Topic: Microsoft Anti-Trust Case

Katrina Jones

Summary

In September, one of the most important antitrust lawsuits in history will get underway in a federal court. The United States Department of justice along with 20 state attorneys general has charges the Microsoft Corporation with anti-competitive practices including illegal "tying" of the Internet Explorer Web browser with the Windows operating system.

The Justice Department has charged Microsoft is in violation of a 1995 consent decree that was aimed at opening the way for more competition in the software industry. The government wants to prevent the company from using its dominance in personal computer operating systems -- Windows runs on more than 80 percent of PCs -- to control the Internet browser market.

Microsoft defends its actions by saying that integrating Internet Explorer into Windows is in line with its history of enhancing it's operating system. The Department of Justice argues that Microsoft sees the Internet as a threat and seeks to eliminate their internet competition by freely distributing their browser, integrating it into their popular operating system.

Names and Stuff
Bill Gates
Windows 95
Windows 98
Internet Explorer
Netscape

The Sherman Act (1980)-Sections 1 & 2

The Justice Department's Complaint against Microsoft alleges the company violated parts of these two sections of the Sherman Antitrust Act.

§ 1 Sherman Act, 15 U.S.C. § 1

Trusts, etc., in restraint of trade illegal; penalty

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

§ 2 Sherman Act, 15 U.S.C. § 2

Monopolizing trade a felony; penalty

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

What is Microsoft Doing Wrong?

(from the text of the Complaint in the US v. Microsoft)
Microsoft has engaged in a series of anticompetitive activities. Microsoft's conduct includes:

agreements tying other Microsoft software products to Microsoft's Windows operating system
exclusionary agreements precluding companies from distributing, promoting, buying or using products of Microsoft's software competitors
exclusionary agreements restricting the right of companies to provide services or resources to Microsoft's software competitors or potential competitors.

Net Etiquette

A large portion of this anti-trust law suit deals with Internet Competition. Specifically with the dominance of Microsoft Internet Explorer over and Microsoft's attempt to squash their largest internet competitor: Netscape Communications.

Microsoft has attempted to do this by:

Distributing Internet Explorer for free along with the Windows system. This not undercut Netscape's prices, but it also made Internet explorer readily available to consumers making less likely to shop for alternatives.
Unlawfully requiring PC manufacturers, as a condition of obtaining licenses for the Windows 95 operating system, to agree to license, preinstall, and distribute Internet Explorer on every Windows PC such manufacturers shipped.
Intending to unlawfully tie Internet Explorer to the new Windows 98 operating system, the successor of Windows 95.
Misusing it's Windows operating system monopoly by requiring PC OEMs to agree as a condition of acquiring a license to the Windows operating system to adopt the uniform "boot-up" sequence and "desktop" screen specified by Microsoft.
Entering into agreements with virtually all of the nation's largest and most popular ISP's including particularly OSL's, firms which provide the communications link between a subscriber's PC and the Internet and sometimes related services and content as well.
Entering into anticompetitive agreements with internet Content Providers.

The Ghost of Anti-Trust Cases Past

Monopolization Case-July 1994: On July 15, 1994, the US commenced an action against Microsoft under section 2 of the Sherman Act for unlawfully maintaining its monopoly in the market for PC operating systems. The Court entered the Final Judgment on August 21, 1995. The final judgment prohibited Microsoft from continuing its anti-competitive practices. The purpose of the Final judgment was to prevent Microsoft from conditioning access to its monopoly OS in order to protect or extend that monopoly.
Contempt Proceeding-October 1997: On October 20, 1997, the US petitioned the Court for an order to show cause why Microsoft should not be found in civil contempt for violating the 1995 Final Judgment by requiring OEMs to license and Distribute Internet Explorer as a condition of obtaining a license for Microsoft's Windows 95.
On December 11, 1997, the court entered a preliminary injunction enjoining Microsoft "from the practice of licensing the use of any Microsoft personal computer operating system software on the condition, express or implied, that the licensee also a license and preinstall any Microsoft Internet browser or software pending further order of Court.
Contempt Proceeding-December 1997: Microsoft publicly announces that any OEM that did not agree to license and distribute Internet explorer would not be able to obtain a license to a current working copy of Windows. Their options would be: (1) a version of Windows 95 that Microsoft admitted would not work or (2) a two-and-a-half-year-old version of Windows 95 that Microsoft admitted was not commercially viable.
On December 17,1997 the US moved to have Microsoft held in contempt for violation of the December 11, 1997 order. On January 21, 1998 the US and Microsoft submitted a stipulated proposed order, which was entered by the Court. The Order required Microsoft to provide OEMs with two options in additions to those previously provided by Microsoft.
Appeal of the Court's December 1997 Order: On May 5, 1998, Microsoft moved for a stay of the December Order. On May 12, the Court of Appeals granted Microsoft's application.

