Microsoft Antitrust Case

## Verdict

### Who won the antitrust case against Microsoft?

A few decades ago, the Microsoft antitrust case started to get significant media attention. 1980s and 1990s. Microsoft, the largest software business in the world at the time, was sued by American federal officials. In response to the company's expanding market share in the personal computer industry, the Federal Trade Commission opened an investigation.

The goal of the inquiry was to ascertain whether Microsoft was attempting to corner the personal computer industry. The federal government quickly concluded its inquiry, only for the U.S. to bring it up again. Justice Department in 1998.

### Microsoft Case Against Antitrust

The software corporation was charged with antitrust violations by the Justice Department. The fees were a result of Microsoft including extra apps with its operating system. It indicated that purchasing the Microsoft Windows operating system was a need in order for users to access a certain Microsoft application.

In addition, Microsoft provided Internet Explorer, its browser software, free of charge to users. It caused the market share to become more concentrated and ultimately brought about the demise of Netscape, the company's leading rival at the time. The Department of Justice filed a lawsuit against Microsoft alleging that it purposefully made it very difficult for customers to install software from other companies on personal computers running Microsoft's operating system.

### Summary

The US government sued Microsoft in the 1990s for attempting to control the personal computer industry.

The Sherman Antitrust Act, which contains provisions created by governments to maintain fair competition in the market, was the subject of the allegations levied against the corporation.

According to District Court Judge Thomas Penfield Jackson, the business broke several Sherman Antitrust Act provisions.

How do antitrust laws work?

Governments create antitrust laws to guarantee fair competition in the market. The laws forbid actions that have a detrimental effect on open markets and erect obstacles to entrance. Industry-wide price manipulation, anti-competitive corporate mergers, predatory pricing used to preserve monopolistic power, etc. are typical examples of such behaviors.

Consumer protection from the negative effects of market monopolies is the main goal of antitrust legislation. The harms typically manifest as higher prices for customers to purchase products and services. By becoming market leaders and establishing monopolies by buying out or eliminating the competition, many businesses attempt to avoid their legal obligations.

The Sherman Antitrust Act of 1890 established antitrust laws in the United States. The legislation that forbade trusts, cartels, etc. was unusual.

### The Finding

Microsoft was found to have broken several provisions of the Sherman Antitrust Act, according to Thomas Penfield Jackson, the presiding judge in the case against the government that the corporation lost. The trial, however, was not without its bumps. False and deceptive statements, evidence tampering, including the alteration of executive emails, and several courtroom diversions were all present in the case.

Microsoft was regarded as one of the most innovative companies of the time, and Bill Gates, its CEO, was universally regarded as brilliant. Additionally, a sizable group of economists claimed that antitrust rules harm consumers in addition to stifling innovation.

The main defense put out by Microsoft was that antitrust regulations prevent domestic businesses from succeeding on a global scale, which reduces their ability to compete. The majority of other nations, with the exception of those in the European Union, do not have national antitrust laws that are held to a high level.

### The Court Case

Microsoft was legally accused of creating a market monopoly by making it challenging for customers to install competing software while also making it challenging to remove the company's Internet Explorer browser.

The business claimed that these methods were non-coercive and that customers had freedom of choice because of the availability of products like Macintosh, Unix, etc. The authorities also discovered that the business harmed software sector innovation by limiting competition. Additionally, the business was compelled to disclose its data to other outside parties.

Microsoft criticized the decision harshly and claimed that it was biased in the prosecution's favor.

### Dismantling Big Tech

The government also decided that the business should be split in half, resulting in the formation of two distinct corporations. One would be responsible only for the Windows operating system, and the other would be in charge of all other Microsoft software offerings.

Microsoft appealed the decision, which was overturned by the appeals court. It did, however, successfully establish a precedent that is reflected in calls from progressive American lawmakers for dismantling big tech. For instance, many legislators advocate splitting up Amazon into two distinct companies, one for e-commerce and the other for the Amazon Web System.

