Microsoft also subject to extended abuse control pursuant to Section 19a GWB – Bundeskartellamt determines paramount significance across markets

The Bundeskartellamt has determined that Microsoft Corporation based in Redmond, USA, is an undertaking of paramount significance for competition across markets. Microsoft and its subsidiaries are thus subject to extended abuse control pursuant to Section 19a of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen – GWB). Based on this provision, the Bundeskartellamt can prohibit companies which have such positions of power from engaging in anti-competitive practices.

Andreas Mundt, President of the Bundeskartellamt: “Microsoft’s many products are omnipresent in companies, authorities and private households and have become indispensable. The history of the company started with the Windows operating system which has provided Microsoft with a dominant position for many years now. Added to this are the Office applications and many other software products that are interconnected in a variety of ways. Today Microsoft’s ecosystem is stronger and more closely interconnected than ever before, because overarching all of its activities is the increasing use of the cloud and AI, key technologies in which Microsoft has consolidated its strong position by developing its own products and entering into cooperations.”

The core of the digital ecosystem created by Microsoft is its comprehensive cross-market portfolio of products, particularly for business customers, which are interconnected in many ways. This portfolio covers large parts of the customers’ requirements and contains many products that have represented the global market standard for years. For many years now, Microsoft has dominated the market for PC operating systems with its Windows operating system. Furthermore, the company has established very strong market positions for server operating systems (Windows server) and productivity software (Office products, Microsoft 365). Initially Microsoft offered products that were tailored to an infrastructure consisting of PCs and servers, but have increasingly been shifted to the cloud, where, alongside Amazon Web Services (AWS), Microsoft plays a leading role with Azure.

Microsoft continuously increased its portfolio through acquisitions, its own developments and by adding new functionalities to its established core products. The company also benefits from the integration of third-party offers which have made its generally open system even more attractive. Based on the provision of an assorted range of complementary products, Microsoft has a significant advantage over competitors that are only active on individual submarkets. Added to this is the technical interconnection between the products in Microsoft’s ecosystem.

Based on its established strong position, Microsoft has constantly succeeded not only in entering new markets, but also in quickly building up strong market positions. One example is the success achieved by Teams, a software for video conferencing and collaborating with co-workers. Microsoft has also expanded its activities into new business areas, such as gaming (Xbox) and professional networking (LinkedIn), where it has established a strong position and benefits from its financial strength and access to other resources as one of the most valuable companies worldwide.

The company’s leading position also extends to the area of artificial intelligence. The Copilot AI assistant is used in many parts of Microsoft’s ecosystem. Due to its strong position in the cloud area Microsoft is also able to enter into partnerships with highly innovative suppliers, offer their AI models as services on Azure and integrate them into its own products. Microsoft cooperates for example with OpenAI, the company behind the AI program ChatGPT (see press release of the Bundeskartellamt of 15 November 2023).   

Today Microsoft’s products form the standard for business, administration and private users in central fields of application in Germany, Europe and beyond. Microsoft generally provides essential parts of the IT infrastructure used by companies, and these also form the basis for other applications in the area of business software. This means that for creating successful products, software developers in these areas depend on the best possible compatibility with the Microsoft ecosystem and have to ensure that their developments are in line with the framework conditions set by Microsoft. In many cases Microsoft assumes a dual role as the company not only sets the framework conditions for third-party product developers, but also competes with them.

Andreas Mundt: “Our decision applies to Microsoft as a whole, not only to individual services or products. At the same time Microsoft is subject to the EU provisions applicable to gatekeepers under the Digital Markets Act. However, at this stage the resulting rules, which are enforced by the EU Commission, only apply to the Windows operating system and the LinkedIn network. Based on our decision we can stop anti-competitive practices which are not covered by the DMA.”

The validity of the Bundeskartellamt’s decision is limited to five years in accordance with statutory provisions. Within this period Microsoft is subject to special abuse control by the Bundeskartellamt in Germany as set out in Section 19a (2) GWB. No decision has yet been taken on the initiation of possible proceedings to examine specific practices employed by Microsoft.

The Bundeskartellamt will publish a summary of its decision shortly.

Background

In January 2021, the 10^th amendment to the German Competition Act (GWB Digitalisation Act) entered into force. A key new provision (Section 19a GWB) enables the Bundeskartellamt to intervene early and more effectively, in particular against the practices of large digital companies. Prior to the proceeding against Microsoft concluded today, the Bundeskartellamt had already determined the paramount significance across markets of Alphabet/Google, Meta/Facebook, Amazon and Apple (see press releases of 5 January 2022, 4 May 2022, 6 July 2022 and 5 April 2023). In the Alphabet, Meta and Amazon cases the authority’s decisions have already become final. In the Apple case an appeal is pending at the Federal Court of Justice. The Bundeskartellamt also took action against specific practices employed by the companies in several proceedings which have already been concluded or initiated. An overview of pending and concluded proceedings based on Section 19a GWB is available here.