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United States v. Microsoft

From Academic Kids

United States v. Microsoft (87 F. Supp. 2d 30 (D.D.C. 2000)) 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. It was further alleged that this unfairly restricted the market for competing web browsers (such as Netscape Communicator) that were slow to download over a modem or had to be purchased at a store. It was also suggested 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.

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 position 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 might otherwise have been. Competitors complained that Microsoft was illegally tying two separate products together, 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.

Contents

Trial

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 Paul Maritz, a senior 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)
  • During Microsoft vice president James Allchin's testimony, a number of videotapes were submitted as evidence, including one that showed that removing Internet Explorer from Microsoft Windows causes slowdowns and malfunctions in Windows. In the videotaped demonstration of what Allchin 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) Allchin then admitted that the tape had been edited together from video of multiple PCs. He 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 Microsoft dropped the claim that Windows is slowed down when Internet Explorer is removed. Mark Murray, 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. Brad Chase, 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?" David Cole, 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/issues/article.asp?id=483)

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.

Appeal

Microsoft appealed the verdict and Judge Jackson's remedy was overturned on the grounds that interviews he gave to the news media during the case demonstrated a 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.

Settlement

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. Others believe that government intervention is antithetical to free market principles, maintaining that Microsoft was not, and is not, a coercive monopoly. Industry pundit Robert X. Cringely believes a breakup is not 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.
  • June 28, 2001: The appeals court 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.

Criticisms 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. Strict free market advocates believe that the only type of monopolies that should be dismantled are coercive monopolies and reject the claim that Microsoft falls in this category.

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