Harmful Software Licensing Practices in the Cloud: Is the CMA’s Proposed Remedy Desirable?

Cloud services have rapidly established themselves as a crucial resource for numerous economic operators globally, including those operating within the UK economy. Each year more and more businesses and organisations are migrating their workloads to the cloud and benefiting from the evident advantages that cloud computing brings. Given the myriad of industries that can benefit significantly from investment and innovation in cloud services, it is imperative that competition is fostered and protected in markets providing such services.

The UK authorities have been investigating the competitiveness of cloud services in the UK. In October 2022, Ofcom began a market study on the provision of cloud services in the UK to assess whether these markets are functioning effectively and if any regulatory measures are necessary. The following year, in its final report, Ofcom decided to refer UK public cloud infrastructure services to the Competition and Markets Authority (‘CMA’) for a market investigation.

Accordingly, the CMA was tasked with assessing whether ‘any feature, or combination of features’ of markets in the supply of public cloud infrastructure services ‘prevents, restricts or distorts competition’ in connection with the supply of cloud services in the UK or a part thereof. Where the CMA determines that such features (or a combination of them) exist, it will have found an adverse effect on competition (‘AEC’), which it can then remedy directly through its own action or indirectly by recommending action to be taken by others.

The CMA is required to adopt its Final Decision Report by 4 August 2025. It has, however, recently published a provisional decision (‘Provisional Decision Report’), which found that there are AECs in the UK cloud services markets and which set out proposed remedies to address the AECs in question.

The CMA’s Provisional Decision Report on cloud services has shone a spotlight specifically on Microsoft’s software licensing practices – inquiring whether these practices are harming competition in this vital sector of the UK economy. The CMA’s focus was motivated by two factors: (i) the fact that the majority of the submissions received by the CMA emphasising concerns about software licensing focused on Microsoft; and (ii) the fact that the CMA found that there are indicators that Microsoft has significant market power in cloud services.

The CMA has (provisionally) found that Microsoft’s software licensing practices give rise to an adverse effect on competition in cloud services markets in the UK. The CMA adopted a conceptual framework focusing on (partial) foreclosure to assess the alleged harmful nature of Microsoft’s licencing practices. Specifically, it evaluated whether Microsoft had the ability to foreclose its rivals on the (downstream) markets for cloud services, whether it had the incentive to do so, and whether its software licensing practices have harmed competition in the markets for cloud services. The CMA found that all found that all of these conditions for partial foreclosure were fulfilled and therefore that Microsoft’s software licensing practices give rise to an AEC in cloud services markets in the UK.

In order to deal with this adverse effect on competition, the CMA has proposed an indirect remedy: in its Provisional Decision Report, it is proposing that it recommend to the Board of the CMA to prioritise initiating a Strategic Market Status (‘SMS’) investigation (under the Digital Markets, Competition and Consumers Act 2024 (‘DMCCA’)) into Microsoft’s digital activities concerning cloud services and, if an SMS designation is made, ‘to consider imposing appropriate interventions’. On the face of it, this proposed remedy might seem like a reasonable step – after all, the DMCCA is designed for complex digital market regulation. However, the decision to opt for a DMCCA-focused remedy raises a number of significant concerns, which ultimately cause one to question the desirability of this remedy.

A central concern is the issue of timing. In fast-moving digital markets, swift intervention can be critical in preventing further harm to competition. This urgency is especially pronounced in cloud services. Indeed, the OECD has highlighted the need for timely remedies in these markets, citing in particular the risks of lock-in effects. The DMCCA was introduced, in part, to address this need for swift remedial action. The CMA’s proposal in its Provisional Decision Report regarding Microsoft’s licensing practices fails to reflect this sense of urgency. Instead of acting promptly, the CMA is proposing a delayed, indirect remedy that will only materialise (assuming it will materialise) following one if not two additional legal processes: first, designating Microsoft with Strategic Market Status, a step that may take nine months or longer, and second, initiating a pro-competitive intervention, which could take an additional nine months or more. These delays, which could be compounded by possible applications for judicial review, mean that any remedies may not take effect until well over a year and a half after the Final Decision Report is published. Thus, under the CMA’s current plan, the harm from Microsoft’s licensing practices may not be addressed until 2027 or beyond. In contrast, the CMA has the authority under its existing market investigation regime to impose binding remedies within six months of publishing its final report in August 2025.

Another crucial drawback of the CMA’s proposed approach is that it depends upon additional legal processes, as well as the actions of another entity (i.e., the Board of the CMA). A designation process must be followed (which can involve the imposition of certain conduct requirements) and, possibly in addition, a pro-competitive intervention process would follow it in order to allow for the CMA to impose by order certain remedies. Depending on their existing priorities, current DMCCA workload and their available resources, the CMA Board may refuse to act on the on the recommendation, or at the very least refuse to act on it immediately or within a short timeframe. (Importantly, a recent CMA press release makes it clear that the next SMS designation process will not be initiated before early 2026.) More importantly, even if the CMA Board were to initiate an SMS designation process against Microsoft, uncertainty would inevitably exist regarding the operation and eventual outcome of that process. The designation of Microsoft is certainly not a given. The DMCCA is a very new piece of legislation and remains untested in the courts; the exact meaning of key terms and the specific working of legal tests thus both remain to be definitively established. Even if Microsoft were designated, it remains unclear what remedies might be imposed or how effective they will be in dealing with the licensing practices that the CMA has found to be harmful to competition.

What compounds the issues of timing and uncertainty is the fact that appropriate remedies exist that would allow the CMA to deal sufficiently, and in a prompt manner, with the identified harmful software licencing practices under the market investigation regime. There is no need for the CMA to ‘kick the can down the road’ in the hope that ‘appropriate’ (but currently undetermined, and thus uncertain) remedies can be found under the DMCCA regime. The competition concerns identified by the CMA – raising rivals’ costs through discriminatory pricing and leveraging market power through refusals to supply – are based on rather traditional theories of harm. The most obvious remedies here would involve imposing obligations to trade on a fair, reasonable, and non-discriminatory (‘FRAND’) basis. In fact, appropriate (FRAND-based) remedies have been identified during the market investigation process. These remedies could be implemented directly and monitored effectively using the CMA’s powers under the market investigation regime.  

The CMA’s current position – while legally defensible – may prove strategically short-sighted. In fast-moving digital markets, remedial delay can equate to remedial failure. Despite acknowledging that Microsoft’s licensing practices are harmful to competition, the CMA has proposed an approach that would significantly delay remedial action in a market that is vulnerable to ‘tipping’. It thus risks missing an opportunity to safeguard innovation, consumer welfare, and, ultimately, economic growth in this key sector. The CMA should reconsider its proposed approach to software licensing: specifically, it should use its powers under the market investigation regime to impose effective (FRAND-based) remedies that address the identified harmful software licensing practices in a prompt manner. Doing so would bolster competition in the cloud services markets to the benefit of UK consumers.

For a more detailed analysis by the author of the CMA’s proposed approach for dealing with software licensing practices that harm competition in cloud services markets, click here. That paper was written with the support of the Coalition for Fair Software Licensing.