Laptop produces and software pre-installation: competition case
With this case we are starting the series of publication devoted to the descriptions of digital cases examined by the Federal Antimonopoly Service of the Russian Federations. The fiches were prepared by the analytical team of the BRICS Competition Centre.
Decision number: №1 11/100-09
Date of the decision: 2009-11-16
Link (official website): https://br.fas.gov.ru/ca/upravlenie-regulirovaniya-svyazi-i-informatsionnyh
On the basis of the complaint of NGO ‘The Center of the Free Technologies’, FAS of Russia launched the investigation of coordinated actions of laptops producers (Acer Inc., ASUSTeK Computer Inc., Dell Inc., Hewlett-Packard Company, Samsung Co. Ltd, Toshiba Corporation) that pre-installed Microsoft Windows OS at their devices, so that consumers had no choice of the OS other than pre-installed. The FAS examined whether the pre-installation of Microsoft Windows OS by OEMs was in breach of article 11 (1) (5) of the Federal law No. 135-FZ ‘On Protection of Competition’ (prohibition of collusion leading to refusal to deal with certain sellers or buyers (customers)).
The relevant market: FAS of Russia did not specifically define the relevant market in this case, but we can assume that the markets affected are the market of laptops and the market of operating systems for PC and laptops.
As was found by FAS of Russia, the above mentioned producers sold more than 90% of laptops with Microsoft Windows OS already preinstalled. The producers did not set a refunding procedure for returning non-activated Microsoft Windows OS, although license agreements between the producer and final users mentioned the return opportunity. Moreover, a similar procedure is set in sub-license agreements between the producers and the Microsoft Corporation. However, FAS of Russia did not find any example of the refunding procedure offered by any defendant in the present case. Therefore, FAS of Russia has made a preliminary conclusion that the producers acted in coordination when they sold preinstalled OS and offered no return procedure to customers.
Based on explanations of defendants and available materials, FAS of Russia decided that:
a) The producers’ actions are based on the evident consumer demand;
b) The market for laptops offers options with other preinstalled OS, as well as with no OS preinstalled;
c) every producer created an independent return procedure for a preinstalled OS. However, less than 0,1% of consumers have ever used the procedure.
Thus, the case against Acer Inc., ASUSTeK Computer Inc., Dell Inc., Hewlett-Packard Company, Samsung Co. Ltd, Toshiba Corporation was closed as there was no breach of article 11 (1) (5) of the Federal law No. 135-FZ ‘On the protection of competition’.
2. Remedies: none.
3. Efficiency Gains: According to the laptop producers, a) each producer follows its own marketing strategy when selling a product and the companies do not engage in any kind of coordination; b) in making decision to preinstall Microsoft Windows OS, the producers mainly respond to the consumers demand, needs and preferences of the end users. OS is a necessary basic component of any laptop and preinstallation allows consumers to use the laptop right away after the purchase. Moreover, the price of a preinstalled Microsoft OS is lower than the price for the autonomous OS version. This leads to lowering of consumer costs. Finally, the demand for laptops with a preinstalled OS other than Microsoft OS is very low.
4. Theories of harm: cartel (collusion leading to refusal to deal with certain sellers or buyers (customers)).
5. Industries affected: C26.4 - Manufacture of consumer electronics; G47.4 - Retail sale of information and communication equipment in specialised stores.
6. Level of the supply chain: data sharing and communication.
7. Type of infringement: Cartel (horizontal collusion between OEM).
8. Sector of activity: C26.4.0 - Manufacture of consumer electronics; G47.4.1 - Retail sale of computers, peripheral units and software in specialised stores.
9. Reasons for opening proceedings: complaint.