1. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 10. 12. 2006 Hwang Lee Not for citation and/or distribution beyond OECD Korea Regional Centre for Competition. Ideas of this material are purely personal and do NOT represent the Korean courts or Korea Fair Trade Commission by any sense. History & Outlook of the Microsoft Case in Korea and Application of Korean Antitrust Law in Hi-tech Industries Prepared for the presentation at OECD Korean Regional Centre

2. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 1. 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 5. Q & A Outline

3. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 1. Nature of the Abuse of Dominance Analysis in Hi-tech Industries Analysis in Hi-tech Industries

4. Abuse of dominance in hi-tech industriesU.S.EUKorea 4 Tipping occurs when network effects become so large that consumers are left with no other choice Network effects occur where a product’s value grows as more people use it. The more people use the product, the more valuable it becomes for each user. Direct vs. indirect : Telephone vs. WMV format contents Applications barrier to entry Network effects & increasing returns Abuse of dominance in hi-tech industries

5. U.S.EUKorea 5 Positive feedback effects Importance of standard setting Winner takes all Dynamic competition – fast moving players Abuse of dominance in hi-tech industries

6. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 2. Microsoft case in U.S.

7. Abuse of dominance in hi-tech industriesU.S.EUKorea 7 Judge Jackson ruled against MS(2000) Illegal tying(Per Se) Structural remedies (including corporate split) conduct remedies (including code removal) Illegal tying(Per Se) Structural remedies (including corporate split) conduct remedies (including code removal) SPAD & etc. Required further trial re. Efficiency balancing(Rul e of Reason) Circuit court remanded tying case(2001) Settlement (2002) Tying (1/4 issues) : Windows PC OS w/ IE U.S.

8. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 3. Microsoft case in EU

9. Abuse of dominance in hi-tech industriesU.S.EUKorea 9 Legal assessment under Article 82 Dominance in the PC OS market Dominance in the PC OS market Harm to competition Two separate products No choice for customers No choice for customers Issue: Windows PC OS w/ WMP (+ Refusal to offer interoperability information) EU

10. Abuse of dominance in hi-tech industriesU.S.EUKorea 10 Possibility that the market will “tip” (à la Netscape) 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. Apple’s Quicktime) have not experienced growth Impacts of MS’ tying Implications for neighboring markets (e.g. digital media contents) EU

11. Abuse of dominance in hi-tech industriesU.S.EUKorea 11 Remedies Real Player WMP Quicktime Player WMP PC (Windows) WMP PC (Windows) Fines of 497M Euro EU

12. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 4. Microsoft case in Korea

13. Abuse of dominance in hi-tech industriesU.S.EUKorea 13 01.9.5 Complaint for IM tying by DAUM(Korean IM business) 04.4 WMS & WMP tying issues by KFTC initiative 10.28 Complaint for WMS & WMP tying by RealNetworks 05.3.31 Transfer of Exam. Report by examiners to Commission 7.13~12.6 7-time Oral Hearings + 6-time Deliberations 10.13 Settlement & Withdrawal by RealNetworks(761M $) 11.11 Settlement & Withdrawal by DAUM(30M $) 12.7 Conclusion announcement by KFTC 06.2.24 Formal decision(unbundling/must-carry + 32M $ fine) 7.4 Rejection of the request to stay sanctions(High Court) 8.24 Release of Windows XP K/KN + Windows Server 2003 K Present MS’ appeal to the Seoul High Court being reviewed 01.9.5 Complaint for IM tying by DAUM(Korean IM business) 04.4 WMS & WMP tying issues by KFTC initiative 10.28 Complaint for WMS & WMP tying by RealNetworks 05.3.31 Transfer of Exam. Report by examiners to Commission 7.13~12.6 7-time Oral Hearings + 6-time Deliberations 10.13 Settlement & Withdrawal by RealNetworks(761M $) 11.11 Settlement & Withdrawal by DAUM(30M $) 12.7 Conclusion announcement by KFTC 06.2.24 Formal decision(unbundling/must-carry + 32M $ fine) 7.4 Rejection of the request to stay sanctions(High Court) 8.24 Release of Windows XP K/KN + Windows Server 2003 K Present MS’ appeal to the Seoul High Court being reviewed Time-line & Current Status Korea

