The Microsoft Antitrust Case

2 February 2017

The Microsoft Antitrust Case The Microsoft Antitrust Case In 1998 the Microsoft Corporation was at the center of an investigation by the U. S. Department of Justice (DOJ) which alleged the company of violating the Sherman Act. The Sherman Act is considered the foundation of federal antitrust litigation, and is used to “combat anticompetitive practices, reduce market domination by individual corporations, and preserve unfettered competition as the rule of trade” (www. law. cornell. edu).

The DOJ concentrated on 4 specific violations of the Act, (1) Microsoft engaged in “unlawful exclusive dealings and other exclusionary agreements”, (2) Microsoft engaged in “unlawful tying”, which was the act of Microsoft tying together two products (Windows and Internet Explorer), (3) Microsoft ‘illegally maintained its monopoly of the PC operating systems market, and (4) Microsoft attempted to monopolize the Internet. (Baron, p. 313). The two most obvious stakeholders in the case are Microsoft and the DOJ.

Microsoft is in the position of not only protecting its products from stricter regulation, but is also interested in keeping the competition at bay- which is the crux of their defense against the claims of the DOJ.

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Microsoft maintained the position that becoming a monopoly in an industry as dynamic as computer technology is next to impossible given how quickly things and products can change. The DOJ’s interest extends to ensuring there is an adequate level of competition in the industry.

Other entities with a concern in the situation are Java, Sun Microsystems, Netscape, Apple, and Intel. Netscape and Java were a particular threat to Microsoft due to the ease and adaptability of their Internet browsing software, which could be used without the Windows operating system thus giving consumers a choice as to which system they wanted to utilize. The first question posed by the case is whether or not the DOJ should have brought an antitrust case against Microsoft, and whether there is evidence to indicate Microsoft violated the Sherman Act.

The opinion of the DOJ was that Microsoft acted in a manner which excluded competition by entering into agreements with companies to not “license, distribute or promote non-Microsoft products”, stating these agreements restricted competitor’s access to “significant” market segments (Baron, p. 313). Because Microsoft’s operating system (Windows) was the most widely used, most applications were written to run on Windows, giving Microsoft the upper hand in the industry for Internet users. Baron (2010) states at the time of the investigation, Windows were installed on more than 90% of all new Intel-based personal computers.

The DOJ also accused Microsoft of engaging in behavior which was inconsistent with adherence to the Sherman Act, referring to the company as “dismissive” to the claims of being anticompetitive. These pieces of evidence seem to give credit to the DOJ’s claims against Microsoft. Another question posed by the case was whether or not Microsoft’s conduct benefitted consumers. The senior group vice president of Microsoft, Paul Maritz believes Microsoft operations did benefit consumers, stating that Window’s popularity was due to Microsoft’s “efforts to innovate, evangelize and license the software cheaply” (Baron, p. 317).

Microsoft’s alleged monopoly did benefit consumers when price and compatibility are considered, as the operating software was cheap and accessible by most consumers, especially given the fact so many applications were written specifically to interact with Windows at the end-user point. An opposite argument can be made regarding the conduct of Microsoft in that if there is little to no competition, there is the potential for less innovation, creativity, and invention of new products. Also, the fact that users could not opt to remove Internet Explorer from their computers left no room for consumer choice and/or preference.

Judge Thomas P. Jackson presided over the court case between the DOJ and Microsoft, issuing the following remedies; (1) structural: break Microsoft into two separate companies, one for the operating system (Windows) and another for the software applications (including Internet Explorer) and (2) behavioral: Microsoft was ordered to allow consumers to remove any applications from the operating system, and was prohibited from interfering with any non-Microsoft “middleware” (Java, Netscape etc. , meaning a company could not be discriminated against for using non-Microsoft products. (Baron, p. 320). Judge Jackson also ruled that Microsoft had to ensure its software and hardware be compatible with non-Microsoft products. In terms of the appropriateness of a structural remedy, research points to a 2011 update by the DOJ regarding this type of remedy. To paraphrase, it states a behavioral remedy may be effective if a structural remedy would eliminate the organization’s efficiencies. (www. mwe. com).

With the Microsoft case, the Court of Appeals decided to vacate (cancelling or rescinding court orders and judgments) the structural remedy order of breaking the company into two different entities, stating that type of action was typically used for companies that “had grown through acquisitions and mergers” (Baron, p. 320), remanding the decision to be reevaluated at the District Court level. If the structural remedy would rob Microsoft of its effectiveness as an industry leader, then the decision would not be appropriate, especially if a behavioral remedy could resolve the situation.

The settlement arose from the refusal of the Supreme Court to hear the appeal by Microsoft, and the potential for lengthy legal battles in the future. Microsoft, state attorneys, and a court-appointed mediator reached an agreement that Microsoft could “determine, at its sole discretion, what goes into the operating system in the future”. Some of the state attorneys disagreed with the settlement, stating Microsoft was rewarded as opposed to punished. (Baron, 2010).

Bill Gates, Microsoft chairman was quoted as saying Microsoft would “focus more on how our activities affect other companies”. If Microsoft is intent on following this manner of operating, the behavioral aspect of the settlement should be sufficient, especially in conjunction with the new terms which allow Microsoft to integrate any product into Windows. The settlement also gives the end-user the power to decide which features of Microsoft he/she wishes to use, and appoints an internal compliance officer to ensure the settlement is followed.

If Microsoft is true to its claims and incorporates the settlement into its internal strategy the claims of the DOJ should be kept to a minimum if not remedied completely. Many private class-action lawsuits were filed against Microsoft, and most have been resolved to varying degrees. Microsoft has won dismissals in 16 states, won denials of class certification in 2 states, reached final settlements in 17 states, and reached preliminary settlements in 2 states. Only two lawsuits remain, in Iowa and Mississippi. (www. microsoft. com).

In a broad analysis, it seems the settlement has been effective in remedying the complaints of the DOJ, especially given the result of many of the private class action lawsuits. The case asks what, if anything should be done with Microsoft’s dominance over other software applications? Microsoft has made a superior product, and has also reaped the benefits as well as the consequences of being an industry leader. Current industry standards may predict the rise of actual competition to the Microsoft product, with the recent rise of Apple products, which are commanding a distinct share of the market.

It may even be feasible to say Apple has become more of an industry leader than Microsoft in recent times, as many users have taken sides in the PC vs. Mac society. Regardless of the current product competition, Microsoft was correct in its claim that “the rapid change in technology and in the business environment did not allow a single company to establish and maintain a monopoly” (Baron, p. 314). This statement is supported by the above discussion regarding Apple’s emergence into the market.

Much like Adam Smith’s invisible hand, the industry itself may soon redefine the dominance of Microsoft. References Baron, D. P. (2010). Business and its Environment. (6th ed. ) Upper Saddle River, NJ: Prentice Hall

http://www.law.cornell.edu/wex/antitrust

http://legal-dictionary.thefreedictionary.com/vacate

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