TO TIE OR NOT TO TIE: DIGITAL MARKETS AND COMPETITION LAW
Tying arrangements can raise competition concerns where the tying and tied products are only sold as a bundle and are not available for purchase separately…
Imagine if you had to separately purchase Nestle’s Maggi noodles and its spicy seasoning sachet, or individually purchase access to every television channel that you may want to watch. How inconvenient and inefficient would that be? Tying arrangements, essentially, allow consumers to eliminate (or, at least, reduce) this inconvenience by offering for purchase a bundle of products or services. Not only do tying arrangements enhance convenience, but they can also reduce costs. However, in certain instances, tying arrangements can raise competition concerns. In this article, I discuss how competition authorities including the Competition Commission of India(“CCI”) have examined ‘technical tying’ (technological integration) arrangements.
A tie-in or tying arrangement is where the purchase of one (tying) product is made conditional on the purchase of another (tied) product. Tying arrangements can raise competition concerns where the tying and tied products are only sold as a bundle and are not available for purchase separately, or where it is commercially advantageous for consumers to purchase the products as a bundle instead of purchasing the products separately.
Under Indian competition law, tying arrangements can be examined in two ways: as a vertical restraint under Section 3(4) of the Competition Act, 2002 (“Competition Act”) and as an abuse of dominance conduct under Section 4 of the Competition Act. Tying can amount to an abuse of dominance if the arrangement is a “supplementary obligation” unrelated to the subject-matter of the main agreement or is a “leveraging” abusive conduct where dominance in one market is used to gain an unfair advantage in another market.
For a tying arrangement to be considered as a vertical restraint or an abuse of dominance, (a) there must be separate and distinct demand for the two products or services in question (i.e., the tying and tied products), and (b) the concerned enterprise must have market power or dominance in the market for the tying product or service. Additionally, a “substantial amount of commerce” must be affected1. In other words, the tying arrangement must be capable of foreclosing competition in the tied product market2.
Globally, there have been some significant decisions analysing tying arrangements as an anti-competitive conduct. Decisions specific to digital markets include Microsoft tying its Internet Explorer (browser) and Windows Media Player with its Windows operating system (“OS”) and Google tying its search engine and Google Chrome browser with its Play Store application.
Recently, the European Commission (“EC”) initiated an investigation3 against Microsoft for tying its Teams software (messaging and video conferencing application) with Office 365 (SaaS productivity application suite for professional use). This investigation has, once again, drawn the attention of competition authorities across jurisdictions to the complex issue of tying arrangements. An important question that will have to be answered is whether there is a separate and distinct demand for Microsoft Teams software application. In fact, this is a key question in modern competition law enforcement: in cases of ‘technical tying’ or ‘technological integration,’ what is the standard for assessing whether a product or service is separate and distinct?
In the earlier Microsoft decision4 of the EC, which was confirmed by the Court of First Instance (“CFI”), one of the allegations against Microsoft was illegal tying of Windows OS with Windows Media Player. The EC and the CFI, after observing that Windows OS is a system software and Windows Media Player is an application software, considered the availability of competing independent media players in the market to conclude that Windows Media Player is a separate product.
In the Android decision5, the EC found that Google’s Chrome browser is a distinct product from Google’s Play Store and search engine applications. The EC’s reasoning was based on several considerations including distinct functionalities offered by the Chrome browser, availability of independent web browsers in the market on a standalone basis, marketing of Chrome browser by Google for other operating systems (desktop and mobile), and availability of the option to download Chrome browser from the web and through other app stores.
Similar allegations were also made against Google in an information filed with the CCI (“Android Decision”)6. Google’s conduct of tying its Chrome browser with its Play Store application was assessed by the CCI as a leveraging conduct. The CCI’s analysis was premised on the existence of “two markets”. The CCI found that the Chrome browser is not ‘tied’ to a specific OS (for example, Apple’s mobile web browser only works on iOS) and there are independent browser providers that do not offer app store applications. Based on this, the CCI found that there exists a separate relevant market for “non-OS mobile web browser”. While the CCI did not expressly answer whether Google’s Chrome browser is a separate and distinct product or not, the CCI’s reasonings indicate that Google’s Chrome browser was considered as a distinct product. The CCI’s decision even suggests that the Chrome browser used in personal computers may, possibly, be distinct from the Chrome browser used in mobile phones.
The test of whether a ‘tied’ product has a distinct functionality was previously applied by the CCI in Harshita Chawla vs. WhatsApp Inc. and Facebook Inc. (“WhatsApp Decision”). The CCI had observed that WhatsApp Messenger and WhatsApp Pay are separate products with “distinct functionalities” even though WhatsApp Pay is embedded in the WhatsApp Messenger application. Ultimately, the CCI, in its prima facie order, concluded that since end-consumers were not compelled to use WhatsApp Pay exclusively, there are no competition concerns.
Assessing anti-competitive effects of tying of technologically integrated products where the product markets are multi-sided, is significantly more complex than contractual tying of physical products
In the Android Decision and WhatsApp Decision, the CCI assessed tying as an abuse of dominance conduct. In other cases, particularly those not involving digital products, the CCI has assessed tying as a vertical restraint. To analyse tying as a vertical restraint, the CCI employs the ‘rule of reason’ standard as per Section 19(3) of the Competition Act, which requires consideration of both pro-competitive and anti-competitive factors.
To meet the the evidentiary burden of proof under the ‘rule of reason’ analysis, the CCI must analyse whether and how a tying obligation is likely to affect price and/ or output. One way to discharge the burden of proof is to rely on counterfactuals i.e., in the absence of the tying obligation, would there be greater competition in the ‘tied’ product market and will those suppliers be able to offer lower prices? However, the CCI has not adopted this approach while assessing tying arrangements as vertical restraints.
In Android Decision, even though tying was assessed as an abuse of dominance conduct, the investigation included counterfactual analysis for assessing the anti-competitive effect of tying of Google’s Chrome browser with Play Store application: whether competition in the concerned relevant markets would have been greater absent the tying?
Assessing anti-competitive effects of tying of technologically integrated products where the product markets are multi-sided, is significantly more complex than contractual tying of physical products. As competition law jurisprudence in India continues to evolve, it remains to be seen how the CCI will develop factors for assessing whether a tied product or service is distinct and the theories of harm in relation to ‘technical tying’.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.