[net.legal] Another view on software protection

dmt@mtgzz.UUCP (d.m.tutelman) (08/28/85)

> Re: legality of bundling with hardware.
> 
> It is indeed illegal to refuse to sell software w/o the hardware, but that
> does not deter people from doing it.  

Would someone who knows please take a crack at this?

I was under the impression that "bundling" was an anti-trust offense.
That is, it's not illegal per se, but is illegal for those whose
"market power" makes them a monopoly.  Thus IBM couldn't do it,
but the small turnkey system vendor is perfectly legal.

			Dave Tutelman
			Physical - AT&T Information Systems
				   Holmdel, NJ 07733
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doc@cxsea.UUCP (Documentation ) (08/31/85)

> > Re: legality of bundling with hardware.
> > 
> > It is indeed illegal to refuse to sell software w/o the hardware, but that
> > does not deter people from doing it.  
> 
> Would someone who knows please take a crack at this?
> 
> I was under the impression that "bundling" was an anti-trust offense.
> That is, it's not illegal per se, but is illegal for those whose
> "market power" makes them a monopoly.  Thus IBM couldn't do it,
> but the small turnkey system vendor is perfectly legal.

"Product tying" is illegal per se, by virtue of decisions under the Sherman
Act. To have a case of product tying, the vendor must be selling two
products, the tied product (the one everybody wants) and the tying product
(which nobody wants, but has to buy anyway in order to get the one they
really want). The tied product must have market power; that is there must be
substantial demand for it. IBM could probably get away with making you buy a
PC to get IBM software, but not the other way around.

Look at it this way: product tying is normally illegal because it produces
an artifical demand for a product (the tying product) by linking it to
a product for which there is an organic demand (the tied product). So, the
crucal distinction here is that the tied product be the dominant product in
it's particular market.

This was the rule articulated in the Data General antitrust litigation. A
number of companies were selling DG-NOVA clones, but DG would not sell to
end-user the OS (RDOS) unless the end-users also purchased a NOVA. The
competitors sued and prevailed. The court decided that the relevant market
(for the purpose of deciding whether or not DG's RDOS had market power) was
NOVA-compatible operating systems, that would run RDOS applications, not
computers in general. 

Similarly, the IBM PC has all kinds of market power (PC compatible cpu's),
while IBM software has almost none. Requiring you to buy a PC in order to
buy IBM software is not per se product tying (but is sheer stupidity from a
business standpoint; why make an unpopular product that much more difficult
to obtain). Requiring you to buy their software in order to buy a PC,
however, is a different situation, because the PC is popular enough to
leverage artificial demand for the software. See the difference?