14. Abuse of dominance in hi-tech industriesU.S.EUKorea 14 7 time oral hearings 6 time deliberations by full Commission Exceptionally many experts by both sides 50 month review (longest in Korean antitrust case history) Procedures Korea

15. Abuse of dominance in hi-tech industriesU.S.EUKorea 15 It is illegal for a dominant firm to condition the sale of a “tying” product upon the purchase of a “tied” product. Relevant law re. tying Relevant law re. tying 1. Dominance in tying product market 2. Tying vs. tied products : distinct 3. Coercion : purchase against will 4. Restraints of competition (Balancing of anti-competitive effects & efficiency) 1. Dominance in tying product market 2. Tying vs. tied products : distinct 3. Coercion : purchase against will 4. Restraints of competition (Balancing of anti-competitive effects & efficiency) Requirements Korea

16. Abuse of dominance in hi-tech industriesU.S.EUKorea 16 3 tying cases Server OS w/ WMS PC OS w/ WMP PC OS w/ IM Server OS w/ WMS PC OS w/ WMP PC OS w/ IM Networks effects & increasing returns, Tipping, Positive feedback effects, Importance of standard setting, Winner takes all Share many aspects of hi-tech networks industries But stable monopoly in OS? Winner by superior products? Overview Korea

17. Abuse of dominance in hi-tech industriesU.S.EUKorea 17 Core products in SW industry: Server OS & PC OS Core products in SW industry: Server OS & PC OS Tying Product Tying Product WMS, WMP, IM Increasing importance in New Economy WMS, WMP, IM Increasing importance in New Economy Tied Product Tied Product Facts & Assessments Korea

18. Abuse of dominance in hi-tech industriesU.S.EUKorea 18 WMP PC (Windows) Real Player GOM Player Quicktime Player Microsoft’s tying Facts & Assessments Korea

19. Abuse of dominance in hi-tech industriesU.S.EUKorea 19 Market dominance in OS market Late entry into tied product market Drastic M/S increase by leveraging 78% in PC server OS market 99% in PC OS market 78% in PC server OS market 99% in PC OS market Facts & Assessments Korea

20. Abuse of dominance in hi-tech industriesU.S.EUKorea 20 What is it? Streaming Digital Media System Korea

21. Abuse of dominance in hi-tech industriesU.S.EUKorea 21 http://www.microsoft.com/windows/windowsmedia/software/Playerv7.aspx “WMP is an application” Korea

22. Abuse of dominance in hi-tech industriesU.S.EUKorea 22 Source: IDC, 2005 (data are worldwide averages) Windows 92% Other Linux 2% 3% UNIX 3% Revenue from operating systems shipped on OEM streaming servers in 2004 MS Dominance in Streaming Media Server Market Korea

23. Abuse of dominance in hi-tech industriesU.S.EUKorea 23 What happened? Streaming Digital Media System Korea

24. Abuse of dominance in hi-tech industriesU.S.EUKorea 24 Streaming Digital Media System Increasing dominance in digital contents market & digital communication market Foreclosure of tied product markets From middleware Fortifying market dominance Removing potential threats to tying product markets Two-side effects Tipping to Windows system(worse than in EU) Korea

25. Abuse of dominance in hi-tech industriesU.S.EUKorea 25 Instant Messenger Korea

26. Abuse of dominance in hi-tech industriesU.S.EUKorea 26 MS messenger M/S trend Instant Messenger Korea

27. Abuse of dominance in hi-tech industriesU.S.EUKorea 27 Remedies Pure Unbundling (Windows server OS w/o WMS) Windows Server 2003 R2 KN w/o WMS WMS 2 versions PC OS : Unbundling + Must carry (only if wished) Windows XP KN w/o WMP & IM Windows XP K w/ competing MP & IM download links Monitoring body Surcharges of 31M $ WMP & IM Korea

28. Abuse of dominance in hi-tech industriesU.S.EUKorea 28 Remedies Real Player WMP Quicktime Player WMP PC (Windows) WMP PC (Windows) RealPlayer Quicktime GOM Player Korea

29. Abuse of dominance in hi-tech industriesU.S.EUKorea 29 Retrospect Big case problem Overwhelming impacts Long & complicated review & procedure Difficulties to litigate in foreign country + agent problem → should be SMART Korea

30. 마스터 제목 스타일 편집 마스터 텍스트 스타일을 편집합니다 둘째 수준 셋째 수준 넷째 수준 다섯째 수준 Thank you