Schrödinger’s CAT
Many will be familiar with the infamous thought experiment devised by the Austrian physicist and Nobel prize winner Erwin Schrödinger to illustrate the paradox of the Copenhagen interpretation of quantum mechanics. Schrödinger surmised that a cat (of a domestic feline variety) placed in a sealed box and exposed to a vile of poison triggered (or not triggered) by the random emission of a sub atomic particle could be both dead and alive at the same time.
Whilst such phenomena are believed to occur only in the quantum world occasionally opportunistic defendants will seek to run alternative defences to claims which exhibit similar characteristics to the concept of quantum superposition, i.e. two contradictory realities existing at the same time. The defendants’ “alternative defences”, recently articulated (but unsurprisingly not pleaded in detail), in the case of JJH Enterprises (Trading as ValueLicensing) v Microsoft Corporation & Others is an interesting example of this phenomenon.
In its judgment handed down on 28 November 2024 (a copy of the judgment can be found here), following a hearing on 20 to 22 November 2024, the Competition Appeal Tribunal dismissed JJH’s application to strike out Microsoft’s “alternative defences” to JJH’s claims for breaches of articles 101 and 102 of TEFU. JJH, which until it was forced to cease trading as a result of Microsoft’s actions, was a second hand licence reseller operating in the European market. It claims that Microsoft deliberately restricted the supply of second hand licenses in the period from 2014 to 2023 by employing a series of measures with the object or effect of preventing or encouraging enterprise customers, who were migrating to Microsoft’s subscription licensing model, from selling their redundant perpetual licences. JJH had recognised that Microsoft’s shift from perpetual to subscription licensing would (or should have) produced an increase in the supply of perpetual licences.
Microsoft’s primary defence is that its conduct (a significant part of which is admitted - including a global contractual term requiring customers to retain licences in order to continue benefitting from preferential pricing) was not abusive, amounted to competition on the merits and had no appreciable effect on competition. Specifically it pleads that its use of the conduct complained of was limited and the offending global term was withdrawn following notification of JJH’s claim, it did not take steps to enforce the terms and in any event customers generally had no desire to sell their redundant perpetual licences.
However, Microsoft also seeks to argue, in the alternative, that if, contrary to its primary defence, its conduct was prima facie anti-competitive it was nevertheless objectively justified and/or led to efficiencies. In particular it argues that its conduct was necessary and proportionate to achieve legitimate aims, which include protecting its copyright in the perpetual licences in question owing to its belief (as revealed for the first time in its skeleton argument filed on Thursday 14 November 2024) that “copyright infringement in the second hand market is rife.” During the hearing Microsoft argued that it was justified in essentially shutting down the second hand market by preventing customers from selling their redundant licences as this was a necessary and proportionate means of protecting its copyright.
The CAT, in its judgment, noted that the primary and alternative defences are difficult to reconcile but that it was in no position, on the evidence before it, to reconcile the alternative cases on a summary basis (see paragraph 36 of the Judgment). The CAT noted, however, that the tension may be something which will weigh in its mind at trial.
Charles Fussell & Co LLP together with Maya Lester KC, Jon Lawrence, Max Schaefer, Andris Rudzitis (Brick Court) and Matthew Lavy KC (4 Pump Court) and Henry Edwards (8 New Square) represent the Claimant.