### Effects of the Decision

The Microsoft case had a significant role in creating a market climate that was beneficial for the formation of the largest corporations in existence today, such as Google and Apple, despite the seeming decline in the enforcement of antitrust laws in the U.S. in recent years.

## U.S. vs Microsoft

> According to Section 2 of the Sherman Antitrust Act of 1890, Microsoft's conduct amounted to an illegal monopoly. Following a settlement between the two parties, Microsoft agreed to change several of its business procedures. The Federal Trade Commission started looking into possible abuses of Microsoft's monopoly in the PC operating system industry in 1992. In 1998, the Department of Justice filed a lawsuit against Microsoft for how it handled the integration of operating systems and web browsers. The main controversy concerned whether Microsoft could include its IE web browser with its Windows operating system.
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> Case concentrated more on market entrance hurdles and exploitative tactics than interoperability. A witness to Bill Gates' filmed deposition described him as "evasive and nonresponsive." He fought about what terms like "compete," "concerned," "ask," and "we" meant. Microsoft withdrew the assertion that the removal of IE would slow down Windows. The government created its own videotape, which showed that the Netscape icon was hidden from the desktop and had to be found by the user.
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> Brad Chase, a vice president at Microsoft, confirmed the government's recording while acknowledging that Microsoft's own tape had been fabricated. A monopoly existed due to Microsoft's dominance of the x86-based personal computer operating systems market. On November 5, 1999, Judge Jackson released his findings of fact. Microsoft's remedy was ordered by the District Court to be broken apart. That ruling mandated that Microsoft be divided into two distinct entities.
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> Appeals from Microsoft to the D.C. Directly to the United States was sent Circuit Court. High Court. This is allowed under a law that, in certain antitrust matters, allows the Supreme Court the authority to consider direct appeals from the District Court level. Microsoft's desire for a direct appeals procedure was denied by the Supreme Court.
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> On September 6, 2001, the Department of Justice declared that it would no longer be pursuing the dissolution of Microsoft in favor of a lower antitrust fine. The DOJ did not impose any restrictions on Microsoft's future ability to integrate other software with Windows or demand that any of its source code be altered. On November 12, 2007, Microsoft's duties under the antitrust settlement came to an end. In a later statement, Microsoft "agreed to submit to a two-year extension of part of the Final Judgments." The extension was not intended to be the result of any "pattern of deliberate and systematic violations," but rather to provide the relevant components of the settlement "the opportunity to succeed." Although the appeals court dismissed the lawsuit, Microsoft remained the market leader in software and operating systems.
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A significant case involving American antitrust law was United States v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001), heard by the United States Court of Appeals for the District of Columbia Circuit. The U.S. government charged Microsoft with illegally maintaining its monopoly position in the personal computer (PC) market, primarily through the use of legal and technological barriers to prevent PC OEMs and end users from using Netscape and Java, as well as to prevent them from uninstalling Internet Explorer.

Microsoft's activities were found to have violated Section 2 of the Sherman Antitrust Act of 1890 at the initial trial, according to the United States District Court for the District of Columbia, but the U.S. The D.C. Court of Appeals That verdict was partially overturned by the Circuit. Following a settlement between the two parties, Microsoft agreed to change several of its business procedures.

### History

Microsoft was one of the most prosperous software firms in the world by the 1990s. InfoWorld said:

is regarded as the most significant business in the microcomputer software sector. Bill Gates, the company's founder and chairman, has opted to certify Microsoft's lead over the rest of the industry by controlling applications, operating systems, peripherals, and, most recently, book publishing, claiming that more than a million MS-DOS machines have been deployed. According to some insiders, Microsoft is aiming to become IBM of the software sector.

