Microsoft broke British and European competition laws, UK reseller tells High Court

Redmond acknowledges £270m sueball – so the battle's on

Microsoft's attempts to kill off resellable perpetual software licences infringe the EU constitution and UK competition law alike, according to the legal filings of a reseller suing Redmond for £270m in London's High Court.

Details of ValueLicensing's lawsuit against Microsoft are now in the public domain after the US-based software megalith filed an acknowledgement of service earlier this month.

The British reseller alleges Microsoft's general licensing terms for its B2B software products broke UK and EU competition law – specifically, the UK's Competition Act 1998 and two articles of the Treaty on the Functioning of the European Union (TFEU).

Taken together, ValueLicensing says all of these amount to Microsoft abusing its dominant position in the global desktop business to destroy the market for resellable perpetual licences, persuading customers to consume software as-a-service through heavily discounted subscription offers that also extinguish their old licences.

"Microsoft has effectively been paying those customers (via those discounts) to protect Microsoft from competition, by restricting the supply of pre-owned licences to Microsoft's competitors such as VL," complained the particulars of claim [PDF].

Perpetual licence

As most Reg readers knows, software licensing in days of yore was simple: you bought a licence from the vendor to use the software forever. This was called a perpetual licence and these could be bought and sold as standalone, tradeable commodities. Microsoft also offered an upgrade package through its Software Assurance product, which effectively meant your perpetual Office 2010 licence could be converted into an Office 2016 licence.

With the rise of software-as-a-service came major change: jumping aboard the IT vendor sales bandwagon, Microsoft began offering SaaS subscriptions for all its major products, including desktop Windows, Windows Server, and the Office productivity suite among others.

ValueLicensing, which resells perpetual licences, saw Microsoft's efforts to convert perpetually licensed customers into subscribers as an abuse of its dominant market position, alleging to the High Court:

As part of its efforts to convert enterprise customers from perpetual licences to subscriptions... Microsoft has recently shortened the support period for its perpetually licenced products. Office 2019 has only seven years of support in total, and Office 2021 will have five years... Microsoft's breaches of the competition rules arise from its sustained – and ongoing – campaign to stifle the sale of pre-owned licences for Microsoft software in the UK and EEA.

ValueLicensing's managing director, Jon Horley, asserted to The Register: "Once a licence is placed onto the market in Europe, it is protected from the vendor effectively, they've exhausted their rights once it is placed onto the market."

Microsoft has changed its licensing terms and conditions over the years, including a major 2019 change that raised the price of hosting its software on rival public cloud providers' metal. These changes hadn't passed ValueLicensing by, with the firm stating that "until February 2021, [Microsoft's full licensing terms] were regularly published as a single document; the last English version ran to over 75,000 words." They can be found on the Microsoft website as a series of webpages.

For the legally inclined, ValueLicensing's precise case hinges on alleged infringements of section 18 of the Competition Act 1998 ("abuse of dominant position"), Article 102 TFEU and Article 54 of the EEA Treaty(PDF, "abuse… of a dominant position"). They also sue under section 2 of the Competition Act ("preventing, restricting or distorting competition") and Article 101 TFEU.

Microsoft is understood to be preparing a challenge to the High Court's jurisdiction to hear the case, a standard procedural move for US multinationals being sued in the English courts. This is likely to be heard early next year. The company has signalled its intent to contest the case, formally brought in the High Court against Microsoft Corporation in the US, Microsoft Ltd in the UK, and Microsoft Ireland Operations Ltd.

When asked about the size difference between Microsoft and ValueLicensing, a cheery Horley said Redmond was "two million times" bigger than his own firm and added: "There are many different ways that you can stay in the game. I've stayed in the game for 17 to 18 years. However long this takes, I'll stay in the game as far as this part is concerned."

The case has gained international attention, including in Germany. Microsoft's spokespeople told (auf Deutsch) a local channel trade news site that a 2019 change in its licensing conditions which soaked up perpetual licences in exchange for subscriptions seemingly wasn't wanted by customers after all.

"The restriction in question supported some customers in their transition to the cloud by allowing them to apply the value of their old licences to a new cloud subscription," said a company spokesman last year. "We are now removing the restriction but continuing to offer the discount on cloud subscriptions, which we believe will benefit our customers as they adopt cloud technologies."

Horley, meanwhile, also asserted that if ValueLicensing won, the effects of the case on the eastern side of the Atlantic would be profound and far-reaching: "Effectively, what we're saying is that almost every single organisation, and then any organisation that has signed up to [Microsoft's allegedly anti-competitive] terms, is effectively party to an [allegedly] anti-competitive agreement. And that includes governments, for example, in the UK with a digital transformation arrangement."

Anti-competitive contracts can be struck down as null and void, meaning ValueLicensing could cause some extremely expensive headaches across the entire European continent for Microsoft's licensing and sales divisions.

If it wins, that is. The Register will be reporting the case as it progresses. ®