Social And Economical Aspect

Published Date: 02 Nov 2017

INTRODUCTION

In this day and age, take any computer- be it a Laptop, Desktop or the much in vogue tech- Tablets- all of these are sold with in-built Operating Software, [1] and other auxiliary applications like Word Processors, [2] Web Browser [3] and others. Hence, to provide ease to the user, manufactures use to bundle up the hardware or PCs. [4] The most sought-after brands of computer manufacturing and trading, technically referred to as OEMs [5] are: Hewlett-Packard, Dell, IBM, Acer, Asus, and HCL etc. These OEMs assemble their manufactured hardware with the OS and other ancillary applications, principally developed by the pioneer in this field- Microsoft. Microsoft holds 88.92% of the market share in case of Operating systems. [6] Consequently, these OEMs provide their clientele with a pre-installed Windows (Microsoft developed OS) and other applications like, Microsoft Office, Internet Explorer, Windows Media Player etc.

The other most important constituent in any computer is the processor. Intel and AMD are the two major players in this arena. Intel rules the market with the share of 90% in India and 80% across the globe. [7] The two market leaders, Microsoft and Intel, are still using the traditional formula of Software-Hardware Bundling, by providing their products in pre-installed format with the OEMs to their customers. This technique is an old one, initially started by IBM and stopped in early 1968. [8] The idea behind the service was to provide all elucidations in a single go, but it received a strong opposition from both, government and public. The government alleged that this bundling forced other hardware producers also to bundle, thus, raising barriers to entry into the supposedly monopolized computer systems market. [9] Subsequently, public opposed this system stating that bundling was not what they wanted. Ultimately, this resulted in the closure of IBM’s bundling program. But the point raised by government is fallacious. Software-Hardware Bundling would, undoubtedly, have blossomed the independent software industry and would have made it easier for its hardware counterparts to attain the required software for bundling. Had consumers not wanted the bundle, IBM’s bundling would have made entry easier, not harder, other hardware manufacturers could have offered hardware without the bundle to customers who wished to dispense with the latter. [10] This would have made their products more attractive relative to those of IBM; instead, most manufacturers offered their own bundle. [11] 

Prior to the 1970s, the control circuitry [12] for disk drives was located in a distinct box termed as controller. After the introduction of two control devices by IBM with its System/370 line, these boxes became obsolete. [13] Subsequent to this development, control unit replaced control circuit. In response to this government contended that these introductions were anti-competitive in nature and designed to extend or preserve IBM’s power over the supposed "market" for disk drives attachable to IBM systems and to eliminate competition in control circuitry. [14] Furthermore, during 1970s, IBM was again "bundled" up with the allegations when it introduced its new memory device which was comparatively smaller in size and had an extended memory and improved efficiency. The government said that this was an attempt to stifle competition in the supposed 'market' for memory used in IBM system. [15] This advancement was given the tag of being "anti-competitive" in spite of the fact that this innovation would have been a blessing to the consumers.

This is how the debate on Software-Hardware Bundling began. In lieu, people filed petitions in various competition directives, anti-trust forums and Civil Judiciaries across the globe, majority of which being in Europe and The United States. After the IBM case in 1970s, Microsoft had to combat charges mostly throughout 1990s, and currently even Google is undergoing an anti-trust investigation.

The fundamental reason behind this whole issue is that of illegal curbing of competition by way of creating a monopoly market. The giants like Microsoft, Intel are collaborating with the OEMs like Dell, Hewlett-Packard and providing customers a complete ready-to-use system. Both, Microsoft and Intel, enjoy the market share of 80-85% of their own products; their demand in the market is far above the ground; and their mantra is to provide the customer what he is looking for. Another reason that they are taking shore up is of piracy. OS and its applications have a threat of piracy. In January 2012, more than 520 million copies of windows were sold, but there were 2.1 billion internet users across the globe, which meant that nearly 2 billion windows had pirated versions. In order to put an end to it, Microsoft started the pre-installation of OS in its systems. But in spite of the aforementioned arguments, we need to consider the fact that there are users who don't want to use Microsoft windows or who are unwilling to pay for the applications which are not in line with their demands. Everyone has a different set of needs and everyone's needs can’t be catered by the same box. The subsequent argument was in favour of the companies which are there in the market but have a fairly lesser market share, namely, Linux and AMD. If this alliance is allowed to grow, then these companies are the ones that would be on the receiving end. Any PC is bought on the basis of its configurations- RAM memory, memory of the Hard Disk etc. If in the market a computer, say X, seems favourable, but it comes with windows only, then this tie-up would automatically restrain the customers of Macintosh. This is because in spite of being a Macintosh user, the customer will buy PC X, owing to its good configurations.

