Competition law and Big Tech
Competition law has become increasingly important over the years, while regulators have been trying to control the great powers of Google, Amazon, Facebook, Apple and Microsoft (GAFAM). The massive expansion of these companies is much quicker than the procedural bureaucracies of regulators and, more often than not, such firms will only retrospectively be held accountable for harming consumer welfare, if at all.
In theory, if a firm is so popular and successful that it holds a large percentage of market share (over 50%), such a firm will be known to have a dominant position in that market. As long as that firm is competing fairly, such a dominant position will be accepted, and competition law will not be breached. If, however, the firm is using its advantageous position to restrict competition by, for example, imposing unfair trading terms on its customers, pricing their products excessively, or forcing buyers to purchase a second product with the desired one, then such a firm will be in breach of Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’), abusing its dominant position.
And that is exactly what Microsoft is being accused of – again. ValueLicensing, a UK software licence reseller, has filed a claim in the High Court against Microsoft for abuse of dominance and restrictive contractual practices.
ValueLicensing (VL) deals with buying pre-owned Microsoft licences, from firms who stop using them either because they have gone insolvent, or because they were persuaded by Microsoft to switch to the cloud option, Office 365. The firm then sells these licences to other companies who are in need of them, thus managing to offer customers cheaper, second-user licences. A successful example of this is helping the NHS Trust to save £1 million when buying Microsoft Office licences.
The Derby firm is claiming that Microsoft has used its power in the market to interfere with the second-hand software market by placing contractual restrains on their customers. Microsoft allegedly does this by not allowing their licence purchasers to resell the licences, adding a specific clause in their contract. This then means that there are less pre-owned licences to resell on the second-hand market, directly affecting ValueLicensing’s business. Microsoft is also alleged to interfere by persuading companies, often by means of a financial incentive, to switch to their online Office 365 platform, thus not using their licences anymore, but not being able to re-sell them either.
This is clearly harming VL’s business by restricting the number of licences they are able to re-sell. However, the main anti-competitive effect of these actions, should they be proven to be true, is that this is making it more difficult for customers to purchase pre-owned, cheaper licences, forcing them to pay more for Microsoft’s new license, and restricting their choices or products. This is a clear example of harm to consumer welfare, a consequence of the abuse of a dominant position, and a breach of Article 102 TFEU.
If it is found that Microsoft has indeed breached competition law by restricting competition, forcing customers to overpay for licences and generally abusing its dominant position, there will be great consequences. While VL is the only business claiming against Microsoft at the moment, it is very likely other firms will follow suit. As Jonathan Horley, the director at ValueLicencing says, “Microsoft’s illegal behaviour has impacted almost every organisation that provides desktop software for its workforce in the UK and the EEA”. If successful in this claim, VL is hoping to be awarded damages of £270 million, representing the profit VL has lost since 2016 when Microsoft’s alleged anti-competitive practices had started.
Scrutinising Big Tech more widely
What we can observe from this claim is a trend of Big Tech being more scrutinised and held responsible for potential breaches of competition law. This is not the first time Microsoft has been accused of abusing its dominant position. In 2007, the company was fined for the same offence of abusing its position of dominance, and the issue involved its licensing practices, as well as forcing consumers to receive the Windows Media Player with the PC operating system. More recently, Microsoft was also sued by Slack for unfair promotion of its Teams platform.
It therefore seems that Microsoft has not learned its lesson from the previous cases. Or it could be, however, that the fines Microsoft has to pay for breaching competition law throughout the years are worth paying if it is means being able to abuse competition and harm consumer welfare to maintain its dominance. The outcome of this particular case will shape the way competition law will move forward, and the ability of regulators to restrict the great powers of Microsoft.
Competition law regulators have become quicker to respond to claims of breaches of competition, taking the lead in punishing the GAFAMs, with various claims around the world against Google, Apple and Facebook. But the question is, are they reacting quickly enough? We shall see very soon.