Time Line (copied from cnnfn.cnn.com)

10/--/97 The Justice Department sues Microsoft (MSFT: Research, Estimates), alleging the software maker required computer manufacturers to ship Microsoft's Internet Explorer Web browser on PC's loaded with Windows 95. Attorney General Janet Reno also asks a federal court to impose penalties of $1 million per day.

Compaq Computer Corp. (CPQ: Research, Estimates), the world's largest maker of personal computers, claims Microsoft threatened to cancel Compaq's Windows 95 license if Compaq put Windows 95 on its PCs without Microsoft's Web browser.

11/--/97 The Justice Department charges Microsoft chose to integrate its Web browser with Windows 95 in a desperate attempt to grab market share from rival Netscape Communications Corp.

12/11/97 U.S. District Judge Thomas Penfield Jackson issues preliminary injunction demanding that Microsoft stop requiring PC makers to install its Web browser on computers.

01/22/98 Microsoft reaches a partial settlement with the Justice Department that allows personal computer makers to remove or hide its Internet software on new versions of Windows 95. Separately, Netscape announces plans to give its browser away for free.

03/02/98 One day before Bill Gates is scheduled to testify before the U.S. Senate Judiciary Committee, Microsoft revises deals it has with approximately 40 Internet service providers, allowing them to promote browser software made by Microsoft competitors.

04/14/98 Microsoft says it will ship Windows 98 integrated with the Internet Explorer Web browser and a browser icon visible on the desktop. The company says it has no plans to allow computer makers to hide the browser icon, as they can under an agreement that applies to Windows 95.

05/18/98 Regulators from the Justice Department and 20 states launch one of the biggest antitrust assaults of the century, accusing Microsoft of using its dominance in computer software to drive competitors out of business. The filing comes after negotiations between the government and Microsoft officials break down.

07/30/98 Microsoft files a counter suit against the US Department of Justice and the 20 attorneys general claiming that the allegations set forth against Microsoft in the anti-trust case were groundless.

10/19/98 Trial of the federal antitrust suit against Microsoft begins. Lead Justice Department attorney David Boies uses internal company documents to contradict Bill Gates' statements in a videotaped deposition that he was not aware of a controversial 1995 meeting with Netscape executives.

10/21/98 Netscape Chief Executive Officer James Barksdale testifies that Microsoft threatened to "destroy Netscape's business" unless the company agreed to concede the Windows browser market. Lead Microsoft attorney, John Warden, later accused Netscape of fabricating details of the meeting.

03/29/99 Microsoft reorganizes its operations into four separate divisions. Company officials stress the restructuring is unrelated to its ongoing lawsuit with the government.

06/07/99 IBM (IBM: Research, Estimates) executive Garry Norris testifies that Microsoft threatened to withhold the computer maker's Windows license because IBM intended to include rival software in its PCs.

10/19/99 District Court judge appoints federal appeals judge, Richard Posner, to serve as a mediator to handle the negotiations between Microsoft and the government.

11/05/99 U.S. District Court judge rules that Microsoft holds monopoly power in the market for PC operating systems, and the company's actions harmed consumers.

01/13/00 Microsoft Chairman Bill Gates hands over the day-to-day management of the software company to Steve Ballmer, as part of a corporate reshuffling that will allow Gates to focus on long-term strategies.

04/01/00 Judge Posner announces the end of negotiations between Microsoft and the government after four fruitless months of talks, setting the stage for a verdict by Judge Jackson.

04/03/00 Judge Jackson rules Microsoft Corp. violated the nation's antitrust laws by using its monopoly power in personal computer operating systems to stifle competition.

04/28/00 The Justice Department and a group of state attorneys general ask Judge Jackson to split Microsoft into two separate companies; one devoted to the Windows operating system and the second to Microsoft's other businesses, including popular software applications such as Microsoft Office.

05/10/00 Microsoft Corp. asks a federal judge to throw out the Justice Department's plan to break up the software maker, saying the remedy would be an extreme penalty for the antitrust violations the judge found the company to have committed.

05/24/00 Judge Jackson stuns Microsoft by refusing its request for additional time to prepare a defense to the government's breakup proposal. The judge also orders the government to submit by Friday an explanation of why it wants to split Microsoft into only two, instead of three, parts. The judge indicates he wants to bring the trial to a speedy conclusion.

06/01/00 Judge Jackson surprises the litigants again, this time granting the government and Microsoft additional time to review each other's remedy proposals, which they've been revising and trading back and forth in the previous week.

06/05/00-
06/06/00 The government and Microsoft trade their last remedy briefs, setting the stage for a final ruling from Judge Jackson.