Talking about the Indian jurisprudence concerning hardware-software bundling, there are certain provisions that need to be discussed. Section 2(I) of the IT Act, 2000 defines a "computer" as a device or a system which performs certain functions relating to the instructions given to it by the user, by electronic, magnetic or optical means, and includes all the devices and software necessary for input, output and processing information. This definition, though not a literal one as per the act, is the fundamental definition propounded and comprehended by the common users of the computer.

Hitherto, there has been no laid down legal definition of software, but talking in a broad-spectrum, software can be best defined as the programs and other operating information used by a computer. In layman’s language, software is a set of instructions that tell a computer what it ought to do. It comprises of the entire deposit of programs, dealings and routines allied with the operation of a computer system. The term "software" was coined so as to differentiate these instructions with that of hardware, which comprises of all the physical machinery of a computer system. A set of instructions that directs a computer’s hardware to perform a task is called a program, or software program [16] 

The market and the terms related to it have been covered under S.2 of the Competition Act, 2002, which will be discussed in the due course of this paper.

Modern competition law, also referred to as antitrust law, is essentially concerned with the regulation of certain practices by market participants that are potent of having an adverse impact on competition. These include agreements between firms as well as actions of the individual firms. The agreements that are required to be scrutinized are, in turn, subdivided into two categories- horizontal and vertical. ‘Horizontal’ agreements comprise of agreements between competitors selling the same or even similar products, which may lead to the formation of a cartel that collusively fixes prices and restricts the output. ‘Vertical’ agreements take place between firms at different levels in the procurement and distribution chain which may also restrain the level of competition in the market.

The behaviour of a dominant single firm can also be considered as "anti-competitive" if its primary motivation is to eject its rivals or daunt potential competitors from stepping into the market. This ‘abuse of dominance’ may include provisionally charging ‘predatory’ prices below costs in order to hound out the competitors who are unable to cope up with the losses. Or it could also take the shape of tying the sale of a product in which the firm has a dominant share of the market (for example, computer hardware, printers or cars), to another product or service provided by the same firm for which there are many competing suppliers (the corresponding examples would be software, printer cartridges, and spare parts and servicing).

This mechanism of software-hardware bundling adopted by Windows is a marketing strategy which has put an impediment on the entry of any other software company in the market, let alone gain profit. What pawns such anti-competitive marketing strategies is the present Competition Act, 2002. But before moving any further, we need to have a clear understanding of the international background of the whole issue.

SOCIAL AND ECONOMICAL ASPECT

Social and Economic aspect of bundling plays an important role in the trade of the products. Bundled discounts and tying are both practices used by sellers to increase sales, achieve transaction cost and other efficiencies, and encourage loyalty on the part of their customers. [1] In their simplest forms, the two practices can be considered as bookends of a continuum of conduct -- ranging from procompetitive arrangements that reduce prices by providing incentives for consumers to purchase the bundle ("carrots"), to anticompetitive arrangements that coerce buyers into purchasing products they otherwise would chose to obtain from competitive sources ("sticks"). [2] Questions which are coming up are why the manufactures bundle up the software and hardware, why don't they sell it individually? To understand this problem and answer of it, we need to understand first of all we need to understand to terms, Centric Bundling and Non-Centric Bundling. We are talking about hardware-software bundling, but somewhere we are forgetting another important bundling which is software-software bundling or a pack. When we use buy an OS, for example Windows, it doesn't come alone, but with a numerous software, of which some are useless for the customer, but s/he has to pay for that, this is called Centric Bundling [3] , where as when we purchase an application, such as Microsoft Office, that also comes in a package of 6-8 applications, like MSWord, MSExcel, MSAccess etc., this is referred as Non-Centric Bundling. [4] A lot of discussion has been done over Centric Bundling, but Non-Centric Bundling is still not been questioned.

This presumption has developed from a long history of observations by the courts that tying behavior more often involves forcing a buyer to do something against its interests ("coercion") rather than providing tangible benefits to consumers, such as lower prices in the case of bundled discounts. [5] In its classic form, tying is "an agreement by a party to sell one product only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier". [6] Classic tying analysis is based on strong presumptions against the legality of the practice, which the Supreme Court articulated in its 1947 decision in Standard Oil Co. v. United States: "[T]ying agreements serve hardly any purpose beyond the suppression of competition". [7] Because of the strength of this presumption, "tying agreements fare harshly under the laws preventing restraints of trade". [8] In so doing, the seller harnesses market power he has over the "tying" product to prevent competition for sales of the "tied" product, and "[w]here such conditions are successfully exacted competition on the merits with respect to the tied product is inevitably curbed." [9] Tying harms consumers by 1) inducing more sales at higher prices of the tied product than the seller would make in a fully competitive market, 2) "deny[ing] competitors free access to the market for the tied product," and 3) forcing buyers "to forego their free choice between competing products." [10] 

