COMPETITION APPELLATE TRIBUNAL
Singhania & Partners LLP
Versus
Microsoft Corpn. India (P.) Ltd.
APPEAL NO. 17 OF 2011
OCTOBER 9, 2012
ORDER
Justice V.S Sirpurkar, Chairman
Being aggrieved by the order passed by the Competition Commission of India (‘the CCI’) under section 26(2) of the Competition Act, 2002 (‘the Act’) and express an opinion that the informant had failed to make out a prima facie case for making a reference to the Director General for conducting investigation into the matter under section 26(1) of the Act (for majority) and thereby closing the proceedings. The original informant has come up before us by way of an appeal under section 53B of the Act. The dissenting Member Shri R Prasad has, however, chosen to hold that there existed a prima facie violation of Act relating to the abuse of dominance and adoption of anti-competitive agreement and issued a direction to the Director General to investigate the matter under section 26(1) of the Act. Since the majority of the opinion is against the informant, the informant has come up before us in Appeal.
2. The informant is a law firm. It alleged before the CCI that it intended to purchase Microsoft products, namely, Microsoft Operating System and Microsoft Office 2007 for the computers in its office. Respondent No. 1 was described to be world’s leading multi-national computer technology corporation which developed manufactured licences and support licences and supported a wide range of computer operating systems. Respondent No. 2 was described as a private limited company and recommended by the one of executives of respondent No. 1. It was pointed out that in pursuance of the discussions regarding the requirements for the various licensed software the respondent No. 2 vide e-mail dated 20th November, 2008 sent a proposal to the informant for one “Microsoft Vista Business” and “Microsoft Office 2007”. It was further pleaded that the informant vide letter dated 21st November, 2008 placed an order and also sent a cheque of Rs. 1,97,250 on 24th November, 2008 towards 50% of the total consideration. It was informed to the informant by one of the executives of the respondent No. 1 that only the volume licences of the ordered products can be purchased and not the Original Equipment Manufacturer (‘OEM’) Licences. Further, as per the informant, the said executive of the respondent No. 1 pressurised the respondent No. 2 to cancel the purchase order placed by the informant and directed the informant to place an order for the volume licences instead of OEM licences. The informant came to know that price for the volume licence was almost double to the price quoted for OEM licence in spite of the fact that the two products were same. It was further pleaded that respondent No. 2 vide its e-mail dated 27th November, 2008 cancelled the order of the informant and insisted to place another purchase order for the required software at the prices quoted for the volume licences. The informant then pleaded that due to urgent requirement, the informant had no other option but to place a revised order with respondent No. 2 at the quoted higher rates of the volume licences amounting to Rs. 5,71,816 excluding the taxes. The informant alleged that the software in both was identical and if the same software is licensed to the new computer, namely, OEM Licences then it was cheaper while when it was licensed to the existing computer, i.e., volume licence then the cost was more. The informant also complained that on 20th January, 2009 it placed an online order for the purchase of Microsoft Office Professional 2007 Software after enquiring on the alleged website of respondent No. 1 and on receipt of software it was found that the software was labelled as “for use only with a new PC with 2007 Microsoft Office Suite or component application software pre-installed.” According to the informant there was no mention of such condition earlier when the order was placed. It was also alleged that the different dealers of respondent No. 1 were selling the same products at different prices and a small percentage by them offered the same at the lowest price and that was clearly the example of “artificially controlling the prices”. It was urged that respondent No. 1 was having the market share of 90 per cent and was a dominant firm in the market and its over-pricing for volume licence and coercing the informant to buy volume licence and not the OEM licence and that too for double the price of OEM licence was a clear violation of section 4(2)(a)(if) of the Act. It was also urged that the respondent No. 1 had violated the provision of the section 3 of the Act by imposing the restriction on the consumer in acquiring the licences of Windows Operating System and thereby it artificially controlled the supply and pricing of its product. In short, the complaint is that the respondent was charging different price for the same product. The respondent in support of its information filed certain documents which were transcripts of conversation between the informant and the officials of respondent No. 1. The respondent No. 1 and respondent No. 2 appeared before the CCI and requested for an opportunity for inspection of the case file and sought the permission to put their case. Such permission having been granted and respondent Nos. 1 and 2 filed their written submissions. On that basis, the Commission considered all the relevant materials.
3. In their written submissions, respondent No. 1 had taken the position that the informant had failed to provide any information and had not raised any competition law issue. According to them respondents licensed its product through three main channels of distribution namely OEM licence, volume licence and retail chain. It was pleaded that software of Intellectual Properties Rights and software licence governed the use and redistribution of the intellectual property. It was pointed out that first respondent’s relations with its distributors and the retailers were independent and did not create any principle agent relationship. It sold its product of licences to the distributors and resellers on a principal-to-principal basis. According to them, it is the licence itself which determined the nature of the product which was granted to the customer. They pointed out that licensing policy was followed by its global policy which is similar to the practices utilised by most IT firms across the globe. It was explained that three distribution channels were distinct and different for licensing rights to maximise the distribution efficiency. It was pointed out that OEM distribution was the highest volume channel of Microsoft which involved sales and distribution to the branded personal computer manufactures only and because of the size of its distribution channel it was offered at the lowest prices for Windows and Office software. It was pointed out that OEM licences pattern was different in nature than those purchased through other channels and that OEM version of operating system was not liable to be sold unless it was installed on a personal computer. As against this, it was pointed out that the volume licence channel was the most significant channel for business and other organisation which were sold in larger volume and the customers could upgrade from older OEM or retail version for the most recent version of the operating system. It was also pointed out that the volume licensing customers are not provided with many of the benefits and services as compared with the OEM including the benefit of testing. In addition to this, the Microsoft had considered the cost of support for volume licence customers, coupled with higher packaging cost. It was explained by respondent No. 1 that the third distribution channel, namely, the retail distribution offered windows and office for sale through the retailers and that was the lowest volume channel though with higher cost. In short, its stand was that it was not charging different price for the same product and that volume licence was essentially different in the nature from the OEM licence, and therefore there was bound to be difference in prices and, therefore, there was no question of any anti-competitive practices being adopted by respondent No. 1. What was explained was the different nature of licences and the essential difference in between those licences.
