| United States v. Microsoft was a widely publicized antitrust trial in
which the U.S. Department of
Justice (DOJ), joined by twenty U.S. states, alleged that Microsoft abused monopoly power in its
handling of operating system sales and web browser sales. The DOJ and states filed this antitrust case against Microsoft on May 18, 1998. The case was tried before U.S. District
Court Judge Thomas Penfield Jackson. The DOJ was
initially represented by David Boies.
The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for
Microsoft's victory in the browser wars as every Windows user had a copy of
Internet Explorer, severely hurting the market for competing web browsers (such as Netscape Communicator) which were slow to download over a modem or had to be purchased at a store.
This also meant that the bookmarks, search engine, and other links and software provided by default with Internet Explorer were
guaranteed to have very high visibility to users. Companies paid Microsoft large amounts of money for the large audiences this
would bring them.
Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interfaces to
favor Internet Explorer over third party web browsers, Microsoft's conduct in forming restrictive licensing agreements with OEM
computer manufacturers, and Microsoft's intent in its course of conduct.
Microsoft claimed that the merging of Microsoft Windows and Internet Explorer was the result of innovation and competition, that the two were now the
same product and inextricably linked, and that consumers were now getting all the benefits of IE for free. Those who opposed
Microsoft's decision countered that the browser was still a distinct and separate product which didn't need to be tied to the
operating system, since a separate version of Internet Explorer was available for Mac
OS. They also asserted that IE was not really free, because its development and marketing costs may have kept the price of
Windows higher than it would otherwise have been. Competitors complained that Microsoft was illegally tying two separate products
together and attempting to use the dominance of Windows to kill off the web browser market, and that funding the development and
marketing of its web browser with profits from other unrelated areas of the company constituted an unfair trade practice and an
abuse of its operating system monopoly.
The antitrust case was launched by an accusation, made by the Department of Justice, that Microsoft had violated a consent
decree to which it had agreed a few years earlier. Government interest in Microsoft's affairs had begun in 1991 with an inquiry by the Federal
Trade Commission over whether Microsoft was abusing its monopoly on the PC operating system market. The FTC commissioners
deadlocked with a 2-2 vote in 1993 and closed the investigation, but the DOJ opened its own
investigation on August 21 of that year, resulting in a settlement on July 15, 1994 in which Microsoft consented not to tie
other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In
the years that followed, Microsoft insisted that Internet Explorer (which first appeared in the Plus Pack sold separately from
Windows 95) was not a product but a feature which it was allowed to add to Windows; the government opposed that
definition.
Princeton University professor Edward Felten presented a modified version of Windows from which he claimed the
Internet Explorer function had been removed. On cross-examination, he was guided through a sequence of steps that produced a
fully functional Internet Explorer window.
During the antitrust case it was revealed that Microsoft had threatened PC manufacturers with revoking their license to
distribute Windows if they removed the Internet Explorer icon from the initial desktop, something that Netscape had requested of
its licensees.
Several of Microsoft's actions during the case made headlines.
- Microsoft CEO Bill Gates was called "evasive and nonresponsive" by a source present at a session in which Gates was
questioned on his deposition. [1] (http://news.com.com/2100-1023-214993.html) He argued over the definitions of words such as
"compete", "jihad", "concerned", "ask", and "we". [2] (http://www.cnn.com/TECH/computing/9811/17/judgelaugh.ms.idg/index.html) BusinessWeek
reported, "Early rounds of his deposition show him offering obfuscatory answers and saying 'I don't recall' so many times that
even the presiding judge had to chuckle. Worse, many of the technology chief's denials and pleas of ignorance have been directly
refuted by prosecutors with snippets of E-mail Gates both sent and received." [3] (http://www.businessweek.com/1998/48/b3606125.htm)
- Intel Vice-President Steven McGeady, called as a witness, quoted a Microsoft vice president as having stated an
intention to "extinguish" and "smother" rival Netscape Communications Corporation and to "cut off Netscape's air supply" by giving
away a clone of Netscape's flagship product for free. The Microsoft executive denied the allegations. [4] (http://www.washingtonpost.com/wp-srv/business/longterm/microsoft/stories/1998/microsoft111398.htm)
- Microsoft submitted as evidence a videotape showing that removing Internet Explorer from Microsoft Windows causes slowdowns
and malfunctions in Windows. In the videotaped demonstration of what Microsoft claimed to be a seamless segment filmed on one PC,
the plaintiff noticed that some icons mysteriously disappear and reappear on the PC's desktop, suggesting that the effects might