An "express refusal" to sell the tied products separately, often in the form of a clear contractual requirement that two products be purchased together, has consistently been accepted by courts as evidence of coercion. [11] Short of an explicit contract, some courts have accepted threats by sales personnel to withhold the tying product as evidence of coercion, [12] but generally have not accepted that mere sales pressure to accept both products involves a sufficient level of coercion. [13] By contrast, the European Commission's recent Guidance reflects a belief that technological ties pose greater risks to competition than do other forms of tying, because they are "costly to reverse" and "re-duce the opportunities for resale of individual components." [14] The court found that although the conduct in question satisfied the elements of the traditional tying test, it would be inappropriate to find it per se illegal because there could be "a number of efficiencies that, although very real, have been ignored in the calculations underlying the adoption of a per se rule for tying." [15] But the European Courts have a different take on it. In Tetra Pak v. Commission, for example, the European Court of First Instance ("CFI") found against a manufacturer of equipment for packaging food in cartons that required buyers purchasing its packaging machines also to purchase all packaging cartons used with those machines from Tetra Pak. [16] The European Commission's recent Guidance on the application of Article 82 suggests a modern approach similar to that taken to tying cases in the U.S.:

The Commission will normally take action under Article 82 where an undertaking is dominant in the tying market and where, in addition, the following conditions are fulfilled: (i) the tying and tied products are distinct products, and (ii) the tying practice is likely to lead to anticompetitive foreclosure. [17] 

Customer use to get a packed software, in which he has almost all the software of need, but the catching point is that s/he also get some software which they don't want to buy. Still they have to pay for it. For example, I want to work on MS Word, for that I have to purchase MS Office. MS Office provides a series of application is it, but I only need MS Word, others are useless for me, but still I am paying for it, and they are using my disk space. Customers don't have any other choice, if they want to buy particular software; they have to purchase the whole package and have to pay for it. The argument of comfort is partially correct, that the customers have not to run for different applications to different outlets, but these arguments shatters when the reality comes into picture. Out of total users, only 7.42% use all the applications of MSOffice Pack, rest 92.58% uses some of the applications, primarily MSWord, MsExcel and MSPowerpoint. [18] It means 92.58% users are spending more of the actual amount they are using. OEMs and other Software Developers are basically charging more than the actual price they should charge. Customer, due to helplessness has to buy it.

When it comes to economical aspect, two dimensions have to be kept in mind, viewpoint of customers and viewpoint of manufactures. For customers, economical factor is as same as social. Over here to, two players play role, Price and Convenience. As stated above, customers are already paying more than what they should pay, and when it comes to convenience, again it’s the customer who is lagging behind. Today, price discrimination and foreclosure of competition are the two leading explanations for tying. [19] But they can only explain tying by firms that have market power. [20] Economists recognize that tying can result in cost savings for producers and consumers as well as improvements in product quality. [21] However, this efficiency explanation is often assumed away in theoretical models in order to focus on other explanations. [22] The Jefferson Parish test finds a per se violation when the following four conditions are satisfied: first, there must be two products; second, the two products must be tied; third, the seller must have market power in the tying product; fourth, a not insubstantial volume of commerce must be affected. [23] Ever since the Supreme Court's Jefferson Parish decision, courts have recognized the importance of distinguishing between anti-competitive explanations for tying and efficiency explanations. [24] We conclude that the antitrust analysis of tying should be based on the rule of reason and, importantly, that once a defendant has put forward a plausible efficiency defense for the practice the plaintiff should bear the burden of showing that the defense is perpetual. [25] Some courts have explored more quantitative evidence about the purchasing behavior of buyers, refusing to find coercion where a significant number of buyers purchased the tied products from other sellers or separately. [26] And several courts have explicitly considered price manipulation (offering the elements of a tied offering singly only at higher prices) as a form of coercion. [27] 

