Teaming ‘Teams’ with Microsoft Office: Slack Challenges Microsoft’s Anticompetitive Tying Practices

Posted on August 1, 2020

Authored by Tanya Garg

Image Source: itbuzznews.com

Introduction

On 22 July 2020, the business-messaging app, Slack Technologies Inc. filed an antitrust complaint (“Complaint”) against Microsoft Corporation with the European Commission (“Commission”), European Union’s (“EU”) apex competition watchdog. “Slack” is a proprietary business communication platform developed by Slack Technologies.

Under the European rules, the Complaint is not made public. However, in a press release, Jonathan Prince, Vice President of Communications and Policy at Slack said, “We’re confident that we win on the merits of our product, but we can’t ignore illegal behaviour that deprives customers of access to the tools and solutions they want. Slack threatens Microsoft’s hold on business email, the cornerstone of Office, which means Slack threatens Microsoft’s lock on enterprise software.” Slack’s representatives said it has prayed for an to remove Miscrosoft’s application “Teams” from its “MS Office” bundle, making it a stand-alone product, competing on merits. While the specific grounds for the Complaint were not made public, the said press release clarified “The complaint details Microsoft’s illegal and anti-competitive practice of abusing its market dominance to extinguish competition in breach of European Union competition law. Microsoft has illegally tied its Teams product into its market-dominant Office productivity suite, force installing it for millions, blocking its removal, and hiding the true cost to enterprise customers”.

The Complaint threatens Microsoft’s recent ability to avoid regulatory scrutiny and steer clear of any investigations by the Commission. While Google, Facebook, Amazon and Apple faced the blunt of investigations, Microsoft has dodged antitrust scrutiny so far. This Complaint could not have come at a more ironic time for Microsoft. It was reported earlier this week that Microsoft’s President Brad Smith had recently met with the US House antitrust sub-committee to discuss topics such as Apple’s arbitrary ‌App Store‌ approval processes.

Allegations

Microsoft’s size, revenue and stock value indisputably makes it a part of the crème de la crème of the Big Tech industry. Slack alleged that the software giant has abused its dominance by using its market power to try to crush its newcomer rival. Microsoft is accused of trying to eliminate competition by tying its rival app “Teams” with its extensively used Office 365 tools. This move meant millions of users were forced to install the app without the ability to remove it. Slack runs a service that competes directly with “Teams”. Slack contended that this bundling tactic, is part of a pattern of anticompetitive behaviour displayed by Microsoft. The allegations against the software giant of abusing its dominance and illegal tying and bundling tactics, reiterates its competition battles[1] from over a decade ago.

After reviewing the Complaint, it is up to the Commission whether a formal investigation into Microsoft’s alleged anti-competitive practices is warranted. As seen in the last few years, the European regulator has been aggressively pursuing antitrust actions against large tech companies. For months, Slack argued that it is more akin to the software application “Zoom” and is not in competition with Microsoft’s “Teams”. However, it has contradicted the same statement in its SEC 10-Q filing last year, stating, “Our primary competitor is currently Microsoft Corporation”. The former, finally admitted what was clear all along: Microsoft Teams is a competitor, and Slack is finding it hard to keep up.

Tying and Bundling

Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) prohibits abusive conduct by companies that have a dominant position in a particular market or industry. The Commission has clarified that being in a dominant position is not illegal; abusing that dominance to distort competition is.

Article 102(d) of the TFEU deals with abuse of dominant position by tying and bundling. When the conclusion of a contract is subject to of supplementary conditions, by the other party, it will be considered as abuse by means of tying and bundling.

Tying is when a product or service is sold on the condition that along with one product, the buyer buys the other one, also known as the tied product, from only that seller itself. In 2019, the Competition Commission of India (“CCI”) held, the signing of Mobile Application Distribution Agreement that mandated pre-installation all of GSuite apps[2], thereby, compulsorily tying it with the other applications. The CCI noted that by doing so, Google disincentivised the device manufacturers to develop viable alternatives, thereby restricting technical development, which is prejudicial to consumers. Thus, being violative of Section 4(2) of the Competition Act, 2002.

Bundling the term used to describe selling a collection of goods as a set. In pure bundling, individual goods are only sold in the agreed combination, making it is essentially equivalent to tying.[3] In mixed bundling, goods are available individually and as a package.

There are certain conditions that are analysed and required to be fulfilled to establish whether tying and bundling has caused exclusionary effects:

  1. There is pre-existing dominance;
  2. The products or services that are tied or bundled are distinct;
  3. The practice is likely to have an anticompetitive effect or foreclosure effect, causing demand to shift away from competitors; and
  4. There is no efficiency or objective justification tying or bundling in question.

Microsoft’s Earlier Anticompetitive Practices

In United States of America v. Microsoft[4], in 1992, the Federal Trade Commission began an inquiry over whether Microsoft was abusing its dominance on the PC Operating Systems market. Subsequently, Microsoft agreed not to tie other Microsoft products to the sale of Windows in 1994. However, it remained free to integrate additional features into the operating system.

