A good call by the Commission

The European Commission has upheld important principles in an area – high technology – that is difficult for antitrust regulators.

The European Commission on 27 January granted conditional approval of Intel’s acquisition of McAfee during a preliminary examination of the deal. Joaquín Almunia, the European commissioner for competition, showed a clear understanding of what is and what is not likely to obstruct competition in the fast-moving, highly complex technology industry

When Intel announced its purchase of McAfee in August 2010, it said the merger offered the prospect of greater innovation in cyber-security, an area vital for business and consumers alike. But complainants argued that the transaction could instead reduce competition among cyber-security providers. They argued that Intel might favour its new McAfee business by interfering with interoperability between its processors and the security solutions offered by McAfee’s rivals. Similarly, Intel might bundle McAfee’s products into Intel’s hardware, achieving a prevalence that rivals simply could not match.

Interoperability is now recognised as a fundamental value in European competition policy. In a ruling against Microsoft in 2004, for example, the Commission found that barriers to interoperability between Microsoft’s Windows and rival operating systems were squeezing out competition and innovation from the ‘workgroup server’ market – servers that allow users to share files and printers in an office.

Clear dividing line

Interoperability as an antitrust concept is about enabling competitors to design their own systems, with the best and most useful functionalities they can conceive, and then to sell those systems in the marketplace without being ambushed by an inability to interoperate properly with another – dominant – system that their customers have to use. But there is a clear conceptual dividing line between interoperability and copying or making a rival platform using compulsory licensed technology.

For example, one of the complainants in the Microsoft case, Sun Microsystems, argued that Microsoft should have provided information that would have enabled Sun to write a layer of software to run on top of Sun’s Solaris operating system and would have made it appear to applications as if it were Windows. Thus, applications written for Windows could have been run on Solaris. Customers could have avoided buying Windows altogether, but still have secured all the benefits of the Windows application environment.

It is a little known fact that Microsoft actually won that part of the case. The Commission recognised that this had nothing to do with interoperability and would discourage innovation and competition between platforms, and it declined to pursue Sun’s complaint on this point. The Commission has maintained that principle in the Intel-McAfee case, by not imposing an obligation on Intel to enable rivals to replicate the characteristics of Intel’s processors.

Greater choice

Another potential pitfall for the merger was the issue of bundling. Tying products together can destroy competition and choice for consumers. In the second part of the Microsoft case in 2004, the Commission found that there was no objective justification for forcing computer manufacturers to purchase Microsoft’s media player as part of Windows – this merely prevented them from making a meaningful choice between media players to include in their computers.

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But combining different technologies can also create great benefits. There is the prospect of that in the Intel-McAfee tie-up. The ruling will not be restrained from combining its hardware with McAfee’s security technologies. It will therefore be able to explore the opportunities offered by its acquisition to make genuine improvements in security for users across the globe.

The only concession Intel made was to make available information necessary for McAfee’s rivals’ software to “utilise” any malware detection engine that might be bundled in Intel processors. Customers will therefore continue to enjoy a competitive choice between security software products working with Intel chips.

Applying the antitrust rules in the information and computer technology environment is not an obvious matter. Establishing sound principles and applying them is the key to success. The Commission has done that in the Intel-McAfee case.

Christopher Thomas is a partner with Hogan Lovells in Brussels, specialising in anti-trust, competition and economic regulation. He has acted for a large number of software and hardware vendors, including McAfee, in a variety of matters before the European Commission and other regulators. He acted for Novell in the Microsoft case, but he did not represent any party in the European Commission’s review of the Intel / McAfee transaction.