When it comes to economical aspect of manufactures, cost of productions matter a lot. Competing bundles often have similar graphical user interfaces and standardization of file formats that make it easier to exchange documents among them; these characteristic lower the switching costs for consumers and intensify competition among vendors. [28] Vendor's strategies of bundling depend upon appropriate combination of price, quality and bundle size. The first, from Stigler, is that tying enables firms to extract more consumer surplus from consumers who place different valuations on the separate goods. [29] Work by economists Yannis Bakos and Erik Brynjolfsson demonstrates how Stigler-type tying (or bundling, as it is more commonly termed) is frequently an efficient pricing design for goods with a negligible marginal cost-precisely the sorts of goods typically involved in such tie-ins. [30] Bakos and Brynjolfsson have suggested that the vendors will incur zero marginal cost in integrating additional component, keeping in mind the size of the bundle. [31] Specifically, Bakos and Brynjolfsson show how sellers of "information goods" (generally defined as "anything that can be digitized," such as a movie, song, book, or computer program [32] an both extract additional consumer surplus and overcome price-setting difficulties by bundling the goods they sell. [33] In such circumstances, Bakos and Brynjolfsson demonstrated, Stigler-type bundling can be quite useful to multiproduct sellers. [34] The issue of Bundle quality is bit of more difficult, ISO 8402 defines quality generally as "the totality of characteristic of an entity that bear on its ability to satisfy stated and implied needs"; ISO /IEC 9126 also defines characteristics as functionality, reliability, usability, efficiency, maintainability, and portability. [35] Professors Yannis Bakos and Erik Brynjolfsson have observed that manufacturers can increase sales by increasing the diversity of buyers to which a product appeals, especially for information goods for which the additional cost to the manufacturer of including and distributing features is low. [36] 

When marginal cost is coming zero and even ISO definitions are similar to the definitions of the products individually, this make the manufactures delight, and through this they were able to sell out their those products which were not having high demand in the market, and they were able to cutoff large profit by maintaining zero marginal cost. But we need to look to the other side of the coin too. There are a number of responses for the theory of Hylton & Salinger. As the per-curium opinion notes, the Supreme Court has instructed that the modified per se rule governing tie-ins requires the plaintiff to establish distinct elements: (1) a tying arrangement exists between two separate products; (2) the "seller has some special ability--usually called 'market power'--to force a purchaser to do something that he would not do in a competitive market"; and (3) the tying arrangement forecloses a substantial volume of commerce. [37] Hylton and Salinger agree with the Microsoft III court that measuring consumer demand for separate products will not adequately shield many beneficial or efficient bundled sales from the modified per se rule. [38] Hylton and Salinger do criticize certain of the Supreme Court's pre-Jefferson Parish holdings. They suggest that the Court, in cases like International Salt [39] and Northern Pacific, [40] was willing to "fudge the market power and forcing issues in order to find the defendant's tie-in unlawful." [41] 

A central theme for Hylton and Salinger is that tie-ins achieved by product integration are less likely to harm competition than tie-ins affected by contract. [42] The authors state at one point: [T]here are good reasons to believe that the base-rate probability of anticompetitive harm is lower for techno-logical integration than for contractual tying. ... [T]echnological integration entails sunk costs that are generally larger than those associated with contractual tying. [43] The risks are larger for the technological integrator, and the market is likely to impose relatively severe penalties for mistakes--in comparison to contractual tying. [44] In their reply to these comments, Hylton and Salinger question whether the information issues rose in Kodak is appropriate fodder for antitrust. [45] Market power generated by information asymmetries, they suggest, would be limited by the seller's need to protect its reputation and by the buyer's ability to seek contractual protection against opportunistic behaviour. [46] These arguments have been thoroughly ventilated in the literature ad-dressing Kodak. [47] The Hylton and Salinger reply carries the argument one step further. They urge that where information is relevant, "the vast majority of tie-ins are designed with a procompetitive purpose, to enhance the provision of information to uninformed customers." [48] The plaintiff advancing a tie-in claim still would have the burden of showing that the tying conduct was coercive, but the burden could be met by showing market power in the tying-product market, information asymmetries that would be exploited by the tie-in, or (as occurred in Microsoft III) some combination of the two factors. [49] Antitrust policy rests on the core principle that over reasonable time frames competition will yield the socially optimal balance among price, quality, and innovation. [50] 

THE COMPETITION ACT (2002)

"The Monopolies and Restrictive Trade Practices Act has become obsolete in certain areas in which light of international economic developments relating to competition laws; We need to shift our focus form curbing monopolies to promoting competition. Government had decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions." [1] 

Before 1947, India was merely a dumping ground of rejected cloths and goods and an exporter of fine quality of raw material. [2] After independence, India was left with poor infrastructure, economy and technology. As a result, government started developing industries across the nation and started a five year plan programs to assist it. Also to encourage domestic producers and to allow their growth, trade barriers were made, along with legalizing monopolies through various Acts, especially Monopolies and Restrictive Trade Practices Act, 1969. But, after 1991 LPG policy, things started changing. Trade restrictions were lift up, and Licensing and Monopolizing was perishing. Liberalization and Privatization was challenging the MRTP act.

