Cisco loses court challenge to Microsoft's takeover of Skype

LUXEMBOURG Wed Dec 11, 2013 5:01pm EST

Microsoft Chief Executive Officer (CEO) Steve Ballmer (L) and Skype CEO Tony Bates shake hands at their joint news conference in San Francisco, May 10, 2011 file photo. REUTERS/Susana Bates

Microsoft Chief Executive Officer (CEO) Steve Ballmer (L) and Skype CEO Tony Bates shake hands at their joint news conference in San Francisco, May 10, 2011 file photo.

Credit: Reuters/Susana Bates

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LUXEMBOURG (Reuters) - Microsoft fended off a challenge to its $8.5 billion takeover of messaging service Skype as Europe's second-highest court ruled against claims by rival Cisco that the 2011 deal would harm competition.

The decision on Wednesday means Microsoft can continue to market Skype's video calls to consumers and businesses without making any concessions to Cisco or others offering similar products.

Cisco's concern about the Skype deal stems from the fact it sells more expensive hardware to help companies with video conferencing, while Microsoft's alternative, based on Skype, can do much the same via a computer equipped with a webcam.

Cisco, the world's top network equipment maker, said at a hearing in May that Microsoft's acquisition of Skype, the largest Internet video and voice messaging provider, created a monopoly. Cisco said the European Commission was wrong to approve the deal without demanding concessions from Microsoft.

The Luxembourg-based General Court said Cisco had failed to show that the takeover would harm competition.

"Microsoft's acquisition of Skype is compatible with the (European Union's) internal market. The merger does not restrict competition either on the consumer video communications market or on the business video communications market," the judges said.

The court said Cisco's large share of the enterprise communications market and the existence of other rivals prevent Microsoft from impeding competition in this sector.

Cisco, which filed its challenge together with Italian fixed-line and Internet telephone provider and Skype rival Messagenet SpA, originally said it would not appeal to the EU Court of Justice, Europe's highest. But it later withdrew that comment.

To defend itself against Microsoft, Cisco had pushed for a common set of technology standards in video conferencing to make sure that products offered by different firms work together. It had hoped to get backing from the EU case to ensure such "inter-operability" of video calls.

"We are hopeful that in the interest of customers and consumers, Microsoft and others in the industry will join us and continue to rally around this ideal and work together to achieve an open, interoperable video community," said a spokeswoman. "We have no comment about an appeal."

Consumers and companies have been switching to cheaper Internet-based voice and video services such as Skype, Viber, Google Talk and WhatsApp.

A third of the world's voice calls are now made on Skype, with more than 280 million users spending more than 100 minutes monthly, Microsoft Chief Operating Officer Kevin Turner said in March.

Both the Commission and Microsoft welcomed the court ruling.

"Today's judgment by the EU General Court confirms that the Commission was correct in its assessment that the acquisition of Skype by Microsoft would not significantly impede effective competition in the European Economic Area," the EU antitrust regulator said.

The last successful court challenge to a Commission merger-approval decision was in 2002 in a case involving the Sony Music and BMG record labels.

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

(Additional reporting by Leila Abboud; Writing by Foo Yun Chee; Editing by Ruth Pitchford)

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