Technological Tying in the Computer Industry: When Does it Contravene s 46 of the Trade Practices Act?

Abstract

While Australia is still heavily reliant on 'old economy' industries, such as primary production and manufacturing, there is now general recognition of the importance of high-value 'new economy' industries. The term 'new economy' refers to industries such as computer software and hardware, the internet, mobile telephony, biotechnology and others that are primarily based on intellectual property rights (IP rights) and that are undergoing rapid technological change. The appropriate relationship between competition law and IP rights has been the subject of review both in Australia and in the United States of America. In Australia, the application of the Trade Practices Act 1974 (Cth) (TPA) to IP rights has been the subject of an independent inquiry and the Government has announced that it proposes to amend the TPA to take account of the recommendations of the Review Committee. In Washington D.C., the Federal Trade Commission and the Department of Justice have, since February 2002 been conducting lengthy public hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy. In the past, the reward/incentive function for IP rights has been subordinated to the policy objective of competition law; however, the stringent application of competition law may result in a loss of consumer welfare. Developments in the 'new economy' industries are throwing up new problems for competition lawyers. The purpose of this paper is to consider one such problem, namely, the tying or bundling of two or more products into one integrated product. Increasingly, firms within the computer industry are bundling one or more separate products through technological integration. Bundling is also occurring across different sectors in 'new economy' industries. The courts in Australia have very little experience of the complex issues that arise when allegations are made about anti-competitive bundling or tying in relation to the supply of computer products. The paper falls broadly into two parts. The first part considers some special characteristics of computer based markets, and the elements that need to be established in order to make out a contravention of s 46 of the TPA.The second part of the paper considers two different types of technological tying: first, the tying of two separate products through the creation of one integrated product; and secondly, tying the sale of a product with its repair or servicing in such a way that independent service organizations (ISOs) are foreclosed from the market. Both types of technological tying are open to a claim that they are anti-competitive and constitute a form of leveraging contrary to s 46 of the TPA.