As a result, in 1999, a 9 member committee was formed under the chairmanship of Mr. S.V.S. Raghavan. The Raghavan Committee Report states that the essence and spirit of competition should be preserved as it encourages efficiency in the production and allocation of goods and services, and over time, through its effects on innovation and adjustment to technological change, a dynamic process of sustained economic growth. [3] It is an application of the same principle that a matter which should have been, but has not been provided for in a statue cannot be supplied by courts, as to do so will be legislation and not construction. [4] But there is no presumption that a casus omissus [5] exist and language permitting the court should avoid creating a casus omissus where there is none. [6] 

The Competition Act of India received the assent of the President on January 13th, 2002 and was published in the Gazette of India on January 14th, 2002. [7] Some sections of the act were brought into force on Mar 31, 2002, but majority of them were brought on July 19, 2003. [8] 

It all started with Mahalanobis Committee report on Distribution of Income and Levels of Living in 1960, which highlighted the growing Income inequality among the citizens contrary to the provisions of the Constitution of India. [9] After this report, Government formed Monopolies Inquiry Commission in 1965. Government, on the recommendations of Monopolies Inquiry Commission enacted Monopolies and Restrictive Trade Practices Act, 1969. Monopolies and Restrictive Trade Practices Act, 1969 was enacted with the objective [10] of:

Prevention of concentration of economic power to the common detriment

Control of monopolies

Prohibition of monopolistic trade practices, and

Prohibition of restrictive trade practices.

As stated above, after the 1991 Liberalization Policy, a change in the law was needed, and Raghavan Committee recommended the same. The Competition Act was brought with the following objectives:

Prevent practices having an adverse effect on competition,

Promote and sustain the competition in the markets,

Protect the interests of the consumers and

Ensure the freedom of trade carried on by the other participants in the markets in India.

After the enactment, government formed The Competition Commission of India with its chairman, but a PIL was filed against the appointment on the grounds of (a) The proposed Commission, to be headed by a bureaucrat, would replace the MRTP Commission which had all along been headed by a Judicial Member; (b) Commission had adjudicatory functions which warranted that the Chairperson must be a Judicial Member. [11] 

In 2005, after the disposal of the case by Supreme Court in Bhram Dutt v. Union of India, [12] the appointment was made with an amendment in the act regarding the appellate tribunal. In 2007 the amendment was made about the appellate tribunal and finally the act started functioning and Monopolies and Restrictive Trade Practices Act was repealed simultaneously. [13] 

The Microsoft Antitrust Case

1990s started with a series of investigation on Microsoft by the Federal Trade Commission, though 1991-92 and 1993-94 investigation ended without any lawsuits. [1] But, the 1994 investigation [2] by the United States Department of Justice ("DOJ") was terminated with a consent decree in 1995. [3] According to the judgment, Microsoft agreed to finish all the pre-processor agreements with the OEMs, but it was allowed to use quantity discount at liberty. Another decision was that "Microsoft shall not enter into any License Agreement in which the terms of that agreement are expressly or impliedly conditioned upon the licensing of any other Covered Product, Operating System Software product or other product (provided, however, that this provision in and of itself shall not be construed to prohibit Microsoft from developing integrated products); or the OEM not licensing, purchasing, using or distributing any non-Microsoft product". [4] This judgment restricted Microsoft from Zero Marginal Cost Pricing completely, but it allowed for quantity discounts, disregarding the fact that zero marginal cost pricing is a special case of a quantity discount contract. [5] The vertical restriction of the 1995 consent decree prohibits product bundling created by contract, but allows Microsoft to keep expanding the number and type of functions of its products, including Windows. [6] On October 20, 1997, DOJ alleged that Microsoft dishonoured the 1995 consent decree by bundling Internet Explorer ("IE") with the Windows operating systems, and requiring computer manufacturers to distribute IE with Windows 95. DOJ petitioned the District Court to find Microsoft in civil contempt. On December 11, 1997, Judge Thomas Penfield Jackson issued a preliminary injunction barring the bundling of IE with Windows. [7] On May 12th, 1998 the DC circuit Court of Appeal turned the 7 judgment of injunction. On June 23, 1998, the Court of Appeals ruled that the 1995 consent decree did not apply to Windows 98, which was shipped with an integrated IE as part of the operating system and an IE icon on the PC desktop, arguing that "courts are ill equipped to evaluate the benefits of high-tech product design." [8] 

Over the years, Microsoft has integrated in the Windows class of operating systems many functions and features that were originally performed by stand-alone products. [9] On June 23rd, 1998 the Court of Appeal ruled that the bundling of Internet Explorer with Windows is permissible and is not in contravention with the decree of 1995. Against this, The Department of Justice argued that Microsoft used unwarranted ways of curtailing competition. Department of Justice said that Netscape Navigator, being the major competitor of Microsoft Internet Explorer, could erode the market power of Windows easily since Netscape Navigator can run on a number of OSs easily. This posed a major threat to Microsoft, in result of which, Microsoft incorporated Internet Explorer with Windows, as a self-protective move.