06/07/00 Judge Jackson issues final ruling calling for Microsoft to be split into two companies, one for the Windows operating system and another for its Internet and other businesses.

ktjones@ldc.upenn.edu
July 17, 2000

10/--/97	The Justice Department sues Microsoft (MSFT: Research, Estimates), alleging the software maker required computer manufacturers to ship Microsoft's Internet Explorer Web browser on PC's loaded with Windows 95. Attorney General Janet Reno also asks a federal court to impose penalties of $1 million per day.
10/--/97	Compaq Computer Corp. (CPQ: Research, Estimates), the world's largest maker of personal computers, claims Microsoft threatened to cancel Compaq's Windows 95 license if Compaq put Windows 95 on its PCs without Microsoft's Web browser.
11/--/97	The Justice Department charges Microsoft chose to integrate its Web browser with Windows 95 in a desperate attempt to grab market share from rival Netscape Communications Corp.
12/11/97	U.S. District Judge Thomas Penfield Jackson issues preliminary injunction demanding that Microsoft stop requiring PC makers to install its Web browser on computers.
01/22/98	Microsoft reaches a partial settlement with the Justice Department that allows personal computer makers to remove or hide its Internet software on new versions of Windows 95. Separately, Netscape announces plans to give its browser away for free.
03/02/98	One day before Bill Gates is scheduled to testify before the U.S. Senate Judiciary Committee, Microsoft revises deals it has with approximately 40 Internet service providers, allowing them to promote browser software made by Microsoft competitors.
04/14/98	Microsoft says it will ship Windows 98 integrated with the Internet Explorer Web browser and a browser icon visible on the desktop. The company says it has no plans to allow computer makers to hide the browser icon, as they can under an agreement that applies to Windows 95.
05/18/98	Regulators from the Justice Department and 20 states launch one of the biggest antitrust assaults of the century, accusing Microsoft of using its dominance in computer software to drive competitors out of business. The filing comes after negotiations between the government and Microsoft officials break down.
07/30/98	Microsoft files a counter suit against the US Department of Justice and the 20 attorneys general claiming that the allegations set forth against Microsoft in the anti-trust case were groundless.
10/19/98	Trial of the federal antitrust suit against Microsoft begins. Lead Justice Department attorney David Boies uses internal company documents to contradict Bill Gates' statements in a videotaped deposition that he was not aware of a controversial 1995 meeting with Netscape executives.
10/21/98	Netscape Chief Executive Officer James Barksdale testifies that Microsoft threatened to "destroy Netscape's business" unless the company agreed to concede the Windows browser market. Lead Microsoft attorney, John Warden, later accused Netscape of fabricating details of the meeting.
03/29/99	Microsoft reorganizes its operations into four separate divisions. Company officials stress the restructuring is unrelated to its ongoing lawsuit with the government.
06/07/99	IBM (IBM: Research, Estimates) executive Garry Norris testifies that Microsoft threatened to withhold the computer maker's Windows license because IBM intended to include rival software in its PCs.
10/19/99	District Court judge appoints federal appeals judge, Richard Posner, to serve as a mediator to handle the negotiations between Microsoft and the government.
11/05/99	U.S. District Court judge rules that Microsoft holds monopoly power in the market for PC operating systems, and the company's actions harmed consumers.
01/13/00	Microsoft Chairman Bill Gates hands over the day-to-day management of the software company to Steve Ballmer, as part of a corporate reshuffling that will allow Gates to focus on long-term strategies.
04/01/00	Judge Posner announces the end of negotiations between Microsoft and the government after four fruitless months of talks, setting the stage for a verdict by Judge Jackson.
04/03/00	Judge Jackson rules Microsoft Corp. violated the nation's antitrust laws by using its monopoly power in personal computer operating systems to stifle competition.
04/28/00	The Justice Department and a group of state attorneys general ask Judge Jackson to split Microsoft into two separate companies; one devoted to the Windows operating system and the second to Microsoft's other businesses, including popular software applications such as Microsoft Office.
05/10/00	Microsoft Corp. asks a federal judge to throw out the Justice Department's plan to break up the software maker, saying the remedy would be an extreme penalty for the antitrust violations the judge found the company to have committed.
05/24/00	Judge Jackson stuns Microsoft by refusing its request for additional time to prepare a defense to the government's breakup proposal. The judge also orders the government to submit by Friday an explanation of why it wants to split Microsoft into only two, instead of three, parts. The judge indicates he wants to bring the trial to a speedy conclusion.
06/01/00	Judge Jackson surprises the litigants again, this time granting the government and Microsoft additional time to review each other's remedy proposals, which they've been revising and trading back and forth in the previous week.
06/05/00- 06/06/00	The government and Microsoft trade their last remedy briefs, setting the stage for a final ruling from Judge Jackson.
06/07/00	Judge Jackson issues final ruling calling for Microsoft to be split into two companies, one for the Windows operating system and another for its Internet and other businesses.