Slack v. Microsoft – more than just another tying case

The recent wave of claims against digital giants appears to have completed a circle with Slack’s recent claim against Microsoft for allegedly abusing its dominant position by tying Microsoft Teams to the Office 365 software package. One cannot deny the resemblance between this claim and the previous tying cases Microsoft had faced, however, upon closer look Slack’s claim is much more than just another Microsoft case. It is a case the EU competition law needs in order to create clarity in the realm of multi-sided platforms and finally complete the transition from a per-se approach to an effects-based approach to tying cases under art. 102 TFEU.

 

One market two approaches

According to Slack, Microsoft’s tying of the Teams software to its Office 365 package constitutes an abuse of dominance. According to Slack, Microsoft is forcing millions of user to install Teams and denies them the possibility to uninstall such software while also not being transparent about the usage fees thereof. These practices put Slack in a difficult position when it comes to competing for enterprise customers interested in productivity and connectivity software. Unlike Microsoft, which offers an entire collection of productivity and connectivity tools in its Office 365 suit, Slack operates more like as a modular communication platform that can be customized based on customer preferences by linking various third party software solutions together with Slack own communication services. Accordingly, instead of providing an entirely integrated productivity and connective software suit, Slack provides an enterprise communication service that can be used as a hub to connect various third party service apps such as Zoom, Gmail, Dropbox and many others to achieve a similar goal while offering customers more customization options. Seeing as the communication service is the heart of Slack’s business case it is not surprising that it was unhappy with Microsoft’s new strategy. Getting Office 365 users to use Teams as their default enterprise communication solution would simply wipe out Slack’s modular solution since it essentially cuts out the hub of the entire system Slack has been trying to build. This in turn of course may also affect many of the third party solutions that Slack allows to interconnect and thereby also increases their value to the respective users of such services.

These circumstances are, however, expected in every, or at least, most tying cases. Foreclosure concerns in the tying and/ or tied market as well as related markets and innovation have been identified in economic literature in both traditional markets as well as two-or multi-sided (platform) markets. So why is this claim much more important than just another tying case? Spoiler: the answer is not that Microsoft joins the GAFA anti-trust club.

This particular case is important because: (i) it will force the Commission to reconsider its approach to tying in the context of multi-sided platforms which got scrambled after Google Android; and (ii) the nature of the competitive relation between Slack and Microsoft is one that will require an far more extensive effects-based analysis than the Commission is used to performing in tying cases.

 

Reconsidering the current approach to tying and multi-sided platforms      

The Commission’s decision-making practice in the context of tying has been a mixed bag of approaches. In the early days the Commission was criticized for addressing tying as a per-se abuse, a practice that was considered having ended with the Microsoft Media Player case where the Commission explicitly indicated it undertook an extensive effects analysis before reaching its findings. In the context of the decision it went to great lengths to explain the effects of Microsoft’s practices considering the indirect network effects at play in the case (par. 876 onwards). By doing so, the Commission essentially took into account the multi-sided nature of Microsoft’s products subject to the investigation at the time.

In the recent Google Android decision, the Commission repeated its intention to continue with this effects-based approach in tying cases (par. 749). However, when going through the Commission decision it is not entirely clear that such approach was indeed followed. The Commission repeatedly refused to address indirect network effects for the purpose of the analysis; explicitly stating it is not obliged to look into such matters to reach it findings (par. 776, 854, 966). However, the Commission did acknowledge the existence of such effects in the case of Google’s services (par. 855). Furthermore, the Commission stated it took into account the different sides of the Android platform (par. 874), however, the decision is not entirely clear on how that was done and how this adds up with its refusal to look into the indirect network effects at play in that case.

With Slack’s claim against Microsoft, the Commission will have to take a stance on this matter once more, as this case inevitably requires dealing with competition between multi-sided platforms. The question is, whether the will Commission return to its approach in Microsoft or continue with its approach from Google Android and consider a discussion on indirect network effects (and thus the multi-sided nature of such players) as purely optional. Either choice will be risky. Returning to its approach in Microsoft will cast some doubt over the decision in Google Android while moving forward with this new approach risks a double loss if Google is successful in its appeal.

 

The nature of competition and the foreclosure effect in tying cases

Looking into the merits of Slack’s claim will also require the Commission to engage in an extensive assessment of foreclosure effects regardless of the Commission’s approach to platforms and (indirect) network effects. The reason behind this is the nature of competition between the services involved in this case, namely enterprise communication services. In the Microsoft media player case, the tying interfered with competition between the various media players available on the market at the time. In this regard the General Court and Commission found that the tying practices will probably eliminate the incentives of consumers to search for competing alternatives to Microsoft’s WMP since it is offered to them for free and provides them with the same basic functionality with an acceptable level of quality (decision par. 848, judgment par. 1041). Since most consumers would indeed be interested in having a media player that works with the most common video and audio forms, it is easy to see how the tying by Microsoft would create a foreclosure effect in the market for digital media players. When looking at Slack’s current dispute with Microsoft, however, the situation is clearly more complex.

The competitive relation between Slack and Microsoft concerns primarily their enterprise communication services. Accordingly, in its tying complaint, Slack’s claim appears to be focused on the tied product (Teams) market. When it comes to foreclosure, unlike in the case of Microsoft WMP, it is not entirely evident here that the mere pre-installation of enterprise communication software would suffice to create a foreclosure effect. The choice of incorporating a specific software solution throughout the entire structure of a corporation will certainly depend on more factors than whether it is a pre-installed option. This is particularly so when adoption entails also yearly membership fees as with most of the utility packages offered by both Slack and Microsoft. For small-scale users that intend to use the ‘free’ version of such software, however, Microsoft’s strategy may nudge them into choosing, switching or sticking to Teams instead of considering competing alternatives like Slack. Such customers are likely to be interested in only in the basic functionality of enterprise communication software rather than in the more distinct features that set services like Slack aside from Teams. To what extent these circumstances will impact the foreclosure effect that may be created by Microsoft’s (alleged) tying practices remains to be seen if the Commission picks up the case. What is certain, however, is that if the case is picked up, the Commission will have to go to great(er) lengths to prove the foreclosure effect of Microsoft’s business practices as claimed to exist by Slack. Doing so would finally allow current practice to turn the page on its previous per-se approach to tying and move on to the desired effects-based approach.

 

Conclusion

Although Slack’s complaint seems to have received little attention and appears to have gone off the radar, the materialization of this complaint could be result in a significant development of current practice in tying cases. In picking up the case the Commission will have the chance to provide more legal certainty regarding its approach to multi-sided platforms and finally truly follow through on its claim to engage in an effects analysis in tying cases.

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Daniel Mandrescu

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Ph.D. Fellow, Europa Institute, Leiden University

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