Microsoft risks huge fine over “possibly abusive” bundling of Teams and Office

Microsoft may be hit with a massive fine in the European Union for "possibly abusively" bundling Teams with its Office 365 and Microsoft 365 software suites for businesses.

On Tuesday, the European Commission (EC) announced preliminary findings of an investigation into whether Microsoft's "suite-centric business model combining multiple types of software in a single offering" unfairly shut out rivals in the "software as a service" (SaaS) market.

"Since at least April 2019," the EC found, Microsoft's practice of "tying Teams with its core SaaS productivity applications" potentially restricted competition in the "market for communication and collaboration products."

The EC is also "concerned" that the practice may have helped Microsoft defend its dominant market position by shutting out "competing suppliers of individual software" like Slack and German video-conferencing software Alfaview. Makers of those rival products had complained to the EC last year, setting off the ongoing probe into Microsoft's bundling.

Customers should have choices, the EC said, and seemingly at every step, Microsoft sought instead to lock customers into using only its software.

"Microsoft may have granted Teams a distribution advantage by not giving customers the choice whether or not to acquire access to Teams when they subscribe to their SaaS productivity applications," the EC wrote. This alleged abusive practice "may have been further exacerbated by interoperability limitations between Teams' competitors and Microsoft's offerings."

For Microsoft, the EC's findings are likely not entirely unexpected, although Tuesday's announcement must be disappointing. The company had been hoping to avoid further scrutiny by introducing some major changes last year. Most drastically, Microsoft began "offering some suites without Teams," the EC said, but even that wasn’t enough to appease EU regulators.

"The Commission preliminarily finds that these changes are insufficient to address its concerns and that more changes to Microsoft's conduct are necessary to restore competition," the EC said, concluding that "the conduct may have prevented Teams' rivals from competing, and in turn innovating, to the detriment of customers in the European Economic Area."

Microsoft will now be given an opportunity to defend its practices. If the company is unsuccessful, it risks a potential fine up to 10 percent of its annual worldwide turnover and an order possibly impacting how the leading global company conducts business.

In a statement to Ars, Microsoft President Brad Smith confirmed that the tech giant would work with the commission to figure out a better solution.

"Having unbundled Teams and taken initial interoperability steps, we appreciate the additional clarity provided today and will work to find solutions to address the commission's remaining concerns," Smith said.

The EC's executive vice-president in charge of competition policy, Margrethe Vestager, explained in a statement why the commission refuses to back down from closely scrutinizing Microsoft's alleged unfair practices.

"We are concerned that Microsoft may be giving its own communication product Teams an undue advantage over competitors by tying it to its popular productivity suites for businesses," Vestager said. "And preserving competition for remote communication and collaboration tools is essential as it also fosters innovation" in these markets.

Changes coming to EU antitrust law in 2025

The EC initially launched its investigation into Microsoft's allegedly abusive Teams bundling last July. Its probe came after Slack and Alfaview makers complained that Microsoft may be violating Article 102 of the Treaty on the Functioning of the European Union (TFEU), "which prohibits the abuse of a dominant market position."

Nearly one year later, there's no telling when the EC's inquiry into Microsoft Teams will end. Microsoft will have a chance to review all evidence of infringement gathered by EU regulators to form its response. After that, the EC will review any additional evidence before making its decision, and there is no legal deadline to complete the antitrust inquiry, the EC said.

It's possible that the EC's decision may come next year when the EU is preparing to release new guidance to more "vigorously" and effectively enforce TFEU.

Last March, the EC called for stakeholder feedback after rolling out "the first major policy initiative in the area of abuse of dominance rules." The initiative sought to update TFEU for the first time since 2008 based on reviewing relevant case law.

"A robust enforcement of rules on abuse of dominance benefits both consumers and a stronger European economy," Vestager said at that time. "We have carefully analyzed numerous EU court judgments on the application of Article 102, and it is time for us to start working on guidelines reflecting this case law."

US fears EU only targeting US companies

Stakeholders had four weeks to submit comments. Among those providing feedback, however, was the US Chamber of Commerce (COC), which warned that the EU's updated guidance didn't seem to adhere to case law and would "likely will reduce innovation and lead to higher prices for consumers" when it's adopted. Currently, that is set to happen during the fourth quarter of 2025, the EC's call for comments said.

According to the COC, the EU rushed the comment period and could have missed out on a "meaningful opportunity" to adequately weigh all valid concerns.

"Such a major policy shift deserves more discussion, particularly one that could affect trillions of dollars in commerce and risk fraying transatlantic economic relations," the COC said.

The COC seemed particularly concerned that the EU's upcoming guidance is too lax, allowing enforcement following complaints of potential harms that are unlinked to "actual effects or harm" currently found in markets. On top of that, the EU seemed to be "openly targeting US companies for enforcement," despite "serious concerns" raised by US Secretary of Commerce Gina Raimondo that EU's stricter digital laws would "disproportionately impact” US tech companies.

"There are growing concerns in the US— among policymakers and in the business community—that the Commission is using competition policy to promote a protectionist agenda," the COC said, suggesting that the EU was seeking to update laws to benefit domestic companies over foreign rivals.

"The proposed guidelines raise questions about whether the Commission intends to utilize its abuse of dominance review solely to exercise significant discretionary authority over American companies without training its review on any European companies," the COC said.

Microsoft did not submit feedback, but Google raised additional concerns that, seemingly contradictory to the EC's purposes, the guidelines depart from case law.

According to Google, case law "has reiterated that anticompetitive effects must be more than merely plausible" and "that any doubt regarding the existence of potential effects must benefit" dominant companies.

Google agreed with the COC that the EU risked "lowering" the "relevant standard for intervention" under TFEU, "particularly given the Commission’s position" that "it is sufficient for effects to be 'potential,' that it is not necessary to conduct a counterfactual analysis, or show 'full causality,' or determine whether the alleged foreclosure effects may be due to competitors’ lesser efficiency or attractiveness."

"A finding of anticompetitive foreclosure should, at a minimum, require establishing that the impugned conduct compromises rivals’ ability and incentive to compete effectively in the market," Google suggested.

The COC warned that the EU's bid to potentially "punish success" would likely "lead to overenforcement against targeted companies" and "increase those firms’ costs, reducing their incentive to innovate."

Just this week, the COC's fears seemed to be substantiated as the EC cracked down on Microsoft and Apple. On Monday, the Commission concluded that Apple may be violating the Digital Markets Act by preventing "app developers from freely steering consumers to alternative channels for offers and content."

"The Digital Markets Act is another discriminatory measure that departs fundamentally from sound competition policy by creating rules without any linkage to actual effects or harm," the COC told the EC.

For Microsoft, the fear of repeat targeting or lowering the standard for enforcement is likely more concerning since Microsoft was already fined by the EU two decades ago over illegal bundling, Reuters reported.

Back then, Microsoft had to fork over $2.4 billion, and now Microsoft risks even higher fines since it's worth more than ever, and fines are based on a percentage of its revenue. In January, Microsoft became the second company ever worth $3 trillion, CNN reported.

For rivals, though, intervention is apparently urgently needed to stop Microsoft's alleged anticompetitive behavior with Teams, as Slack owner Salesforce has argued. Sabastian Niles, Salesforce's president and chief legal officer, told Reuters that Salesforce has pushed the EC to "move towards a swift, binding, and effective remedy to restore a free and fair choice."