XYZ And Microsoft Corporation, Microsoft Corporation (India) Private Limited

Case No. 03 of 2024 Page 1 of 17 COMPETITION COMMISSION OF INDIA Case No. 03 of 2024 In Re: XYZ Informant And Microsoft Corporation One Microsoft Way, Redmond, Washington 98052, United States of America. ...Opposite Party No. 1 Microsoft Corporation (India) Private Limited T-10 and T-11 3rd Floor, Malik Buildcon Plaza 1, Plot No. 2, Pocket -6, Sector 12, Dwarka, New Delhi – 110007. ...Opposite Party No. 2 CORAM Ms. Ravneet Kaur Chairperson Mr. Anil Agrawal Member Ms. Sweta Kakkad Member Mr. Deepak Anurag Member Order under Section 26(2) of the Competition Act, 2002 1. The present Information has been filed by XYZ (Informant) under Section 19(1)(a) of the Competition Act, 2002 (Act), against Microsoft Corporation (Opposite Party 1 /OP- Case No. 03 of 2024 Page 2 of 17 1) and Microsoft Corporation (India) Private Limited (Opposite Party 2 /OP-2), collectively referred to as Microsoft, inter alia alleging contravention of the provisions of Section 4 of the Act. The Informant has sought confidentiality over his identity in the Information. 2. It has been stated in the Information that OP-1 is the world's largest and leading developer of personal-computer software systems and applications and is best known for its software products, including Microsoft Windows Operating Systems (Windows OS), the Microsoft Office suite, etc. OP-2 is an Indian subsidiary of OP-l. 3. It has been submitted by the Informant that since 2015, when Microsoft released its Windows 10 OS edition, it was bundled with pre-installed antivirus software, Microsoft Defender. If any Original Equipment Manufacturer (OEM) wants to manufacture a Windows OS-based product, they must mandatorily bundle it with Microsoft Defender. 4. The Informant stated that starting with Windows 10, separate commercial arrangements to pre-install and pre-activate third-party antivirus software are no longer possible. As only one default antivirus app is allowed on Windows devices, third-party developers may get their software pre-installed through agreements but cannot have it pre-activated. Being set as the default is essential for an antivirus program's functionality, including performing automated background system scans—a core feature distinguishing antivirus software. Without default status, third-party apps lack access to critical features like real-time protection, on-demand scanning, and automatic updates, which are only available to the default antivirus app. Consequently, third-party antivirus apps may struggle to compete effectively and could face elimination from devices due to their inability to function optimally. 5. The Informant identified three key challenges faced by third-party antivirus developers in competing with Microsoft's bundled antivirus software, Microsoft Defender: a) Antimalware application programming interface (API) Access: Third-party developers must sign the Antimalware API License and Listing Agreement to access Case No. 03 of 2024 Page 3 of 17 Microsoft's Antimalware API, which allows compatibility with Windows OS. However, this agreement imposes compliance obligations on competitors without offering protective guarantees, rendering it one-sided and potentially anti-competitive. b) Entry into Windows OS: Competitors can only enter Windows OS via the Microsoft Store, sideloading, or OEM agreements. Entry through the Microsoft Store requires joining the Microsoft Virus Initiative (MVI) program, while sideloading is a complex process with multiple user security warnings. OEM agreements enable pre-installation but not default activation since Microsoft Defender comes pre-installed and pre- activated. c) Functionality: Smooth operation of antivirus software on Windows OS requires features such as real-time protection, background scanning, update notifications, and subscription renewal alerts, all of which are restricted to the default antivirus app, leaving third-party apps at a disadvantage. 6. The Informant submitted that even third-party antivirus developers compliant with Microsoft's Antimalware API License and Listing Agreement must join the MVI program to operate effectively on Windows OS. The MVI program is ostensibly designed to align third-party security solutions with Microsoft's technology and strategy. However, membership is conditional upon fulfilling several requirements, including signing a non- disclosure agreement (NDA), entering into the Antimalware API License and Listing Agreement, and submitting their software for periodic testing and performance review by Microsoft. The program requires developers to disclose substantial commercial and proprietary technological information, which is then allegedly exploited by Microsoft under the guise of ensuring security and compatibility. While MVI members gain certain advantages not available to non-members, they also relinquish significant control and competitive information, leaving them vulnerable to Microsoft’s commercial strategies. 7. The Informant further alleged that Microsoft gains extensive telemetry and app usage data from MVI members, providing it with access to sensitive information on devices running Windows OS. Microsoft decides what data is shared with partners and allegedly uses this Case No. 03 of 2024 Page 4 of 17 data to commercially exploit competitor applications. By analysing the success factors of popular competitor apps, Microsoft integrates those features into its bundled Microsoft Defender, thereby enhancing its own product and ensuring third-party antivirus software cannot effectively compete. This dynamic creates a significant disincentive for antivirus developers to join MVI, as it compromises their competitive position and proprietary information. 8. The Informant also submitted that non-MVI members face significant restrictions in accessing Windows OS, as they cannot use pre-installation or the Microsoft Store and are limited to user-initiated sideloading, which is hampered by disproportionate warnings and, in some cases, outright installation blocks by Microsoft. OEMs avoid pre-installing non- MVI antivirus apps due to their inability to function smoothly under Microsoft’s restrictions. Additionally, Microsoft provides non-MVI developers with only a one-week notice for OS updates, making it nearly impossible to ensure timely compatibility. These limitations render third-party antivirus software commercially unviable without MVI membership, effectively forcing developers to join the program to gain access, compatibility, and visibility in the Microsoft Store. 9. For the purpose of the present matter, the Informant has submitted that relevant markets should be considered as the ‘market for Licensable Operating Systems (OSs) for desktops in India’ and the ‘market for Computer security (antivirus) software for Windows OS in India’. The Informant has further asserted that Microsoft enjoys a dominant position in the relevant market for Licensable Operating Systems (OSs) for desktops in India and in the market for Computer security (antivirus) software for Windows OS in India. It has been averred that a substantial majority of desktop manufacturers in India utilize the Windows OS, which accounts for approximately 70% of the market share in the country, thereby establishing Microsoft's monopoly in the market for licensable operating systems for desktops in India. Additionally, the Informant has asserted that Microsoft Defender, being pre-installed on all devices operating on Windows OS manufactured post its launch, is presumed to possess a significant market share. By virtue of its pre-installation on 100% of Windows OS devices, Microsoft Defender is alleged to have an absolute monopoly in the market for computer security (antivirus) software for Windows OS in India. Case No. 03 of 2024 Page 5 of 17 10. Based on the above, the Informant has alleged that Microsoft is abusing its dominant position in the aforementioned markets through the following conduct: 10.1 Microsoft has excluded potentially more efficient competing antivirus software vendors in India by preinstalling and setting Microsoft Defender as the pre activated default antivirus app in Windows OS, thereby violating Section 4(2)(a)(i) of the Act. 10.2 Microsoft has illegally hindered the development and market access of rival security software developers by tying and bundling its own security software, Microsoft Defender with Windows Operating System, thereby violating Section 4(2)(b)(ii) and Section 4(2)(c) of the Act. 10.3 Microsoft has illegally hindered the development and denied market access of rival security software developers by making membership of MVI compulsory in order to get listed in the Microsoft Store and work smoothly in Windows OS, thereby violating Section 4(2)(c) of the Act. 10.4 Microsoft is leveraging its dominance in the market for desktop operating system to protect its position in the market for security software/antivirus software developers in India, thereby violating Section 4(2) (e) of the Act.