In order to determine if Microsoft was abusing its monopoly in the PC operating system industry, the Federal Trade Commission launched an investigation in 1992. The Department of Justice (DOJ), under Janet Reno's leadership, launched its own investigation later that year after the commissioners' investigation was shut down due to a 2-2 tie. This investigation led to a settlement on July 15, 1994, in which Microsoft agreed to refrain from linking the sale of other Microsoft products to that of Windows while maintaining its freedom to add new features to the operating system. Although the DOJ disagreed with this characterization, Microsoft continued to assert that Internet Explorer (IE) was a feature that it was permitted to add to Windows in the years that followed.

The government claimed that Microsoft had exploited its dominant control over operating systems and web browser integration on personal computers based on Intel. The main controversy concerned whether Microsoft could include its IE web browser with its Windows operating system. Given that every Windows user had a copy of IE, it is believed that bundling the two products was a crucial element in Microsoft's success in the browser wars of the late 1990s. It was further claimed that since it often took more time to purchase and install alternative web browsers (such Netscape Navigator or Opera), this limited the market for those products. Questions over whether Microsoft had modified its application programming interfaces to favor IE over other browsers lay at the heart of these conflicts. Additionally, Microsoft's actions in enforcing restricted license agreements with original equipment manufacturers, who were compelled to do so, were questioned by the government.

Microsoft asserted that Windows and IE were combined as a result of innovation and competition, that they were now one product and were therefore inseparably connected, and that consumers were benefiting from IE at no cost to them. Since there was a distinct version of IE available for Mac OS, opponents contended that IE was still a separate product and did not need to be connected to Windows. They also claimed that IE was not truly free because its development and marketing costs may have increased the cost of Windows.

### Trial in district court

The United States District Court for the District of Columbia's Thomas Penfield Jackson presided over the case's original trial. The Attorneys General of 20 US states and the District of Columbia joined the Department of Justice in the lawsuit on May 18, 1998. The Department of Justice's complaint, which was based on the claim that Microsoft coerced computer manufacturers into installing its Internet browser alongside Windows software, was less about interoperability and more about predatory tactics and entry barriers to the market.

A witness to Bill Gates' filmed deposition described him as "evasive and nonresponsive." He fought about the definitions of words like "compete," "concerned," "ask," and "we"; some of the exchange would later make the judge laugh when a sample was played in court. Early rounds of Gates's deposition, according to Businessweek, "show him offering obfuscatory answers and saying 'I don't recall' so many times that even the presiding judge had to chuckle. Many of Gates's denials and pleas of ignorance were directly refuted by prosecutors with snippets of e-mails Gates both sent and received." Intel Vice-president Steven McGeady, called as a witness, quoted Paul

Microsoft provided a number of videotapes as evidence throughout the trial, one of which showed that removing Internet Explorer from Microsoft Windows resulted in slowdowns and issues with Windows. The government observed that some icons mysteriously disappeared and reappeared on the PC's desktop during the videotaped demonstration of what then-Microsoft vice president Jim Allchin claimed to be a seamless segment filmed on one PC, indicating that the effects may have been faked. Allchin acknowledged that some of his staff were to blame for the tape issues. He described the situation, saying, "They ended up shooting it—grabbing the wrong screen shot." Later, Allchin did the demonstration once more and produced a fresh film, but in doing so, Microsoft renounced its assertion that Windows is slowed down when IE is disabled. Microsoft representative Mark Murray chastised the government lawyers for "nitpicking on areas like video creation."

During his deposition, Bill Gates

Later, Microsoft offered a second unreliable videotape as proof. Microsoft's videotape demonstrated the process as being quick and simple, resulting in the Netscape icon appearing on the user's desktop. The issue was how simple or challenging it was for America Online users to download and install Netscape Navigator onto a Windows PC. The government made its own film of the identical operation, which showed that Microsoft's had conveniently omitted a lengthy and complicated part of it and that the Netscape symbol wasn't put on the desktop, forcing a user to look for it. Microsoft vice president Brad Chase confirmed the accuracy of the government recording while acknowledging that Microsoft's own tape had been fabricated.