The trial commenced on May 18, 1998, with the US Department of Justice (“DoJ”) and the Attorneys General of twenty US states, suing Microsoft for illegally obstructing competition in order to protect its monopoly in the software industry.[5] Additionally, the DoJ sued Microsoft for violating the 1994 decree, by compelling computer manufacturers to incorporate its Internet browser as a part of the installation of Windows software.

The Court found that Microsoft’s dominance in the computer operating systems market constituted a monopoly, and active steps were taken to crush threats to that monopoly like Apple, Java and others. It was concluded that Microsoft had committed monopolization, attempted monopolization, and tying in violation of Sections 1 and 2 of the Sherman Antitrust Act.

In 2001, the DoJ reached an agreement with Microsoft to settle the case. The settlement mandated Microsoft to share its application programming interfaces with third-party companies. Additionally, a three-person panel was to be set up in order to ensure compliance with the terms of the settlement. This panel would have full access to Microsoft’s systems, records, and source code for five years. This settlement was unanimously upheld and approved by the U.S. Appeals Court.

In Microsoft v. Commission of European Communities[6],  Sun Microsystems voiced a concern about the lack of disclosure of some Windows NT interfaces, in 1998. The case amplified when the European Commission of the EU examined Microsoft’s abuse of dominance in the market. The case brought before the Commission, by the EU, against Microsoft for abuse of its dominant position in the market. The complaint resulted in the EU ordering Microsoft to disclose information concerning its server products and release a Microsoft Windows version without Windows Media Player (“WMP”).

The Court, while assessing the allegations under Article 102 of the TFEU, observed that the products in question were separate, distinct and would have independent demand if not tied together. It was also observed that this tying practice left the consumers with no choice to use the Microsoft Windows Operating System without the WMP. Moreover, the Court found that Microsoft did not have any objective reasons for tying these products (such as proving that the WMP contributes to the efficiency of Microsoft’s Operating System or any other reason justifying the need for tying the said products). The Court found that this led to foreclosure of competition for several other independent media players. Moreover, the Court remarked that Microsoft held a significant market share and a dominant position in the market for Operating Systems. Thus, by making it mandatory to purchase WMP along with its Operating System, Microsoft was abusing its dominant position. The Court specifically stated, “Microsoft’s competitors are a priori at a disadvantage even if their products are inherently better than Windows Media Player”.

The decision was reached citing the continuing abuse by Microsoft. It was ordered that Microsoft offer: (a) a version of Windows without Windows Media Player; and (b) Divulge necessary information for competing networking software to interact entirely with Windows desktops and servers. A penalty to the tune of €497 million, the largest fine ever handed out by the Commission at the time, was imposed.

While Slack and Microsoft may go head to head soon, Google may be the only one benefitting. Google has already shown indications of catching up with platforms such as “Zoom”, Microsoft’s “Teams”, and Slack. It is worth mentioning that recently Google announced that it was more tightly integrating video, chat and email into its “GSuite” bundle of products. A similar video conferencing software by Google by the name of “Google Meet” was made free earlier in an attempt to compete with Zoom’s sudden popularity due to COVID-19. Since then, it has been taking proactive steps to integrate its interactive software programmes such as “Google Chat”, “Rooms” and “Meet” along with its other applications such as Gmail and Google Calendar. Thus, if Slack’s Complaint convinces the Commission to open an investigation and take action against Microsoft’s tying practices, it still faces the impending threat of Google bundling its own apps and services in a similar way. However, according to Slack, Google is not a dominant company in business software; therefore, not included in the Complaint. If Google is able to produce a formidable competitor, then Slack will face far bigger problems than Microsoft. Google evidently dominates consumer usage of email, search, and with services like YouTube. Provided that the present complaint against Microsoft is successful, it might open doors for potential anti-competitive issues for a software giant such as Google concerning its bundling practices.

Conclusion

Platforms such as “Slack”, “Teams” and “Zoom” have experienced a massive increase in demand due to the COVID-19 induced lockdowns that have made work from home mandatory. There will a lot of attention around this case, if the Commission decides to pursue the Complaint. Slack hopes that “Teams” is separated from the “Office 365 Suite” bundle and sold separately with a fair commercial price tag.

The author opines that in light of the previous antitrust complaints against Microsoft for its bundling practices, Microsoft’s dominant position in the PC Operating Systems market has been sufficiently established. However, the present case concerns not tying of “Teams” with the Operating System but with its “MS Office” bundle. Therefore, whether Slack’s complaint has any merits or not, only time will tell.


[1] United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001), also see Case COMP/C-3/37.792

[2] Umar Javeed & Ors. v. Google LLC & Ors., Case No. 39 of 2018, also see Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992)

[3] Nicholas Economides, ‘Bundling and Tying’ The Palgrave Encyclopaedia of Strategic Management http://neconomides.stern.nyu.edu/networks/Economides_Bundling_and_Tying.pdf

[4] United States, Supra 1

[5] Nicholas Economides, ‘The Microsoft Antitrust Case’, Journal of Industry, Competition and Trade: From Theory to Policy (August, 2001) http://neconomides.stern.nyu.edu/networks/Microsoft_Antitrust.pdf

[6] Microsoft v. Commission of European Communities, Case T-201/04 (17 September 2007)

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