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The Monitoring of Behavioural Remedies.
4. Enforcement
4.1 Microsoft has proposed monitoring and dispute resolution procedures in the Remedies Notice response. At the Remedies Hearing the CMA raised questions on how these would work, in particular in relation to the console licensing remedy. This section provides further detail on Microsoft’s proposal.
(I) Overview of compliance and reporting procedure
4.2 Microsoft proposes a comprehensive compliance and reporting process in order to ensure the remedy remains effective throughout the term. As described, this involves significant steps by Microsoft to ensure self-certification with the undertakings, which can then be verified by an objective, third-party Adjudicator. These also provide for assessment of Microsoft’s compliance with the parity provisions of the remedy by an Objective Third Party Assessor
4.3 Compliance Director. Microsoft will appoint [] to be responsible for monitoring and certifying the company’s ongoing compliance with the undertakings (the “Compliance Director”).
A. The CMA will be informed of the identity of this Compliance Director promptly after the undertakings are implemented and will be notified of any subsequent changes to the individual assuming the role.
B. The Compliance Director will be responsible for preparing an annual report certifying the company’s compliance with the undertakings (the “Compliance Report”).
C. In addition, the Compliance Director will be responsible for, inter alia, monitoring compliance with the terms of the undertakings, facilitating requests for information (e.g., from the CMA, Adjudicator or Objective Third Party Assessor), reporting and rectifying any instances of non-compliance and maintaining staff awareness of the requirements of the undertaking.
This is a standard provision in licensing agreements. For example in Clause [] of the NVIDIA Agreement, []. Remedies Notice response, paragraph 3.4.
As explained further below, the Compliance Report would be provided to the Adjudicator or, alternatively, a monitoring trustee.
4.4 Adjudicator. Microsoft proposes to appoint an Adjudicator to (i) ensure compliance with the parity provisions of the remedy, with the assistance of an Objective Third Party Assessor - see section 4(ii) below; and (ii) resolve any disputes which arise in relation to Microsoft’s compliance with the undertakings – see section 4 (iii) below. The Adjudicator will be appointed at Microsoft’s own expense and will be agreed with the CMA. The Adjudicator will be suitably qualified for the role and will be required to have sufficient expertise of the gaming industry. In the case of any instances of noncompliance, Microsoft agrees to be bound by any directions or requests as may be reasonably required by the Adjudicator. Microsoft notes that an adjudicator role of this nature has been provided for in undertakings accepted by the CMA in previous cases including Bauer Media Group, Macquarie UK Broadcast Ventures / National Grid Wireless Group and Carlton/Granada.
4.5 Microsoft proposes that the Adjudicator would also assume the monitoring trustee functions and be responsible for certifying Microsoft’s compliance with the undertakings to the CMA. However, Microsoft would equally be willing to appoint a standalone monitoring trustee, at Microsoft’s expense.
4.6 Objective Third Party Assessor. Given the technical nature of the parity provisions of the proposed console licensing remedy, Microsoft proposes to also appoint an Objective Third Party Assessor, at Microsoft’s expense, to provide a technical assessment of the parity between the Xbox and PlayStation console versions of each new CoD title prior to its release on any console platform. The Objective Third Party Assessor’s work would be overseen by, and it would report to, the Adjudicator. As explained further in section 4(ii) below, the Adjudicator will take decisions on Microsoft’s compliance with the parity provisions on the basis of reports prepared by the Objective Third Party Assessor.
4.7 The Objective Third Party Assessor would be required to have sufficient expertise in the gaming industry to be able to undertake a technical evaluation of the parity of the PlayStation and Xbox console versions of games. Microsoft notes that assessing the comparative performance of console games is a relatively straightforward task for an experienced gaming engineer, and there are also several organisations which specialise in technical analysis of gaming hardware and software
4.8 Microsoft is considering potential candidates for the Adjudicator and Objective Third Party Assessor roles and can propose a shortlist to the CMA in due course.
(II) Verification of compliance with parity provisions
4.9 As set out in section 2(iii)(d) above, developing a new CoD game is a transparent process which involves substantive interactions with platforms, including Sony PlayStation, over a period of [] before the game launches. Microsoft envisages that its compliance with the parity provisions of the remedy would be assessed and verified by the Adjudicator – with the assistance of an Objective Third Party Assessor – as part of this process, as follows
A. Microsoft will report to the Objective Third Party Assessor at regular intervals (which will be specified in the undertakings) throughout the game development process on the performance of the Xbox and PlayStation console versions of the game being developed. Copies of these reports will be provided to the Adjudicator.
B. The Objective Third Party Assessor will have the opportunity to raise questions on the reports provided by Microsoft and make recommendations.
C. Sony will have the opportunity to make submissions to the Objective Third Party Assessor and Adjudicator at any time during the development process. As set out in section 2(iii)(d) above, []
D. Before the launch of each game, Microsoft will submit the full CoD game, in both Xbox and PlayStation console native format, to the Objective Third Party Assessor for certification with the parity requirements (“Full Game Submission”), together with a final report on the parity between the two games. []
E. The Objective Third Party Assessor will then prepare a report on whether there is parity between the Xbox and PlayStation console versions of the game in terms of content, feature, quality and playability (“Parity Report”). The Parity Compliance Report will be provided to the Adjudicator and Microsoft.
