ABUSE OF DOMINANCE IN THE INDIAN COMPETITION LAW. In a recent landmark decision that received wide publicity, the European Union

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1 ABUSE OF DOMINANCE IN THE INDIAN COMPETITION LAW In a recent landmark decision that received wide publicity, the European Union Competition Commissioner found Microsoft, the world s largest software company, guilty of abusing its dominant position in the market for the personal computer operating system, and violating, the EU Treaty s Competition Rules. The European Commission imposed on Microsoft a record fine of Euro 497 million (US $ 612 million equivalent to approximately Rs crores). The EU ruling is the latest in a series of brushes that Microsoft has been having with competition regulators for the last several years. 2. According to EU s press release, the case had arisen out of a complaint filed in December 1998 by Sun Micro- Systems, a U.S. company and a competitor to Microsoft, alleging that Microsoft had refused to provide interface information which is necessary for Sun to develop products that could talk properly with the ubiquitous Windows PCs, and as a result they are not able to compete on an equal footing in the market for Work Group Server Operating Systems (WGSOS). The European Competition Commissioner investigated the matter and concluded that it was a market strategy designed by Microsoft to shut competitors out of the market. An overwhelming majority of customers informed the Commission that the non-disclosure of the interface to competitors alters their choice in favour of Microsoft s server products. Survey responses submitted by Microsoft itself confirmed the link between the inter-operability advantage that Microsoft reserved for itself and its growing market share.

2 3. In 2000, the Commission enlarged its investigation, on its own initiative, to study the effects of the tying of Microsoft s Windows Media Player (WMP) with the company s windows 2000 PC operating system. This part of the investigation concluded that the ubiquity which was immediately afforded to WMP as aresult of it being tied with the Windows PC OS artificially reduces the incentives of music, film and other media companies, as well software developers and content providers, to develop their offering to competing media players. As a result, Microsoft s tying of its media player product has the effect of foreclosing the market to competitors, and hence ultimately reducing consumer choice, since competing products are set at a disadvantage which is not related to their price or quality. 4. Microsoft had fought the case hard and there were extended negotiations between the Commission and the company but no mutual settlement could be reached. Microsoft had reportedly offered to include its competitors programmes in Windows Operating System but this was not found adequate by the Commission. Microsoft s contention was that software development is a complex and dynamic business which is undergoing continuous changes and therefore, any single set of rules of unbundling is impracticable. The company contended that any case relating to any particular programme had to be treated individually. The Commission felt that this would simply allow Microsoft to continue with what it regarded as its anti-competitive behaviour, and since each case takes years to decide through the courts, this enables Microsoft to reap unreasonable profits. Microsoft has reportedly decided to appeal against the EU decision to the European Court of First Appeal.

3 5. Thus, the European Competition Commission s enquiry was in respect of two issues namely, non-disclosure of interface information to Microsoft s rivals and tying by Microsoft of its Windows Media Player with the Windows PC Operating System. The investigation was carried on for a period of over 5 years. After finding Microsoft guilty in both cases, the Commission imposed the following remedies:- a) As regards tying of WMP, Microsoft is required, within 90 days, to offer to PC manufacturers a version of its Windows client PC operating system without WMP. The un-tying remedy does not mean that consumers will obtain PCs and operating systems without media players. Most consumers purchase a PC from a PC manufacturer which has already put together on their behalf a bundle of an operating system and a media player. As a result of the Commission s remedy, the configuration of such bundles will reflect what consumers want, and not what Microsoft imposes. b) As regards interoperability, Microsoft is required, within 120 days, to disclose complete and accurate interface documentation which would allow non-microsoft work group servers to achieve full interoperability with Windows PCs and servers. This will enable rival vendors to develop products that can compete on a level playing field in the work group server operating system market. The disclosed information will have to be updated each time Microsoft brings to the market new versions of its relevant products.

4 c) Microsoft argued that the disclosure of interface information required by EU infringed its intellectual property rights. However, the Commission was of the view that it was not seeking disclosure of Microsoft s source code as this was not necessary to achieve the development of interoperable products. The Commission does not exclude that the information that the Decision obliges Microsoft to disclose might be protected by intellectual property rights in the EU. To the extent that it is, the exceptional circumstances of the case (Microsoft s overwhelming dominance, indispensability of the interface information, risk of elimination of competition in the market) would mandate such disclosure. Further to the extent that any of the information in question is protected by intellectual property rights in the European Economic Area, Microsoft is entitled to reasonable remuneration. d) For the above said abuses which, according to the Commission had been on going for five and a half years, the Commission imposed a fine of Euro million. e) The Commission observed that the remedies ordered by it will bring antitrust violations to an end, that they are proportionate, and that they establish clear principles for the future conduct of the company. f) To ensure effective and timely compliance with its decision, the Commission would appoint a Monitoring Trustee, which will, inter alia, oversee that