have been falsified.[5] (http://www.chguy.net/news/feb99/demoMS.html) Microsoft then admitted that the tape had been
edited together from video of multiple PCs. It re-ran the demonstration (barring government observers from the room while the
tests were taking place) and provided a new videotape, but in so doing it dropped its claim that Windows is slowed down when
Internet Explorer is removed. A Microsoft spokesperson berated the government attorneys for "nitpicking on issues like video
production." [6] (http://www.wired.com/news/politics/0,1283,17689,00.html)
- Microsoft submitted a second falsified videotape into evidence later the same month as the first. The issue in question was
how easy or hard it was for America Online users to download and install Netscape Navigator onto a Windows PC. Microsoft's
videotape showed the process as being quick and easy, resulting in the Netscape icon appearing on the user's desktop. The
government produced its own videotape of the same process, revealing that Microsoft's videotape had edited out a long and complex
part of the procedure, and that the Netscape icon wasn't placed on the desktop, requiring a user to search for it. A Microsoft
vice president verified the government's tape and conceded that Microsoft's own tape was inaccurate. [7] (http://www.wired.com/news/politics/0,1283,17938,00.html)
- When the judge ordered Microsoft to offer a version of Windows which did not include Internet Explorer, Microsoft responded
that the company would offer manufacturers a choice: one version of Windows that was obsolete, or another that did not work
properly. The judge asked, "It seemed absolutely clear to you that I entered an order that required that you distribute a product
that would not work?" A Microsoft vice president replied, "In plain English, yes. We followed that order. It wasn't my place to
consider the consequences of that." [8] (http://www.richardnoble.com/microsoft-trial.htm)
Microsoft vigorously defended itself in the public arena, claiming that its attempts to innovate were under attack by rival
companies jealous at its success, and that government litigation was merely their pawn. A full-page ad run in The Washington Post and The New York Times on June 2, 1999 by The Independent Institute (which is funded by Microsoft) delivered "An Open Letter to President Clinton From
240 Economists On Antitrust Protectionism." It said, in part, "Consumers did not ask for these antitrust actions - rival
business firms did. Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new
products and innovations. ... Increasingly, however, some firms have sought to handicap their rivals' races by turning to
government for protection. ... Many of these cases are based on speculation about some vaguely specified consumer harm in some
unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness
abroad." [9] (http://www.independent.org/tii/open_letters/open_letter_antitrust.html)
Judge Jackson issued his findings of fact on November 5, 1999 that Microsoft's dominance of the personal computer operating systems market constituted a
monopoly. Then on April 3, 2000, he issued a
two-part ruling: his conclusions of law were that Microsoft had committed monopolization, attempted monopolization, and
tying in violation of Sections 1 and 2 of the Sherman Act, and his
remedy was that Microsoft must be broken into two separate units, one to produce the operating system, and one to produce
other software components.
Microsoft appealed against the verdict, and Judge Jackson's remedy was overturned on the grounds that interviews he gave to
the news media during the case gave an appearance of bias against Microsoft.
Judge Jackson's response to this was that Microsoft's conduct itself was the cause of any "perceived bias"; he said that
Microsoft executives had "proved, time and time again, to be inaccurate, misleading, evasive, and transparently false. ...
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 defenses to claims
of its wrongdoing." [10] (http://www.winnetmag.com/Article/ArticleID/20269/20269.html) Only the remedy was rejected;
Jackson's findings of fact remained substantially unchanged.
The D.C. Circuit, in the end, found that Microsoft had abused its monopoly power position and remanded the case for
consideration of a proper remedy, under Judge Colleen Kollar-Kotelly.
The DOJ, now under the administration of U.S. President George W. Bush,
announced on September 6, 2001 that it
was no longer seeking to break up Microsoft and would instead seek a lesser antitrust penalty.
On November 2, 2001, the DOJ reached
an agreement with Microsoft to settle the case. The proposed settlement required Microsoft to share its application programming interfaces with
third-party companies and appoint a panel of three people who will have full access to Microsoft's systems, records, and source
code for five years to ensure compliance, but did not require Microsoft to change any of its code nor prevent Microsoft from
tying other software with Windows in the future. On August 5, 2002, Microsoft announced that it would make some concessions towards the proposed final settlement ahead of the
judge's verdict.
On November 1, 2002, Judge
Kollar-Kotelly released a judgment essentially accepting the proposed DOJ settlement. Nine States and the District of Columbia (which had been pursuing the case together
with the DOJ) have not agreed with the settlement, arguing that it does not go far enough to curb Microsoft's anti-competitive
business practices.
