Vezzoso, Simonetta (2005) The Incentives Balance Test in the EU Microsoft Case: A More “Economics-Based” Approach? [Preprint] (Unpublished)

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Abstract

Microsoft’s claim that it had an objective justification for its refusal to supply interoperability information covered by intellectual property rights was dismissed by the EU Commission. To substantiate this, the Commission applied a newly framed incentives balance test and concluded that the need to protect Microsoft’s incentives to innovate, under the specific circumstances of the case, could not objectively justify the undertaking’s refusal to license. On the contrary, Microsoft’s incentives to innovate were most likely to increase if it were required to license its interoperability information to competitors. This new balancing test is very controversial, both from the economic and legal perspective. It can also be questioned whether the balancing test to justification has been correctly applied in the case at issue. However, the paper purports to show that, for future discussion under the expected policy debate on a more “economics-based” approach to Article 82 of the EU Treaty, valuable insights can be gained from a careful scrutiny of the incentives balance test. In particular, the test helps realizing that a dynamic competition approach on the abuse of dominant position should devote considerable efforts to better understand the working of innovation processes at different industry layers. Moreover, that at least equally challenging is the identification of the appropriate competition remedies in industries characterized by, on the one side, Schumpeterian modes of innovation, and, on the other, strenuous stasis forces like network effects.

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