When the judge suggested that Microsoft provide a version of Windows without Internet Explorer, Microsoft retaliated by saying that it would give manufacturers a choice between providing an outdated version of Windows and one that was inoperable. David Cole, a Microsoft vice president, answered the judge's question, "Did it seem absolutely clear to you that I entered an order requiring you to distribute a product that would not work?" "In plain English, yes. We followed that order. It wasn't my place to consider the consequences of that," Cole said.

Gates remembered that he and Steve Ballmer, who took over as CEO after him, had talked about quitting Microsoft "if they truly ruin the firm so badly, really just divide it apart in a very crazy way." Microsoft defended itself in public, claiming that other businesses that were envious of its success were attacking its initiatives to "innovate," and that government action was just their pawn. On June 2, 1999, a full-page advertisement from a think tank called The Independent Institute was published in The Washington Post and The New York Times. Consumers of high technology have benefited from falling prices, expanding outputs, and a breathtaking array of new products and innovations. Increasingly, however, some firms have sought to handicap their rivals by turning to government for protection. Many of these case studies were included in the advertisement titled "An Open Letter to President Clinton from 240 Economists on Antitrust Protectionism."

### Judgment

On November 5, 1999, Judge Jackson released his findings of fact, concluding that Microsoft's monopoly over x86-based personal computer operating systems constituted an unfair business practice and that Microsoft had taken steps to counteract competition from Apple, Java, Netscape, Lotus Software, RealNetworks, Linux, and other programs. Jackson published his legal conclusions on April 3, 2000, concluding that Microsoft had broken Sections 1 and 2 of the Sherman Antitrust Act by engaging in monopolization, attempting to engage in monopolization, and tying.

The District Court issued a breakup order for Microsoft on June 7, 2000, as a resolution. In accordance with that ruling, Microsoft would have to be divided into two separate businesses, one producing the operating system and the other types of software. Microsoft immediately filed an appeal with the District of Columbia. Appeals court for the circuit.

### Appeals Court judgment

The U.S. government and the states involved in the lawsuit asked for a procedure that would skip the intermediate Circuit Court and send the case directly to the U.S. after Microsoft filed its appeal. High Court. The Supreme Court has the authority to hear direct appeals from District Court levels in certain antitrust cases brought by the federal government if "the district judge who adjudicated the case enters an order stating that immediate consideration of the appeal by the Supreme Court is of general public importance in the administration of justice," according to a section of the United States Code that permits such an action. The states also filed a petition for certiorari. The Supreme Court denied these requests and forwarded the appeal to the District of Columbia. Court of Appeals.

Judge Jackson's decisions against Microsoft were overturned by the Circuit Court on June 28, 2001. This was partially due to Jackson violating the Code of Conduct for American judges by improperly discussing the case with the media while it was still pending. Jackson was charged with unethical behavior by the Circuit Court judges, who also found that he ought to have recused himself from the case. As a result of Jackson's actions, the Circuit Court adopted a "drastically altered scope of liability," favoring Microsoft.

Jackson's response was that any "perceived bias" was a result of Microsoft's actions, which had been "time and time again, inaccurate, misleading, evasive, and transparently false," according to Microsoft executives. "Microsoft is a company with an institutional disdain for both the truth and for rules of law that lesser entities must respect. It is also a company whose senior management is not averse to offering specious testimony to support spurious d

In the end, the Circuit Court reversed Jackson's decision to dissolve Microsoft as an unconstitutional monopoly. The Circuit Court ruled that traditional antitrust analysis was ill-equipped to take software-related activities like browser tie-ins into account, but it did not reverse Jackson's findings of fact. The case was sent back to Washington, D.C. District Court, presided over by Judge Colleen Kollar-Kotelly, for additional proceedings in this case.

### Settlement

On September 6, 2001, the Department of Justice declared that it would no longer be pursuing the dissolution of Microsoft in favor of a lower antitrust fine. Microsoft made the decision to create a settlement plan that would permit PC makers to use non-Microsoft software.