5 Microsoft s interface disclosures are complete and accurate, and that the two versions of Windows are equivalent in terms of performance. 6. It would be recalled that earlier Microsoft was involved in a major battle in the US for alleged violation of fair competition rules. Following prosecution by the US authorities, the trial court found Microsoft guilty and inter alia ordered Microsoft broken into an operating systems business and an applications business, holding that such a structural remedy was necessary. Microsoft appealed against the case. 7. The appellate court s per curiam opinion vacated the trial court s final judgement on remedy and remanded to a different trial judge, sternly rebuking the trial judge for ex parte contacts during and after the trial. The Court affirmed in part and reversed in part the judgement of monopoly maintenance in the operating system market, reversed on attempted monopolization of the browser market, and remanded on unlawful tying of the browser to the operating system. Finally, the US competition authorities and Microsoft arrived at a mutual settlement which was approved by the Court with minor modifications. The approved settlement requires Microsoft to disclose some sensitive technology to its rivals. The settlement would prevent Microsoft from participating in deals that could hurt competitors; require uniform contract terms for computer manufacturers; allow manufacturers and customers to remove icons for some Microsoft features; and require that the company release some technical data so software developers can write programmes for Windows that works as well as Microsoft products do.

6 8. There has been a general perception that the US settlement failed to achieve any significant change in Microsoft s alleged anti-competitive behaviour. According to the Economist, there is striking difference between the remedy sought by the European Commission and that which had been sought in the company s settlement with the US competition authorities,... this time really is different, for the Commission s remedy is genuinely new. Because Microsoft s business model involves using its operating-system monopoly to expand into new markets by bundling new features into Windows, the best remedy would be the break-up originally proposed in America. Under current European Law, Mario Monti, Europe s competition commissioner, cannot demand anything that dramatic. But he has asked for the next best thing: rather than breaking up Microsoft, he is attempting to break up Windows. The logical conclusion of this approach is a kind of a la carte Windows, in which PC makers and their users are free to choose which bits of Windows they want to buy, and which they don t. Microsoft would still be able to sell a version of Windows with all the bells and whistles attached, but nobody would be obliged to buy it. Whether this approach can be made to work remains to be seen. But the fact that Microsoft is fighting this ruling tooth and nail and even offered to include rival firms

7 media-players inside Windows instead shows that it is deeply worried that it might work. Indian Competition Law 9. This article does not seek to express an opinion on the merits or specifics of the Microsoft case, or on the rulings given by the US Courts or the EU competition authorities. However, this offers a useful opportunity to draw attention to the provisions of the Indian Competition law relating to abuse of dominant position by an enterprise in the Indian market. 10. In India, following economic reforms and liberalization of the economy, it was found necessary to review the competition law. This exercise resulted in the enactment of a new Competition Act, 2002 which was passed by Parliament in December 2002 and it received the assent of the President in January, Certain provisions of the Act have been notified by Government but the other provisions have not yet been notified. Meanwhile, Government has issued a notification establishing the Competition Commission of India w.e.f. 14 th October According to Section 18 of the Act Subject to the provisions of this Act, it shall be the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interest of consumers and ensure freedom of trade carried on by other participants, in markets in India. Accordingly, under the Act, the Commission is to take action against anti-competitive agreements (such as cartels) and abuse of dominant position (such as

8 predatory pricing and unfair or discriminatory conditions of prices). The Commission is also empowered to regulate combinations, i.e., mergers, acquisition of shares or acquiring of control, etc., above the threshold given in the Act. The Commission would be able to begin its functions in these areas only after the concerned sections are notified. Initially, the Commission is expected to undertake Competition Advocacy. At this stage, no adjudication work is to be undertaken, which is in accordance with the Hon ble Supreme Court s interim order in a case relating to the Competition Act pending before it. 11. Thus abuse of dominant position by an enterprise, is a serious violation under the Indian Competition Act. Section 4 of the Act specifically states that no enterprise shall abuse its dominant position. It also states that there shall be an abuse of dominant position if an enterprise imposes unfair or discriminatory conditions or prices in the purchase or sale of goods or provision of services or if it limits or restricts production of goods or provision of services or technical and scientific development or it denies market access, etc. It is interesting to note that dominant position is not defined on the basis of any arithmetical parameters or any particular share of the market as is the case in the MRTP Act, On the other hand, dominance of an enterprise is to be judged by its power to operate independently of competitive forces or to affect its competitors or consumers in its favour. Thus, an enterprise with a share of say less than 25% of the market could possibly be determined to be the dominant if it satisfies the above criteria; on the other hand, an enterprise with higher market share may not be considered as dominant if it does not meet the criteria mentioned in the Act. The Act also lays down a number of factors which the Commission needs to take into consideration in determining

9 whether an enterprise enjoys a dominant position or not, such as market share, size and resources of the enterprise, size and importance of competitors, economic power of the enterprises, vertical integration of the enterprises, entry barriers, etc. which would involve a fair amount of economic analysis. In case an enterprise is held by the Competition Commission of India to have abused its dominant position, there are penalties that can be imposed and various directions that can be given by the Commission. It can impose a penalty of not more than 10% of the turnover of the enterprise. It can pass a cease and desist order, and pass such other orders as may be considered appropriate. It can also recommend to the Central Government for division of dominant enterprise. Thus, the Competition Commission of India would have the power to inter alia direct the enterprise to disclose information to its competitors (as has been directed by the European Competition Commission) or it can recommend division of an enterprise (as had been ordered initially by the US trial court in 2000), if these are considered appropriate to the case.