The suit against Microsoft became the first major antitrust case of the new millennium. At issue was whether the Sherman Antitrust Act of 1890 could effectively be enforced in an era of high technology.
By the late 1980’s, Microsoft Corporation had become the world’s dominant software developer for personal computers (PCs). Microsoft achieved this status through the widespread use of its operating system (OS), the software that controls a PC’s important functions. MS-DOS had been released in 1981, and Windows had been marketed several years later. During the 1990’s, the federal government investigated whether Microsoft violated antitrust laws by curbing competition. Microsoft and the Department of Justice entered into a 1994 consent decree, under which Microsoft voluntarily agreed to refrain from certain practices. However, a trial had not been held as to whether Microsoft had committed antitrust violations.
On May 18, 1998, the Department of Justice (DOJ) and twenty states commenced separate antitrust actions against Microsoft. While the DOJ alleged violations under the Sherman Antitrust Act
David Boies, the government’s chief trial attorney, argued that Microsoft violated Sections 1 and 2 of the Sherman Act by unlawfully maintaining a monopoly; attempting to maintain a monopoly; and tying or bundling its browser, Internet Explorer(IE), to its Windows OS. Not at issue was whether Microsoft had originally obtained monopoly power. However, it was necessary for Boies to prove that a monopoly existed in order to establish that Microsoft illegally maintained a monopoly.
Microsoft chairman Bill Gates responds to a question during a 1998 Senate Judiciary Committee hearing to determine if his company was restricting the efforts of other Internet software providers. The following year, Microsoft was judged to be a monopoly.
Boies focused on Microsoft’s conduct with respect to the Netscape Navigator
The government asserted that Microsoft exercised its substantial market power to force the use of IE over Netscape Navigator. In support of its position, the government pointed to Microsoft’s dealings with Internet access providers (IAPs), Internet content providers (ICPs), and original equipment manufacturers (OEMs), among others. A Netscape executive testified that Microsoft threatened to put his company out of business if it continued to compete with Microsoft. According to an Apple Computer executive, Microsoft threatened to withdraw its software support unless Apple made IE its default browser. Other government witnesses included the upper management of America Online
John Warden, Microsoft’s chief trial attorney, argued that Microsoft had merely been competing in a constantly changing market that was characterized by fierce rivalry. He further contended that the alleged threats against other companies had simply constituted routine business discussions. Moreover, he asserted that Microsoft was required to tie its browser to its OS since they were dependent on each other. Among Microsoft’s witnesses were a different IBM executive and a vice president of Compaq Computer Corporation. However, the majority of Microsoft’s witnesses were its own executives. For the most part, Boies discredited their testimony by producing contradictory e-mails. Bill Gates, Microsoft’s chairman, did not personally appear at trial. However, he previously testified under oath during a taped deposition, which was played during trial. By most accounts, Gates lacked credibility since he insisted that he had been unaware of key matters.
Judge Jackson issued his decision in two parts. On November 5, 1999, he entered his findings of fact, in which he accepted as true most of the testimony offered by the government’s witnesses. On April 3, 2000, he issued his conclusions of law, in which he found that Microsoft had committed multiple violations of the Sherman Act and state antitrust laws. At that time, he had not yet decided upon the remedy that should be imposed against Microsoft. On June 7, 2000, he entered an order that required the divestiture, or breakup, of Microsoft by separating its OS business from its applications business.
Microsoft immediately appealed. On June 28, 2001, the U.S. Court of Appeals for the District of Columbia Circuit affirmed Judge Jackson’s findings of fact. However, some of Judge Jackson’s conclusions of law were reversed. With respect to the remedy, the appellate court determined that Judge Jackson should have held a hearing to determine whether divestiture was practical; that divestiture may no longer be appropriate since some of the legal conclusions were reversed; and that Judge Jackson gave the appearance of acting improperly by secretly discussing the case with reporters. The case was remanded, or sent back, to the trial court for the purpose of further considering the remedy. Judge Jackson was removed from the case and replaced by Judge Colleen Kollar-Kotelly.
After the appellate decision was issued, Microsoft settled with the federal government and some of the states. The remaining states returned to the trial court for a remedy hearing. On September 21, 2006, Judge Kollar-Kotelly entered a remedy as to the federal government and the settling states. Unlike the initial remedy, it was entered with the parties’ consent and did not require divestiture. Instead, it prohibited Microsoft from engaging in certain conduct, such as retaliating against an OEM for distributing a PC with a non-Microsoft browser.
The antitrust case against Microsoft was one of the few times since the 1911 breakup of the Standard Oil Company that the courts considered the divestiture of such a significant corporate entity. Considerable debate continued into the twenty-first century as to whether an antitrust law enacted for a slower economy should be enforced in the fast-paced, modern era. Indeed, the appellate court noted the difficulty of fashioning a remedy against Microsoft that would not soon be outdated. Some question whether the dismantling of Microsoft would have actually benefited consumers. In the future, courts will once again be required to distinguish the fine line between healthy competition and unfair business practices. The line will remain difficult to detect in the constantly evolving global economy.
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Auletta, Ken. World War 3.0: Microsoft and Its Enemies. New York: Random House, 2001. Explores events that led to suit; provides trial highlights, including quotations from testimony; examines Bill Gates’s personal history and reaction to the trial. Chronology of events; glossary; photographs. -
Brinkley, Joel, and Steve Lohr. U.S. v. Microsoft. New York: McGraw-Hill, 2001. Through the use of newspaper articles, the book presents a detailed account of the suit up to the appeal; summarizes testimony of each witness; provides background on principal players. Photographs. -
Heilemann, John. Pride Before the Fall: The Trials of Bill Gates and the End of the Microsoft Era. New York: HarperCollins, 2001. Suggests that Gates’s arrogance and failure to accept reality led to an unfavorable outcome for Microsoft; contends that the government was assisted by Microsoft’s high-technology competitors. Photographs. -
McKenzie, Richard B. Trust on Trial: How the Microsoft Case Is Reframing the Rules of Competition. Cambridge, Mass.: Perseus Books, 2000. Proposes that the government failed to make its case against Microsoft, argues that economic times have changed since antitrust laws were enacted, and questions whether consumers will benefit from enforcement of antitrust laws. Appendixes summarizing Microsoft’s legal troubles. -
Slater, Robert. Microsoft Rebooted: How Bill Gates and Steve Ballmer Reinvented Their Company. New York: Penguin Books, 2004. Contends that the antitrust suit prompted Microsoft to reinvent itself by reorganizing and changing its work environment, among other things.
Microsoft Releases the Windows Operating System
IBM and Apple Agree to Make Compatible Computers
Release of Netscape Navigator 1.0
Rise of the Internet and the World Wide Web
Sun Microsystems Introduces Java
Microsoft Acquires Hotmail