... decline, and other players (e.g. Apple's Quicktime) hav

1
Prepared for the Training Workshop at Quang Binh,
Vietnam
Abuse of dominance in hi-tech markets and network
industries An Introduction based on the
Microsoft case
2006. 1. 12
In Ok Son Korea Fair Trade Commission
2
Outline of the presentation

• Nature of the abuse of dominance analysis in
  hi-tech industries
• 2. Microsoft case in U.S.
• 3. Microsoft case in EU
• 4. Microsoft case in Korea
• Overview
• Time-line procedures
• Facts Assessments
• Streaming Digital Media System
• Instant Messenger
• Remedies
• Conclusion

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1. Nature of the abuse in hi-tech industries
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Network effects increasing returns
Network effects occur where a products value
grows as more people use it. The more people use
the product, the more valuable it becomes for
each individual user.

• Direct vs. indirect Telephone vs. WMV format
  contents
• Applications barrier to entry

Tipping occurs when network effects become so
large that consumers are left with no other choice
Nature of the abuse in hi-tech industries
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Positive feedback effects
Importance of standard setting
Winner takes all
Dynamic competition fast moving players
Nature of the abuse in hi-tech industries
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2. Microsoft case in U.S.
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Tying (1/4 issues) Windows PC OS w/ IE
Judge Jackson ruled against MS(2000)
Circuit court remanded tying case(2001)
Settlement (2002)

• Illegal tying(Per Se)
• Structural(including corporate split) remedies
• conduct remedies (including code removal)

SPAD etc.
Required further trial re. Efficiency
balancing(Rule of Reason)
in U.S.
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3. Microsoft case in EU
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Issue Windows PC OS w/ WMP
( Refusal to offer interoperability information)
Legal assessment under Article 82
Dominance in the PC OS market
Two separate products
Harm to competition
No choice for customers
in EU
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• Windows Media Player does not have a discernible
  quality advantage
• Yet, from 1999 until now,
• Microsoft has gone from having a relatively
  limited presence in the market to being the clear
  leader in terms of media player and media format
  usage
• RealNetworks has experienced an equivalent
  decline, and other players (e.g. Apples
  Quicktime) have not experienced growth

Impacts of MS tying
Possibility that the market will tip (à la
Netscape)
Implications for neighboring markets(e.g. digital
media contents)
in EU
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Remedies
in EU
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4. Microsoft case in Korea
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It is illegal to condition the sale of a tying
product upon the purchase of a tied product.
Relevant law re. tying

• Dominance in tying product market
• Tying vs. tied products distinct
• Coercion purchase against will
• Restraints of competition
• (Balance of anti-competitive effects
  efficiency)

Requirements
in Korea
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Overview
3 tying cases

• Server OS w/ WMS
• PC OS w/ WMP
• PC OS w/ IM

Share many aspects of hi-tech networks industries

• Networks effects increasing returns, Tipping,
  Positive feedback effects, Importance of standard
  setting, Winner takes all

But stable monopoly in OS?
Winner by superior products?
in Korea
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Time-line

• 2001.9.5. Complaint for IM tying by DAUM(Korean
  IM business)
• 2004.4. WMS WMP tying issues by KFTC
  initiative
• 2004.10.28. Complaint for WMS WMP tying by
  RealNetworks
• 2005.3.31. Transfer of Examination Report by
  examiners to full
• Commission
• 2005.7.1310.26 7-time Oral Hearings
• 2005.10.13 Settlements Withdrawal by
  RealNetworks
• 2005.11.11 Settlements Withdrawal by DAUM
• 2005.12.7 Conclusion announcement by KFTC
• 2006.1. Release of decision(expected)

in Korea
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50 month review (longest in Korean competition
case history)
7 time oral hearings
Procedures
6 time discussions by full Commission
Exceptionally many experts by both sides
in Korea
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Facts Assessments

• Core products in SW industry
• Server OS PC OS

Tying Product

• WMS, WMP, IM
• Increasing importance in New Economy

Tied Product
in Korea
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Facts Assessments
in Korea
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Facts Assessments

• Market dominance in OS market

• 78 in PC server OS market
• 99 in PC OS market

• Late entry into tied product market

• Drastic M/S increase by leveraging

in Korea
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Streaming Digital Media System
What is it?
in Korea
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Streaming Digital Media System
What happened?

in Korea
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Streaming Digital Media System
Tipping to Windows system(worse than in EU)
in Korea
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Instant Messenger
in Korea
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Instant Messenger
MS messenger M/S trend
in Korea
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Remedies
Pure Unbundling (Windows server OS w/o WMS)
WMS

• 2 versions PC OS
• Unbundling Must carry
• Another Windows PC OS w/o WMP IM
• Current OS added w/ competing MP IM download
  icon
• Monitoring body
• Surcharges of 31M

WMP IM
in Korea
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Remedies
in Korea
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Conclusion
Big case problem
Overwhelming impacts
Continuing necessity for healthy competition
under sound competition principles
Careful review procedure required
in Korea