The dissenting States regard the settlement as merely a slap on the wrist. That sentiment is shared by many people in the
computer industry, especially those who advocate open source and alternatives
to Microsoft. Many believe that free market competition can only be restored by government intervention to break up the Microsoft monopoly. Industry
pundit Robert X. Cringely believes not even this is possible,
and that "now the only way Microsoft can die is by suicide." [11] (http://www.pbs.org/cringely/pulpit/pulpit20040408.html)
Andrew Chin, an antitrust law professor at the University of North Carolina who assisted Judge Jackson in drafting the findings of fact,
writes that the settlement gives Microsoft "a special antitrust immunity to license Windows and other 'platform software' under
contractual terms that destroy freedom of competition," resulting in consumers being exposed to serious security hazards and
other harms. [12] (http://www.newsobserver.com/opinion/story/1686331p-7930186c.html)
Brief timeline of Microsoft antitrust events
- May 1998: The US Justice Department and the Attorneys General of 20 US states sue Microsoft for illegally thwarting
competition such as Netscape and Apple to protect and extend its software monopoly.
- October 1998: The US Justice Department sues Microsoft for violating a 1994 consent decree by forcing computer makers to
include its Internet browser as a part of the installation of Windows software.
- April 3, 2000: U.S. District Judge Thomas Penfield Jackson rules that Microsoft violated the Sherman Act, that it "maintained its monopoly power by anticompetitive means" and attempted to monopolize
the Web browser market in part by unfairly competing with Netscape. Jackson also
ruled that Microsoft unlawfully tied its Web browser to Windows.
- June 7, 2000: Judge Jackson orders that Microsoft split into two companies.
- Sept. 26, 2000: Supreme Court declines to hear Microsoft's appeal of Jackson's decision, sending the case to a federal
appeals court. The appeals court later overturns some parts of Judge Jackson's remedy, though not the core findings, and send the
matter back to the lower court.
- Sept. 6, 2001: Bush administration Justice Department announces that it will no longer seek a breakup of Microsoft.
- Oct. 31, 2001: Microsoft, the Justice Department, and several states reach a tentative deal to settle the combined
federal/state antitrust case.
- Jan. 23, 2002: AOL Time Warner Inc. sues Microsoft, seeking
damages for Microsoft's actions against Netscape, which AOL had acquired.
- Mar. 8, 2002: Sun Microsystems Inc. files antitrust suit against Microsoft, alleging extensive anticompetitive practices, in
particluar involving the Java language.
- August 2002: Microsoft announces changes intended to comply with Justice Department settlement, including giving users the
ability to hide Microsoft programs like its Web browser.
- Nov. 1, 2002: U.S. District Judge Colleen Kollar-Kotelly approves most provisions of the combined federal/state
settlement.
- May 29, 2003: AOL Time Warner settles with Microsoft for $750 million.
- June 16, 2003: West Virginia quits the antitrust battle, leaving Massachusetts as the last remaining state challenger to the
Justice Department settlement.
- Dec. 18, 2003: RealNetworks Inc. sues Microsoft, accusing it of
illegally monopolizing the growing field of digital music and video.
- March 24, 2004: The European Commission fines Microsoft a
record $613 million for antitrust violations and orders it to divulge certain protocols to competitors and to produce a version
of Windows that does not include the Windows Media Player. This penalty is later suspended while a judge hears Microsoft's
appeal.
- April 2, 2004: Sun settles in exchange for a $1.6 billion payment from Microsoft.
- June 30, 2004: U.S. appeals court unanimously approves settlement with Justice Department, rejecting objections from
Massachusetts that the sanctions are inadequate.
- Nov. 8, 2004: Novell Inc., which had raised antitrust claims in Europe, settles its
civil suit for $536 million.
- Dec. 22, 2004: An EU court rejects Microsoft's appeal of the March penalty. The decision effectively thwarts Microsoft's
attempt to delay implementation.
Criticism of the case
Many critics of the antitrust proceedings against Microsoft assert that they were an unjustified assault on a business that
held a large market share merely by outcompeting its rivals. Some hold that the case against Microsoft was the result of
collusion between government and Microsoft's competitors in an attempt to gain an unfair advantage by thwarting the free market through government coercion. Nobel economist Milton Friedman believes that the antitrust case against Microsoft sets a
dangerous precedent that foreshadows increasing government regulation of what was formerly an industry that was relatively free
of "government intrusion" and that future technological progress in the industry will be impeded as a result. Moreover, Friedman
says that antitrust laws do more harm than good and should not exist.
External links
|
