This posting is the second one in a four-part series on a legislative initiative for interoperability currently being evaluated by the EU. Click here for the first part of the series (a brief overview of what this is all about).
EU competition law has four main areas: cartels, mergers, state aid, and cases against the abuse of a dominant market position.
The fourth area is the one to leverage if you aim to restrict the way a single powerful company (that doesn't form a cartel with others) uses its patents. That part of the law can only solve a problem if a company (i) dominates its market AND (ii) behaves in a way that is considered anticompetitive (such as refusing to disclose technical information necessary to interoperate with its dominant products, or wielding its patent arsenal to shut down reverse engineering of the same).
In connection with interoperability, the Microsoft case has established some helpful principles. In fact, the EU leads the world by example as far as interoperability is concerned, in no small part thanks to Mrs. Kroes's work as competition commissioner in recent years. The most recent example of how companies with an interoperability concern rest their hopes on the EU is a complaint by a US company named Versata against SAP.
However, if a company is not dominant in a competition law sense, then there's simply no case, neither in the EU nor in any other jurisdiction I know (such as the US) on the grounds of an abuse of a market position.
Even many big players can claim not to be dominant
Many companies can escape that part of the law because the legal test for market dominance is a very high hurdle. If a company has a quasi-monopoly and dwarfs its competitors, then it's certainly dominant in the given market. But if it's "only" a clear number one, there could still be enough competition in the market that dominance must be denied.
Let me give you an example for how high a hurdle it is: in my personal opinion, Oracle dominates the market for database software. It has roughly a 50% market share based on revenues, and it acquired MySQL, which is by far and away the most popular open source database. However, if a court of law had to decide whether Oracle is dominant in a legal sense, the counterargument would be that IBM's DB2 and Microsoft SQL Server are competitive forces to be taken into account.
Whether or not a company is dominant heavily depends on how the relevant market is defined: geographically and in terms of product characteristics. In the total worldwide market for mobile phones, Apple would probably not be considered dominant because Nokia still sells more units, the collective volume of Android-based phones is quite high, and RIM (BlackBerry) is also strong. But in a more narrowly defined subset of the market, Apple's market share could be considered to be much higher. Also, Apple could be considered dominant as an online music distributor or as a distributor of iPhone/iPad applications.
The outcome of the dominance test is always binary: there is a case, or there isn't. There can be intervention, or there can't. As a result, there's a huge regulatory gap.
While a few companies are considered dominant in certain markets, such as Microsoft for client PC operating systems or IBM for mainframes, there are many others who are also extremely powerful and have their customers locked in, but under antitrust rules they can't be pursued no matter what they do.
The EU can't and won't try to expand the scope of antitrust law as a whole. But the European Commission has apparently recognized that it shouldn't be required to bear the burden of proof that a company is dominant only to ensure interoperability. There should be a general obligation affecting not only dominant players but also the much wider circle of "significant market players", many of whom could also use their intellectual property rights (especially patents) to limit choice and stifle innovation.
How to define significance, such as in terms of percentage of market share, is one of many things the Commission is now presumably pondering.
For the next (third) posting in this four-part series on legislative initiative for interoperability currently being evaluated by the EU, please click here.