The DOJ and Microsoft signed a settlement agreement to end the legal dispute on November 2, 2001. In order to comply with the proposed settlement, Microsoft was required to designate a panel of three people who would have complete access to the company's systems, documents, and source code for a period of five years. Additionally, Microsoft was required to share its application programming interfaces with other businesses. The DOJ did not compel Microsoft to alter any of its code, however, and it was also not forbade from doing so in the future. Microsoft declared on August 5, 2002, that it would agree to some concessions in the ultimate settlement before the judge made a ruling. Judge Kollar-Kotelly issued a decision on November 1, 2002, accepting the majority of the suggested DOJ settlement. The DOJ, nine states, and the District of Columbia, who had jointly brought the lawsuit, disagreed with the settlement because they believed it did not go far enough to stop Microsoft's anti-competitive business practices. 2004 June 30: The D.C. The Circuit Court rejected the states' arguments that the fines were insufficient and approved the settlement with the Justice Department.

Microsoft's 2008 Annual Report said the following:

> *lawsuit filed by the United States Through a Consent Decree that went into force in 2001 and a Final Judgment entered in 2002, two distinct proceedings involving the Department of Justice, 18 states, and the District of Columbia were resolved. Our Windows operating system businesses were subject to several restrictions as a result of these litigation. These restrictions include caps on specific contracting procedures, disclosure requirements for specific software interfaces and protocols, and computer makers' rights to restrict the visibility of specific Windows features in new PCs. We firmly think that we abide by these guidelines to the letter. However, if we don't abide by them, more limitations might be placed on us, which would be bad for business.*
> *As written, Microsoft's duties under the settlement ended on November 12, 2007. Microsoft later "agreed to acquiesce to a two-year extension of part of the Final Judgments" pertaining to licensing for communications protocols, but added that it would not object if the government eventually decided to extend those parts of the settlement as far as 2012. The government was clear that the extension was not the result of any "pattern of deliberate and systematic violations," but rather was meant to provide the relevant element of the settlement "the opportunity to succeed for the period it was designed to cover."*
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### Analysis and criticism

After the 2002 settlement, business analyst Robert X. Cringely asserted that "now the only way Microsoft can die is by suicide" and that a breakup was not possible. Andrew Chin, an antitrust law professor at the University of North Carolina at Chapel Hill who worked with Judge Jackson to draft the findings of fact at the initial District Court trial, claimed that the settlement granted Microsoft "a special antitrust immunity to license Windows and other "platform software" under c.

Milton Friedman, an economist, thought that the antitrust case against Microsoft created a risky precedent that foreshadowed increased government regulation of an industry that had previously experienced little government interference, and that as a result, future technological advancement in the sector will be hampered. Contrary to Friedman's fears, the settlement, according to Business & Economic Research, had no impact on Microsoft's behavior. Because of this, Microsoft remained dominant and monopolistic after the trial, and it continued to stifle competitors and innovative technology. The fines, restrictions, and monitoring imposed were insufficient to stop it from "abusing its monopolistic power and too little to prevent it from dominating the software and operating system industry."

Chris Butts stated that the U.S. government understood the advantages of bundling a web browser with an operating system in his article for the Northwestern Journal of Technology and Intellectual Property. Due to the need in Section 1 of the Sherman Act that the government establish that the type of tying Microsoft engaged in caused more harm than good, the government withdrew their claim of tying at the appeal level.

## Facing Antitrust Charges in 1998

Almost all industries and corporate levels are subject to antitrust legislation. They are created by governments to ensure that there is fair competition on the market. They forbid a range of trade-restricting behaviors, such as price-fixing, anti-competitive business mergers, and monopoly-achieving or -maintaining predatory behavior. Antitrust rules, to put it simply, prohibit businesses from artificially inflating their earnings.

Consumers wouldn't have the same options and would be required to pay more for the goods and services they need if these rules weren't in place. To establish themselves as market leaders, some businesses may attempt to flout the law. The government might intervene to prevent them from becoming a monopoly and eliminating the competition. The 1998 Microsoft antitrust case is the main topic of this article. For additional information on the case and the ensuing decision, continue reading.

