2024.06.17. The Fair Economy — Dassault Systèmes Korea, part of the French corporate group Dassault and responsible for domestic sales and marketing of product lifecycle management (PLM) software, has been hit with a corrective order and a fine of 738 million won (about $530,000) for restricting the customers that distributors of its CAD software SolidWorks could deal with.
The Fair Trade Commission recently announced that it had decided on these measures against Dassault Systèmes Korea.
CAD stands for Computer Aided Design and is primarily used for creating technical drawings.
Dassault Systèmes Korea is a dominant player holding about a 40% share of the domestic market for mid-tier 3D CAD software in the mechanical engineering field. From October 2016 to December 2020, the company implemented a policy — called the sales territory protection policy — that granted distributors exclusive sales rights to specific customers in order to prevent competition among its distributors.
Specifically, in the sales process for new SolidWorks licenses, if a dealer initiated sales activities with a specific customer first, other dealers' sales activities were restricted to protect the existing dealer's sales rights to that customer.
Software licenses sold to customers (end users) broadly fall into two categories: "new licenses" (granting the right to use the software) and "maintenance licenses" (granting upgrade rights and other benefits).
In addition, when selling maintenance licenses, the company restricted distributors other than the existing one from approaching customers who were still under a maintenance contract or whose contract had expired less than three months earlier, effectively blocking competition among distributors altogether.
The FTC explained that purchases of CAD software are often constrained from the outset, as the choice is frequently driven by requirements from partner companies or the preferences (familiarity) of development staff. Because collaborative work is essential to the industry, companies often have no choice but to use the same brand as their partner companies. For example, suppliers of Hyundai Motor have little choice but to use the products that Hyundai Motor itself uses or designates.
As a result, once a company starts using a particular product, the lock-in effect and switching costs become substantial, making it difficult to change to a different brand.
Because of these product characteristics, a distributor that secured exclusive sales rights lost any incentive to improve price or service quality for customers it had already locked in — essentially "fish already caught" — and in some cases even used these captive customers as an opportunity to boost its own margins.
The FTC concluded that the sales territory protection policy at issue fundamentally blocked competition among distributors of the same brand, producing a direct and significant anti-competitive effect, while any pro-competitive benefit was unclear or minimal given the oligopolistic market structure, where switching between brands is difficult and entry barriers are high.
The FTC said of this measure: "By strictly sanctioning a major player in the CAD software market, where competition between brands is structurally limited, for blocking distribution competition among dealers, we have promoted price and service competition in the relevant market and contributed to increasing consumer welfare. In particular, since the main customers of SolidWorks products are small and medium-sized enterprises, the measure is significant in stopping future harm to them."
The commission also said, "We plan to strengthen our monitoring of other software sectors that form the foundation of industrial competitiveness, to see whether anti-competitive conduct that unfairly restricts distribution competition occurs, and to strictly enforce the law against any violations."
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