European Commission Approves Microsoft Acquisition of LinkedIn Subject to Conditions
On 6 December 2016, the European Commission cleared the acquisition of LinkedIn by Microsoft, subject to Microsoft granting LinkedIn’s competitors access to certain LinkedIn tools.
“BIG DATA” CONCERNS ANALYSED AND DISMISSED
The acquisition of LinkedIn’s “data” was one of the most anticipated issues in the case. Following Facebook/WhatsApp and Google/Doubleclick, Competition Commissioner Vestager highlighted the problem of “big data” in a 2016 speech, noting that “The problem for competition isn’t just that one company holds a lot of data. The problem comes if that data is really unique, and can’t be duplicated by anyone else.” As an overall matter, Microsoft’s and LinkedIn’s activities only overlapped in the provision of non-search online advertising services.
The Commission considered two ways in which combining the parties’ respective datasets relating to online advertising could harm competition. First, combining datasets can increase the parties’ market power in the supply of data, or increase barriers to entry for actual or potential competitors that need the data to compete, thus reducing competition. Second, even if the parties do not intend to combine their datasets post-merger, concerns can still arise if the datasets were the basis for competition between them pre-merger, and the transaction removed this competitive dynamic. The Commission dismissed these concerns, noting that Microsoft and LinkedIn had a limited presence in online advertising, did not compete closely and did not make their data available to third parties for advertising purposes.
The Commission also considered whether Microsoft, a supplier of customer relationship management (CRM) software, would be able to foreclose its CRM competitors by gaining access to LinkedIn’s internal dataset. Prior to the transaction, LinkedIn licensed sales intelligence solutions to third parties, including CRM suppliers. LinkedIn’s sales intelligence product comprises only a part of its full internal dataset, which it did not license to third parties and did not intend to license in the future. The Commission considered whether or not access to LinkedIn’s full dataset would nevertheless become essential for other CRM suppliers to compete post-merger, but rejected this concern. It reasoned that LinkedIn’s full dataset would be only one of many alternate solutions available and that CRM suppliers competed without it. The Commission also rejected related concerns that Microsoft would foreclose access to LinkedIn’s existing sales intelligence product, or bundle it with its own CRM product, finding that Microsoft lacked the ability and economic incentive to do so.
Although “big data” concerns were ultimately dismissed in this case, the Commission provided a clear framework that will undoubtedly be applied in further cases.
CONCERNS IN “PROFESSIONAL SOCIAL NETWORK” MARKET TRIGGERS REMEDIES
In Microsoft/LinkedIn, the Commission defined a narrow relevant market for professional social networking services (PSN). This answered a question left open in Facebook/WhatsApp as to whether or not social networking services should be segmented based on their intended use.
Microsoft, through Windows, holds a leading position on the markets of operating systems (OSs) and productivity software for personal computers (PCs), which are potentially important sources of “supply” for LinkedIn and competing PSNs. The Commission found a risk that Microsoft would take advantage of its strong position in these upstream markets to foreclose the PSN services market, reducing choice downstream.
For example, Microsoft could develop and pre-install a LinkedIn branded application on PCs running Windows OS. Similarly, Microsoft could integrate LinkedIn features within its own productivity software and deny similar levels of integration to competitors of LinkedIn. To address the Commission’s concerns about foreclosure, the parties committed to
- Allow competing PSNs to maintain current levels of interoperability with Microsoft’s Office suite of products.
- Grant competing PSNs access to Microsoft Graph, a gateway for software developers.
- Ensure that PC manufacturers and distributors would be free not to install LinkedIn on Windows and allow users to remove LinkedIn from Windows, should PC manufacturers or distributors decide to preinstall it.
- Refrain from retaliating against any PC manufacturer for developing, using, distributing, promoting, installing or supporting a Windows PC application for competing PSN providers.
The Commission accepted these commitments in its Phase 1 proceedings and subsequently cleared the merger, without the need for an in-depth investigation.
To be accepted in Phase 1, the competition concern must be readily identifiable and easily remedied. The Commission’s clear preference is for divestiture remedies, except where “access” remedies achieve an equivalent result, which was the case here. The commitments will apply for a period of five years and will be monitored by an independent trustee.