is nevertheless active (recitals 177 to 202 of the contested decision).

12 In its decision, the Commission also addressed certain concerns raised during the investigation by traditional telecom operators and other suppliers of enterprise communications services into possible conglomerate effects on the enterprise communications market, finding that those concerns were unfounded (recitals 203 to 221 of the contested decision). One of the concerns related to the possibility that the new entity might create preferential interoperability between Skype’s user base and the user base of Lync, which is a communications software program developed by Microsoft aimed at undertakings, which would give the new entity a significant advantage in the eyes of undertakings using call centres. However, the Commission found that the new entity would have neither the ability nor the incentive to engage in a strategy of exclusion, which would, in any event, be unlikely to produce anti‑competitive effects (recitals 213 to 221 of the contested decision).

Procedure and forms of order sought

13 By application lodged at the Registry of the Court on 15 February 2012, the applicants brought the present action.

14 By a separate document lodged on the same day, the applicants also applied to have the case decided under the expedited procedure, pursuant to Article 76a of the Rules of Procedure of the General Court, and, in the alternative, to have the case given priority within the meaning of Article 55(2) of those rules.

15 On 22 March 2012, the Court dismissed the application to have the case decided under the expedited procedure. Moreover, the Court did not grant the application to have the case given priority.

16 By order of 23 May 2012, the President of the Fourth Chamber of the Court granted Microsoft’s application to intervene, which had been lodged at the Registry of the Court on 2 March 2012.

17 On 29 May 2012, the parties were notified that a second exchange of pleadings was not necessary, pursuant to Article 47(1) of the Rules of Procedure.

18 On 11 July 2012, Microsoft submitted its statement in intervention. On 24 October 2012, the applicants and the Commission submitted their observations on that statement.

19 On 12 September 2012, the Court submitted written questions to the parties, in the context of measures of organisation of procedure. The parties replied to those questions within the prescribed period.

20 As two members of the Chamber were unable to sit, the President of the Court designated two other Judges to complete the Chamber, pursuant to Article 32(3) of the Rules of Procedure.

21 Upon hearing the report of the Judge-Rapporteur, the Court decided to open the oral procedure, and, in the context of measures of organisation of procedure, put a question in writing to the intervener, requesting that it reply to that question at the hearing...