Microsoft’s Micro-market: Microsoft sued over harmful practices

April 25, 2021

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2 min read

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What's going on here?

A UK software reseller, ValueLicensing, has filed a claim with the High Court against Microsoft for abuse of its position of dominance. ValueLicensing is seeking £270m in damages.

What does this mean?

Derbyshire-based ValueLicensing makes its money by reselling unused licences to various software, including the Microsoft Windows operating system and the Microsoft Office suite of applications. By doing this, it claims, it can save its customers 70% of the costs of their IT software, compared with buying from the developer.

It alleges that Microsoft has damaged the second-hand software market, worth billions of pounds, through harmful contractual practices in the UK and EU. These practices, it claims, have made it more difficult for people to resell licences. An example of such practices include a contractual clause forbidding the resale of a perpetual licence, in exchange for a discount. Another way is through incentivising companies to switch to a subscription to their cloud-based platform, Office 365. This, ValueLicensing states, has resulted in customers paying more for software, thus harming consumer welfare.

If proven correct, this would violate EU competition law, which outlaws such practices by companies that have a dominant position in a market. The figure ValueLicensing proposes as damages are based on loss of sales from 2016 onwards, meaning that as the case drags on, it could increase further.

What's the big picture effect?

As part of its claim, ValueLicensing points to the £1m it saved one NHS trust on IT software, by allowing them to use resold software as compared to Microsoft’s own offering at the time. By making it more difficult to purchase individual licences as opposed to the cloud-based offering, Microsoft has, in effect, drained the second-hand software market of unused subscriptions to Microsoft Office.

ValueLicensing’s business model relies on purchasing licences from companies who have either switched to the cloud or have gone insolvent. As fewer companies are now using licences, there are fewer for it to purchase. Not only does this reduce the quantity they are able to sell, but also the discounts which are offered on Office 365 mean that the value achieved by purchasing second-hand has vastly reduced.

Microsoft has an unquestionably dominant position in the workplace software market, with a majority of companies around the world relying on Microsoft Office to function. Therefore, if it is found that they have forced many of these companies to overpay for their software, the damage could be huge both financially and reputationally.

This claim comes after a year in which Big Tech has seen the most aggressive calls for stricter regulation on its allegedly harmful practices, particularly in the area of competition. Google, Apple and Facebook have also all received multiple claims around the world calling into question their business practices in sectors in which they are dominant, such as advertising and mobile gaming. Microsoft could soon be the next head on the chopping block.

Report written by Joshua White

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