The case was argued before Justice Thomas Penfield Jackson, and he said to release his 'finding of facts' first followed by 'conclusion of law', as he himself wanted to give the parties a chance of settlement. [10] On November 5, 1999, Judge Jackson issued his "findings of fact," siding very strongly with the plaintiffs. [11] In December 1999, Judge Richard Posner, a prominent antitrust scholar and the Chief Judge of the Seventh Circuit Court of Appeals, agreed to serve as mediator for settlement discussions. [12] On April 1, 2000, settlement talks broke down after some States reportedly disagreed with the proposed agreement. [13] On April 3, 2000 Justice Jackson gave his concluding verdict, in which he held Microsoft Corporation liable for monopolization and anti-competitive trying of Internet Explorer with Windows. But he also added that this exclusive contract of Microsoft didn't stop Netscape from being distributed. The Court also ordered for a split of Microsoft into two companies. Later on Microsoft moved to Supreme Court on the issue, but on September 26, 2000 Supreme Court refused to hear the case. [14] Though the Federal Appeal Court decided to hear the matter, and on June 28, 2001, court reversed the breakup order. [15] 

But the point that still raises serious doubts is that how is Microsoft pursuing anti-competitive terms? Primarily, it is because of the mutual dependence of products in the tech world on each other. OS, Processor and applications- all of these are interdependent on each other. Applications are developed on and for a particular OS. The codes are mentioned in the format that can be read only by a particular OS, with the help of a special configured processor. The OS market is under the dominance of Windows and processor market under the dominance of Intel. These two act as an entry barrier, through their dominance in the market, for others to enter the market because for a consumer it is the applications that play a major role in the game. A consumer needs applications which are in line with his requirements; whether it is a Windows based application or Linux based, that is a secondary matter. Keeping the prevailing scenario of market in mind, the manufacturers are also coming up with the applications that are windows-based, and the result of which is loss of market share of other companies.

The judge ruled that Microsoft does have a monopolistic power in the OS market for Intel-compatible PCs. In antitrust, it is generally understood that a firm has monopoly power when it has the sustained ability to control price or exclude competitors, the existence of significant barriers to entry and the very high market share of Microsoft in the operating systems market gave indications that Microsoft had monopoly power. [16] But, also there was a very strong factor indicating the contrary. Microsoft priced its operating system to Original Equipment Manufacturers ("OEMs") at an average price of $40-60, a ridiculously low price compared to the static monopoly price. [17] Microsoft’s economic witness showed that the static monopoly price was about $1,800, a large multiple of Microsoft’s actual price. [18] But the required elasticity is very large and inconsistent with the price to cost margins of hardware manufacturers. [19] Even receiving large per unit revenues from complementary goods cannot by itself explain the vast difference between the actual and the monopoly price of Windows. [20] The judgement passed by the learned bench could be regarded as sound by legal experts; it disregarded the economics involved in the matter pertaining to Microsoft, which, though, was theoretically correct but practically unfeasible. Although the constraint of technical barriers can be regarded as anti-competitive, going by the principles of economics, monopolization by Microsoft can't happen.

We have examined the international timeline and point of view of US Courts on this issue; now let us elucidate the same in respect of India.

The DTH Case

Consumer Online Foundation filed a petition in the Competition Commission of India against the Direct to Home (DTH) service providers alleging that they are carrying anti-competitive behaviour in the market.

Television world and the technology related to it have travelled light years from its advent by Brian. In this day and age, DTH services are selling like hot cakes in the market for satellite channel services. People want to purchase it for a better tele-experience. Tata Sky, Airtel Digital, Reliance Big TV, Sun Direct and Dish TV are some of the major players in this market. Essentially, apart from television, there is a requirement of four instruments so as to facilitate this service.

Small Dish Antenna [1] 

Set-top Box [2] 

Conditional Access Module (CAM) [3] 

Smart Card [4] 

Ideally, the DTH service providers should only provide CAM and smart cards to their customers, they being the only items of differentiation. But the providers club all the aforementioned instruments and sell it out as a compound product despite the fact that Dish Antenna and Set-Top Box are available in the local market separately. These items, even if purchased individually, perform the job in the same fashion and without any compatibility hindrance. In spite of this fact and full knowledge, providers suppress this information.

Currently in the field of satellite television two technologies are prime, MPEG-2 [5] and MPEG-4 [6] . MPEG-4 set top box can work on the type 2 format, but vice versa is not true. [7] On the basis of this fact, the DTH providers started trying to play the monopoly game in the market in order to restrict the whole play among them. The allegations on them were made under various provisions of the Competition Act, 2002, especially on the grounds of hardware and service bundling, anti-competitive tie-ups, formation of cartel and monopolization of market.