4. On this basis ultimately the Commission went on to hold that there was different pricing policy adopted by respondent No. 1 in respect of identical type of licences and, therefore, it was held that three types of licences which were being sold by respondent No. 1 were not similar to each other. It was also held that the informant had failed to place on record any material which could suggest that three licences were identical or in any case similar on the basis of the intended use of the customer. On the basis of its majority, the Commission took the view that there was no case made out for making a reference to the Director General for investigating into the matter. The dissenting Member, however, took a different view. In that the learned Member held that the matter required investigation.
5. Shri Singhania appearing on behalf of the appellant urged that it was clear from the facts that respondent No. 1 was abusing its dominant position in pricing its product as well as putting its artificial restriction on the consumer and compelling them to purchase the costly products and refusing to sell the identical products at lower price. According to the learned counsel, the CCI had failed to advert to the evidence provided by the appellant from which it was clear that respondent No. 1 was abusing its dominant position in the market. The contention raised is that the three licences sold by Microsoft being (i) OEM Licences ; (ii) Retail Version; and (iii) fully packaged product of volume licences were identical and performance of any of the three licence installed in computer was also identical. According to the learned counsel different rights/benefits were attached to the different licence was only a facade to charge higher prices on end-user.
6. The learned counsel further pointed out that in all the three licences the same operations were being done, i.e., Microsoft Windows and Microsoft Office. When the three licences were doing the same work it was unnatural that the respondent No. 1 was charging more price for the volume licences than the OEM licences or as the case may be the full retail version/fully packaged product. The learned counsel also complained that respondent No. 1 could not have refused to sell the OEM licence or could not have even insisted on the appellant purchasing the volume licence. It was tried to be argued that in both the cases, namely, OEM Microsoft Office or volume licence are only for one computer. Therefore, the practice of price discrimination was not justified, merely because in the volume licence the same is allowed to be used for consumer’s own purpose and in OEM licence the assembler is entitled to install the same programme on more than one computer, it did not mean that two licences were different. Our attention was also invited towards the material where OEM licence was offered to be sold by the retailer in the beginning, however, he was forced to cancel the order and further to sell the higher priced volume licence. It was also pointed out that the volume licence could be only used as an upgrade to the new version of the operating system from older existing OEM or retail version, was not a full version of the operating system and therefore the appellant was in need of full version of the operating system as well as Microsoft application software. The fact that Microsoft was offering only the volume licence to the appellant clearly amounted to the deceitful conduct on their part. It was again reiterated that licensing policy was only a tool in the hands of Microsoft to pressurise the distributors and resellers to sell the same product to various consumers at different prices. It was pointed out that the plea of the respondent that the retailer had committed a mistake in offering OEM licence was a plea without bona fides. It was pointed out that licensing policy of Microsoft was only an artificial device for controlling downstream distribution chain and also a device imposing unfair prices and condition on the end consumers. It was again reiterated that Microsoft Office programme includes Microsoft Word, Microsoft Excel and Microsoft Power point, etc., and all these perform the same function whether bought in OEM version or FPP or a volume licence. Shri Singhania also urged that the OEM licence was available irrespective of the fact whether the end-customer is a system builder or an assembler and/or the OEM licence was available separately pre-installed on a computer.
7. As against this, Shri Ramji Srinivasan contended that the term ‘product’ is totally and completely misunderstood by the appellant. He pointed out that there was no dispute at all that the three licences performed the same function of Microsoft Office, etc. However, he explained that three licences were separate and distinct. The learned counsel gave a simple example of a movie. He pointed out that a movie shown in the cinema hall or a movie shown through a DVD or a movie shown on the television channel was the identical same movie. However, the licence for showing the movie in the cinema hall would be costlier than the licence for DVD which could be seen only by an individual on a separate TV set. Similarly, a licence sold to TV channel for showing the said movie would certainly cost more. He pointed out that in this example the ‘product’ was not a movie. The product was a ‘licence’. He gave same example and pointed out that though three licences have the same Microsoft Office programme yet everything depended upon the rights attached to those licences. For this purpose, the learned counsel very specifically brought put the difference in the three licences. The learned counsel also explained the role of the respondent No. 1 and explained that it did not engage in any licensing activity nor had it engaged any distributors in India. It was pointed out that respondent No. 1 only rendered marketing services for Microsoft software, pre-sales consulting and post sale services, and support to customers and from this generated the revenues. It was pointed out that Microsoft products were available in India through a wide network of distributors, resellers and retailers spread all over the country and the distributors of Microsoft products in India procured the products from Microsoft overseas entities in Singapore and US. He was at pains to point out that there was no direct relationship between respondent No. 1 and Microsoft distributors and resellers in India nor there was any direct relationship between any Microsoft entity and resellers such as Embee. It was, therefore, pointed out that since there was misnomer on the part of the appellant on this essential aspect as to the concept of ‘product’ there was total misunderstanding which was rightly understood and explained by the majority version of the CCI. The learned counsel for this purpose invited our attention to the reply filed by respondent No. 1 before the CCI and invited our attention to the following table explaining the inter se difference in the three licences.