### Key Lessons

* Antitrust rules prevent market dominance by one entity, which would reduce consumer choice and raise prices.
* By providing its browser software for free, Microsoft was allegedly attempting to establish a monopoly that caused rival Netscape to go out of business.
* The business was charged after the Department of Justice filed a lawsuit against it in 1998.
* The judge ordered Microsoft to split into two corporations after finding that the business had broken certain provisions of the Sherman Antitrust Act.
* Microsoft filed an appeal, and the ruling was quashed.

### Microsoft's antitrust dispute

In the 1980s, Microsoft (MSFT) was one of the most prosperous software businesses in the world. Federal authorities were alarmed by the company's expanding market share in personal computers. Early in the 1990s, the Federal Trade Commission (FTC) started looking into whether Microsoft was attempting to establish a monopoly.

Even though that inquiry was finished, it was taken up by the Department of Justice (DoJ).

The Department of Justice (DoJ) and the attorneys general of 20 different states filed antitrust charges against Microsoft on May 18, 1998, in an effort to ascertain whether the firm engaged in monopolistic behavior by integrating extra programs into its operating system. The lawsuit was filed in response to the browser wars that culminated in the demise of Microsoft's main rival, Netscape, after Microsoft started making its browser software available without charge.

Microsoft was charged to investigate whether including extra programs in its operating system amounted to monopolistic behavior.

Microsoft was accused by the government of making it difficult for users to install competitor software on Windows-powered machines. Microsoft's actions would be judged anti-competitive if it was discovered that the corporation made it unreasonably difficult for users to uninstall Internet Explorer and switch to a different browser. The case dragged on with claims of false statements and various other distractions in the courtroom. A group of economists even wrote a full-page open letter to President Bill Clinton in support of Microsoft, arguing that antitrust laws harm both consumers and domestic businesses competing internationally. They urged the government to stop enforcing antitrust laws, which fuel protectionism.

### Challenges in the Case

The trial didn't necessarily go off without a hitch. In actuality, there were numerous issues with the DOJ's case against Microsoft. First, it was questioned whether Microsoft should have been been charged in the first place. According to Microsoft, its rivals are envious of its success. Microsoft's supporters asserted that, if it were to be classified as a monopoly, it was, at most, a noncoercive one. Even with alternatives like Unix, Linux, and Macintosh, they claimed, consumers still preferred the practicality of Microsoft's Windows program on their computers. Although Windows may not have been the best product, it could be used on a Toshiba laptop or several copies. It was able to become standard because of how simple it was to install and the other applications it came with.

### The Decision

Microsoft lost the case despite the inventive editing of the video, the evidence, and the emails. The Sherman Antitrust Act was passed in 1890 to prohibit monopolies and cartels, and the presiding judge, Thomas Penfield Jackson, decided that Microsoft had broken some of its provisions. He concluded that Microsoft's dominant position in the market constituted a monopoly that harmed both industry innovation and competition. Jackson also demanded that Microsoft be split in half, with the resulting two new companies being known as baby bills. One half of the corporation would be made up of the operating system, while the other half would be made up of the software division.

### Microsoft's Attraction

Microsoft filed an appeal after taking the verdict seriously. The business criticized the judge's decision, claiming bias in the prosecution's favor. The Jackson decision against Microsoft was overturned by the appeals court. The Department of Justice chose to reach a settlement with Microsoft rather than attempt to dissolve the business. In exchange for Microsoft agreeing to share its computing interfaces with other businesses, the DoJ dropped its demand that the corporation be broken up as part of the settlement.

### Case After Antitrust

Due to traditional rivalry, the corporation saw its once-invincible market share decline. But the case's lessons are still relevant today. Many people now question if filing antitrust lawsuits against non-coercive monopolies is essentially an expensive duplication of work the free market can perform for free.