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Mergers: Commission welcomes General Court judgment in Microsoft/Skype merger case

Commission Européenne - MEMO/13/1137   11/12/2013

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European Commission

MEMO

Brussels, 11 December 2013

Mergers: Commission welcomes General Court judgment in Microsoft/Skype merger case

The European Commission welcomes today's judgment by the General Court which dismisses Cisco Systems' appeal of a Commission decision of October 2011 to clear the acquisition of Skype by Microsoft (case T-79/12). The judgement confirms the Commission's assessment of new markets and technologies under the EU Merger Regulation. The Commission's decision to clear the transaction did not put the development of innovative products and services at risk. The Commission will continue to ensure that competition in nascent and fast evolving markets is maintained.

Today's judgment by the EU General Court (GC) confirms that the Commission was correct in its assessment that the acquisition of Skype by Microsoft would not significantly impede effective competition in the European Economic Area (EEA).

In a decision of October 2011 (see IP/11/1164), the Commission found that in the area of consumer communications, Microsoft and Skype's activities mainly overlap for video communications, where Microsoft was active pre-merger through Windows Live Messenger.

The GC confirmed that the Commission was correct in finding that even on the narrow market for consumer video communications on Windows-based PCs only, Microsoft/Skype's high combined market share of 80 to 90% was not indicative of market power given the particular characteristics of the market in question, which is marked by short innovation cycles and products which are free. Therefore, if Microsoft started to make PCs users pay for such a product, this would only encourage them to switch to other providers that continue offering their services free of charge. Furthermore, in that quickly evolving and fast growing market where strong competitors are present, account should also be taken of the increasing use of mobile phones and tablets, where Microsoft was a relatively small player.

The GC also held that the Commission's assessment of possible conglomerate effects was correct. In particular the GC rejected the argument of Cisco and Messagenet that Microsoft would be able to reserve to Lync, its product for enterprise communications, preferential interoperability with Skype and with Skype's large user base, to the detriment of competitors. First, the attainment of interoperability between Lync and Skype and a successful marketing of the new product still depend on a series of factors, which might not all occur in a sufficiently near future. Second, the precise advantages of such a combined product are vague and it needs to be seen whether there would be a genuine demand for it. Third, the Court stated that Lync faces competition from other large players on the enterprise communications market, such as Cisco, which alone holds a larger share of the market than Microsoft.

The Commission welcomes today's judgment which confirms the Commission's assessment of new markets and technologies under the EU Merger Regulation.

Background

On 7 October 2011, the Commission cleared under the EU Merger Regulation the acquisition of Skype by Microsoft (case M.6281).

Microsoft Corporation is a United States based corporation primarily active in the design, development and supply of computer software, operating system and related services.

Skype provides communications services (instant messaging, voice, and video communication) over the Internet.

During the market investigation, Cisco Systems submitted that it was concerned that Microsoft would (i) incorporate Skype into a bundle with Microsoft's own products and/or (ii) tie Skype to Microsoft's products and/or (iii) degrade their interoperability. The Commission took the view that the concerns raised were unfounded and did not directly result from the acquisition of Skype.

Cisco, a major competitor of Microsoft for enterprise communications services, filed an appeal at the GC. The company was joined in its appeal by Messagenet, a European consumer communications video-calling provider. Cisco and Messagenet were seeking the annulment of the Commission's decision and the issuance of a new decision enshrining standards-based interoperability.


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