F. On the basis of the Parity Report, the Adjudicator will determine whether the parity provisions of the undertakings are complied with (“Parity Decision”). A copy of each Parity Decision will be provided to the CMA.
G. The Parity Decision may impose reasonable conditions which Microsoft must comply with before, or (if the Adjudicator considers it appropriate) as soon as reasonably practicable after, launching the CoD title. In serious cases of noncompliance, the Adjudicator will have the power to delay the release of the CoD title until appropriate steps have been taken to ensure compliance. The Adjudicator will have regard to the impact of any differences between the Xbox and PlayStation versions on the gaming experience for Xbox and PlayStation gamers in determining whether the parity provisions are complied with. Material differences will only be permitted if these are due to material platform limitations on the relevant PlayStation platform or solely caused by Sony.
H. Microsoft will not be permitted to release a new CoD release on the Xbox console platform until the Adjudicator has issued a Parity Decision verifying compliance with the parity provisions (potentially subject to conditions, as noted above).
4.10 The role of the Objective Third Party Assessor and Adjudicator is to ensure that an independent expert has verified parity between the Xbox and PlayStation console versions of CoD in accordance with the undertakings. []. []. As set out in section 2(iii)(d), []
(III) Fast-track dispute resolution mechanism
4.11 In the unlikely event that it will be required, Microsoft proposes to include an effective fast-track dispute resolution mechanism that would be available to SIE Group and any remedy-taker under the cloud licensing remedy (a “Remedy-Taker”).
4.12 In Microsoft’s response to the Remedies Notice, Microsoft proposed that disputes which may arise in relation to Microsoft’s compliance with the undertakings would ultimately be determined by binding arbitration under the Arbitration Rules of the International Chamber of Commerce (in London).
4.13 Having considered further, Microsoft considers that it would be more effective to provide for the appointment of an independent Adjudicator127 to resolve any disputes in accordance with a fast-track dispute resolution mechanism. This would enable disputes to be determined by an Adjudicator with pre-existing knowledge of the undertakings given by Microsoft and the concerns relating to the Merger which they are intended to address, and provide greater assurance that disputes would be determined in a timely manner.
4.14 In summary the fast-track dispute resolution mechanism would operate as follows:
A. Microsoft would offer a dispute resolution mechanism by way of undertaking. Remedy-Takers would be free to decide whether or not to accept, and therefore be bound by, this mechanism. The dispute resolution mechanism would apply to all disputes between Microsoft and a Remedy-Taker regarding the undertakings.
B. Microsoft and the relevant Remedy-Taker would be required to use commercially reasonable efforts to seek to reach a negotiated outcome within a specified period. This would involve Microsoft and the Remedy-Taker seeking to resolve the dispute through cooperation
For the avoidance of doubt this would be the same Adjudicator appointed to verify compliance with the parity provisions.
Microsoft notes that, both for the purposes of international comity and practicality, the dispute resolution mechanism provided for by the undertakings will need to be aligned with any remedies accepted in other jurisdictions
C. Failing that, the Remedy-Taker will have the opportunity to have its concerns dealt with promptly, with the outcome determined by the Adjudicator.
4.15 The proposed Adjudication procedure would operate as follows:
A. The Remedy-Taker would be required to issue an Adjudication Notice briefly setting out: (a) the issues in dispute for which adjudication is required; (b) the material facts and any documentary or other evidence relied upon; and (C) the relief sought. Microsoft will be required to provide a written response to the Adjudication Notice within a specific timeframe.
B. The adjudication process will be conducted in private and remain confidential. The parties will be subject to stringent cooperation procedures with the Adjudicator and agree to be bound by its final decision (including any directions or requests it may reasonably make).
C. The Adjudicator will act fairly and impartially, making use of its specialist knowledge to determine any disputes between the parties.130 It will be required to take into account that the purpose of the remedy is to allay concerns relating to the Merger
D. If a dispute relates to the parity provisions the Adjudicator will take into account any relevant Parity Compliance Report and any other relevant materials that may be provided by the Objective Third Party Assessor as part of the adjudication process.
E. The Adjudicator will be required to issue a decision on the dispute within a specified deadline. The Adjudicator's decision shall be final and binding and a copy of its decision will be given to the CMA.
F. Each party will bear its own costs of the Adjudication Procedure. The costs of the Adjudicator shall be borne by Microsoft.
G. The CMA will be entitled to participate in all stages of the adjudication procedure and may, on request, have access to any materials relevant to the procedure. To the extent the dispute relates to the parity provisions the Adjudicator may also ask the Objective Third Party Assessor to participate.
Before Microsoft responds, the Adjudicator will first confirm if, in its view, the Adjudication Notice is incomplete in any material respect and/or discloses no reasonable grounds for it to act.
In particular, the Adjudicator will: (a) avoid incurring an unnecessary expense; (b) determine the procedure and requirements to be followed by the parties, giving each party a reasonable opportunity in the light of the overall timetable to put its case and deal with that of the other party; (C) determine the dispute based on the written materials submitted by the parties and without an oral hearing; and (e) take into account any submissions that the CMA might choose to provide
Last edited by Ryuu96 - on 21 March 2023
