The European Commission has informed Microsoft of its preliminary finding that Microsoft has breached antitrust rules by effectively tying its popular messaging and video conferencing product Teams to the purchase of other Microsoft products (such as Office 365) - an action which the Commission alleges breaches EU competition rules. This is not the first time that the EU has scrutinised the activities of US tech giants: Apple, Google and Meta have all faced investigation by the Commission for breaches of EU competition law – one previous investigation resulted in a record fine being imposed on Google, as we wrote here.
Tying under EU Competition Law
Selling two or more products "bundled together" is a common promotional tactic of companies and one that is legal for most businesses. However there are a number of business practices that, while not generally prohibited, may not be used by companies that achieve a "dominant" market share – as a rule of thumb a business with a market share above 40% has to take extra care in its approach.
The prohibited practice of "tying" or "bundling" refers to a dominant company selling a product on the condition that the buyer also purchases a different product, or selling the products only together, or giving one away "free" with the other. These practices infringe Article 102 of the Treaty of the Functioning of the European Union (the Treaty) and are considered an abuse of dominance if the company has significant market power.
Tying or bundling is deemed to be anti-competitive because the dominant position of the business in the market for one product (for example, Office 365) may mean that customers have little choice other than to use that product, and tying it to, or bundling it with, a product in a separate market (for example, Teams) limits the ability or incentive for customers to freely exercise choice in that second product market. As a result other suppliers can struggle to compete in that second market. The Commission has previously found against Microsoft in respect of similar breaches of Article 102 of the Treaty for tying Microsoft Player and Internet Explorer with its software purchase.
The Microsoft Case
In this particular instance, the Statement of Objections issued by the EU Commission notes that it is concerned that Microsoft has been forcing consumers to install Teams when they purchase the business Microsoft software package, hence giving them a competitive advantage in the market for messaging and videoconferencing. The investigation was initially opened in July 2023 following a complaint by Slack Technologies Inc (now owned by Salesforce Inc). The complaint alleged that Microsoft was leveraging its market power in the market for SaaS productivity applications for professional use (i.e. their popular IT software product range which includes Office 365) to limit consumers' choice in the market for communication and collaboration products by linking any software purchase with the installation of Teams.
The Commission highlighted its concerns about the tying of the applications thereby restricting competition on the market for communications and collaborations. In particular, the Commission is concerned that Microsoft granted Teams a distribution advantage by not giving customers the choice whether to acquire Teams when subscribing to Microsoft's other productivity applications, particularly when combined with a number of interoperability issues between Teams competitors and Microsoft's other products.
After the Commission started its proceedings, Microsoft removed Teams from its software packages for consumers in the EU. The Commission's Statement of Objections however notes that the Commission does not consider the unbundling of the two products to be sufficient to bring Microsoft into compliance with EU Competition law.
Implications
If the Commission's full investigation confirms the preliminary finding that Microsoft is abusing its dominant position, it could face a fine of up to 10% of its annual worldwide turnover. There are no specific deadlines for completing an investigation and the Commission has now given Microsoft time to respond and request an oral hearing.
More fines for Google?
Around this time last year the Commission issued a Statement of Objections to Google setting out its preliminary view that the company breached antitrust rules by distorting competition in the AdTech industry. The Commission took issue with Google using its dominant market position in the markets for programmatic ad buying tools and published ad servers in order to favour its own online display AdTech services to the detriment of competing providers in breach of Article 102 of the Treaty. Again, there is no deadline for this investigation but both Google and Microsoft may face significant fines if the Commission concludes that they have abused their dominance in these markets.
Even as the Commission's new legal powers under the Digital Services Act begin to be deployed, the Commission is clearly demonstrating that "traditional" abuse of dominance investigations are still part of its toolkit, and that big tech companies are very much still on its watch list.
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