The arguments that were put forth were that if a customer could buy the set-top box and dish antenna from the local market also, there was no requirement of buying it from the service provider. It was also alleged that TRAI’s DTH (Standards of quality of service and redressal of grievances) Regulation 2007, says that DTH service providers are supposed to provide three plans to their customers, namely, outright purchase, hire purchase and rental purchase for the STB. But this rule was not complied with.

Presently, if a customer wants to switch from 'A' provider to 'B', he has to buy the whole bunch, rather than purchasing merely the smart card and CAM. Apart from this, service providers also club the channels in a single package. This compels the customers to pay for even those channels which they don't want to get subscribed to.

These two practices of the providers were anti-competitive and monopolistic by nature. By putting restrictions on the customer on buying the STB and Dish-Antenna from outside, the DTH providers were putting barricades on the individual STB or Dish-Antenna manufactures from entering into the market. This is anti-competitive in nature.

On this matter, the Commission ruled that DTH service providers should minimize the information asymmetry by clearly informing their customers that the STBs and other necessary hardware are available through the mode of outright purchase or on rental basis; this should be broadcast on their websites and also on their DTH platforms. [8] They were also directed to provide channels for free and, that too, without bundling, and that the customers should be given an opportunity even to choose one channel.

Subsequent to this judgment, bundling either Hardware or Service-based got an all new dimension in India.

The Indian Scenario

Indian IT retail market is currently enjoying the developing phase of India. In 2009-10, Indian IT market sold products of Rs. 411, 220 (in crore) with a growth of 10% in respect to 2008-09. [1] Indian IT retail market has presented a platform for earning massive amount of profit for the OEMs and associated manufacturers owing to the continuous enhance in the market demand. Companies like Hewlett-Packard, Sony, Dell, Linux, Microsoft etc. are in the market in quest of market dominance. In this rat race, two companies that have shown outstanding performance are Microsoft and Intel. The reason behind this dominance being not just the quality of the product provided but also the brand value they enjoy in the market. Both the companies are holders of more than 80% market in their segment. What boggles our minds is that in a market as volatile as IT, what is the reason behind such a massive market share?

Right from the 1960s itself, a long discussion has been going on in the world market, chiefly in the US and EU, regarding software-hardware bundling. The products of both the companies, Microsoft and Intel, are par excellence. On one hand where Microsoft Windows is regarded as the easiest of all the operating systems, Intel Processors on the other hand are regarded as the most compatible and fast ones. A Microsoft window has the widest range of compatible applications, and this is where it gets an edge over its competitors in the market. But owing to volatile nature of the market, one can't maintain its edge in the long run. Its competitors, namely Netscape, Linux and Mac are there in the market, alerting Microsoft at every step it takes to keep its flag high. Same goes with Intel. AMD is Intel’s closest competitor. Even though AMD, Netscape and others have a very petite market share in front of Intel or Microsoft, despite that, they are mounting up as a threat owing to their capability of growth.

These companies- AMD, Netscape, and OpenOffice- are losing out on the battle owing to two major reasons. Firstly, people are unaware about them even though they are the second best alternative in the market. In spite of this, only a few people know about them, and fewer use them. The second reason is the validation of the first reason that since people don't know these companies, the only way through which these companies can make people aware about them is the market, and this market is a monopoly of Microsoft and Intel created via Bundling.

The justification provided by these companies in favour of bundling is that through it, customer can buy all the products in a single go and this would stop him from having to run after it time and again. They also argue that these products are the essential ones and are a must-have for one and all, hence people like to have them in-built in their computers. In response to these arguments, others stated that through bundling, these companies are putting precincts on the entry of new companies in the market, and this ultimately amounts to an anti-competitive practice. Secondly, not every buyer has the use of every software bundled in the package that is provided to him. Despite this, they have to pay for the bundle as a whole and this "extra payment" leads the customer unsatisfied. And lastly, owing to bundling, customers now have a very circumscribed number of options, which is also against the law of the land.

India has its own Competition Act. Under the Act [2] , the Commission is to take action against anti-competitive agreements (such as cartels) and abuse of dominant position (such as predatory pricing and unfair or discriminatory conditions of prices). [3] And also abuse of Dominant Position in the market is termed to be serious violation under the provisions of the Act. [4] 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. [5] Dominant Position, as per the act, is a subjective matter because according to it, a corporation with a mere 10% market share can be in dominant position if it fulfils the above criteria, and a company with a market share as large as 90% could be out of the purview of dominant position if it doesn't fulfil the mentioned criteria.

