Microsoft-Skype Merger Approval Was Careless, Cisco Tells Court

Cisco Systems Inc. challenged European Union regulators’ approval of Microsoft Corp.’s 2011 takeover of Skype Technologies SA, telling judges the deal created so many competition concerns there should have been an in-depth probe.

Microsoft should never have been allowed to “buy its way to monopoly” in the market for communications that combine instant messaging, voice and video calls, Cisco told the EU General Court in Luxembourg today. Cisco wants the court to rule whether the EU was able to conclude beyond a reasonable doubt that the merger didn’t trigger competition problems, without an in-depth examination.

“This was a very serious case and there were many factors to show that there could be serious harm for consumers,” Alfonso Lamadrid, a lawyer for Cisco told the court today. “The commission brushed off these concerns. Its assessment was, with all due respect, careless.”

Microsoft won unconditional approval from the EU in October 2011 to buy Skype, the world’s most popular international calling service, for $8.5 billion. EU regulators said the deal wouldn’t harm competition because the market was growing and they faced “numerous players, including Google.”

The commission used “flawed reasoning” that conflicted with its approach in previous cases, said Cisco, the largest maker of computer-networking equipment. The combination of the companies would give them a combined market share of 80 percent to 90 percent in the market for video calls on Microsoft’s Windows-based computers.

Eliminate Incentive

It would “reinforce” the new company’s dominant position and “eliminate any incentive” to offer interoperability with other products, Cisco said, according to a court summary of the San Jose, California based company’s written arguments.

The market share hasn’t “put off” other participants, such as Viber Media Inc., from entering the market, said Nicholas Khan, a lawyer for the commission.

“Cisco pretends to seek interoperability, but what it actually seeks is that it wants Microsoft to change its products,” Georg Berrisch, a lawyer for Redmond, Washington-based Microsoft, told the three-judge panel. Microsoft bought Skype “to expand its offerings on the consumer market.”

Luis Ortiz Blanco, another lawyer for Cisco, said the EU failed to show that users will be able to easily switch from one platform to another. The commission failed to understand that people communicate in interconnected groups and as such would be less willing to switch.

“If you can already reach everybody on Skype, why should you switch to different applications,” said Ortiz Blanco.

The case is: T-79/12, Cisco Systems and Messagenet v. Commission.

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