Similarly, Bundling has also been classified as illegal under the Competition Act of India. As per the Consumer Online Foundation v. Tata Sky and Ors, [6] bundling is prohibited under the Competition Act of India. Essentially, bundling is a marketing strategy wherein a dominant enterprise sells one product in proportion to another, as a requirement for the sale, for instance, bundling OS with media player or bundling of channels by cable operators. This was primarily the issue in Microsoft case under European Commission. In the judgment, Microsoft was found guilty of anti-competitive behaviour and was penalized for € 497 million. [7] In the case, Microsoft was bundling OS with its Media Player, which was ruled as anti-competitive. In United States, similar scenario happened against Microsoft only in 1996, when Microsoft was alleged for anti-competitive behaviour by bundling its web browser with its OS. [8] Here also stars were not in favour of Microsoft.

The whole idea of bundling in India revolves around three expressions- Software-Hardware Bundling, Software-Software Bundling and Hardware-Hardware Bundling. Bundling OEMs with OS is an example of Software-Hardware Bundling. Bundling of applications in one pack like in Microsoft Office Suit is an example of Software-Software Bundling, and Bundling OEMs with Processors is an example of Hardware-Hardware Bundling.

Tie-in arrangement is also not allowed in Indian Competition Act under section 3(4) (a). [9] The Software-Software Bundling is the illustration of violation of this clause. The effect of the arrangement is that the manufacturer or the supplier of goods makes the buyer of goods to buy some goods or services, which he doesn't want, along with the goods which he wants for use or for re-sale. [10] A tying arrangement cannot be defended on the plea that the number of units (or quantity) of the products- the tied and the trying one sought to be sold, are not identical. [11] There are plenty of cases on tie-in arrangements in India, for example compelling customer to buy stabilizer with a refrigerator [12] , compulsion to buy bathing soap with washing detergent etc. It was perhaps in IBM case [13] that the courts in US began to turn towards a per se approach in tying arrangement. [14] Hence, it is not just in India but also in various statutes of countries across the globe which prohibits anti-competitive tie-in arrangements. Despite all of this, the tie-in arrangement of Microsoft and Intel for their products with the OEMs is still running smooth.

This arrangement also trip section 3(3) of the Competition Act. [15] By providing OEMs with Intel processors and Microsoft OS, these companies are forming cartels amidst themselves and restricting the market.

The constitution of these companies can be challenged before the Competition Commission of India on umpteen grounds, such as tie-in arrangements, formation of cartels, anti-competitive behaviour, etc., but the pit hole is the flexibility and immaturity of our legal system that creates a hindrance in the execution of law. Indian Competition Act is not as old and established as the US Antitrust laws or EU Antitrust laws are, but despite that the present law can impede the much-in-vogue violation of law.

The argument put forth by Microsoft and others that bundling is done so as to provide ease to the customers, is justified to a certain extent but its counter argument is stronger which runs like this that the ease is costing customer more than what is required. Another argument put forth by Microsoft is that the bundled applications are essential and they need to be bundled are required. This was countered by saying that though Microsoft is correct in this regard but the question that springs up is that won't this bundling amount to cheating or hindrance to other application developers who develop similar applications? Won't they come face to face with problems in their sales? Would they be able to sustain and survive in such a competitive market due to the monopolistic approach of Microsoft?

The strongest argument from Microsoft is regarding the violation of IPR, as the IT world’s biggest nightmare is that of piracy. Doubtlessly, Microsoft does stand tall on this argument but the counter to this is that those who are reluctant to use such bundled software on their machines indulge in illegal practices so as to get rid of the software or OS in this regard. Hence, the violation of law is on both sides, but giving an edge to Microsoft seems more in line since piracy genuinely is a major issue. But this doesn't mean that using the cloak of piracy, one creates barriers for others’ businesses or participates in illegal practices for that matter.

conclusion

Sometimes, dissenting opinion makes more sense than the majority judgements do. R.Prasad, in Singhania and Partners LLP v. Microsoft Corporation (I) Pvt. Ltd. and Embee Software Pvt. Ltd. [1] has rightly outlined as to how software-hardware bundling is being practiced in India, and how is it against the Rule of Law. Though in this case, quite a few loopholes were present, but keeping them at rest, the issue here is that that Competition Commission of India had a fairly good opportunity to put an end to this violation of law, but they failed to do so.

As stated earlier, bundling is a bilk in disguise. We need to understand the fact that the counter arguments need to be paid heed to. Indeed, Software piracy is a fiend for the software industry, bundling being the solution to it, doesn’t mean that in order to find solutions to one problem, you create another.

As R.Prasad rightly pointed out that corporate houses are serving the same dish in different plates and costing it differently, but again, we need to understand that both are correct at their respective stands and we need to find a midway out.

One of the ways could possibly be that these OEMs start selling their products in integration with all the main suppliers of OS and processors. But the question arises on the amount of production and availability of the product in the market. There is a fair possibility that these OEMs face losses due to excess of production of a certain integrated OEMs and OS.

Another possible alternatives could be exclusive stores which would provide on-the-spot installation of OS. This could work, but now the OS manufac