The Microsoft Antitrust Case Is the Most Significant Monopoly Case since the Bre
ID: 376571 • Letter: T
Question
The Microsoft Antitrust Case Is the Most Significant Monopoly Case since the Breakup of AT&T in the Early 1980s.
The Charges In May 1998 the U.S. Justice Department (under President Clinton), 19 individual states, and the District of Columbia (hereafter, “the government”) filed antitrust charges against Microsoft under the Sherman Antitrust Act. The government charged that Microsoft had violated Section 2 of the act through a series of unlawful actions designed to maintain its “Windows” monopoly. It also charged that some of that conduct violated Section 1 of the Sherman Act.
Microsoft denied the charges, arguing it had achieved its success through product innovation and lawful business practices. Microsoft contended it should not be penalized for its superior foresight, business acumen, and technological prowess. It also pointed out that its monopoly was highly transitory because of rapid technological advance.
The District Court Findings In June 2000 the district court ruled that the relevant market was software used to operate Intel-compatible personal computers (PCs). Microsoft's 95 percent share of that market clearly gave it monopoly power. The court pointed out, however, that being a monopoly is not illegal. The violation of the Sherman Act occurred because Microsoft used anticompetitive means to maintain its monopoly power.
According to the court, Microsoft feared that the success of Netscape's Navigator, which allowed people to browse the Internet, might allow Netscape to expand its software to include a competitive PC operating system—software that would threaten the Windows monopoly. It also feared that Sun's Internet applications of its Java programming language might eventually threaten Microsoft's Windows monopoly.
To counter these and similar threats, Microsoft illegally signed contracts with PC makers that required them to feature Internet Explorer on the PC desktop and penalized companies that promoted software products that competed with Microsoft products. Moreover, it gave friendly companies coding that linked Windows to software applications and withheld such coding from companies featuring Netscape. Finally, under license from Sun, Microsoft developed Windows-related Java software that made Sun's own software incompatible with Windows.
The District Court Remedy The district court ordered Microsoft to split into two competing companies, one initially selling the Windows operating system and the other initially selling Microsoft applications (such as Word, Hotmail, MSN, PowerPoint, and Internet Explorer). Both companies would be free to develop new products that compete with each other, and both could derive those products from the intellectual property embodied in the common products existing at the time of divestiture.
The Appeals Court Ruling In late 2000 Microsoft appealed the district court decision to a U.S. court of appeals. In 2001 the higher court affirmed that Microsoft illegally maintained its monopoly but tossed out the district court's decision to break up Microsoft. It agreed with Microsoft that the company was denied due process during the penalty phase of the trial and concluded that the district court judge had displayed an appearance of bias by holding extensive interviews with the press. The appeals court sent the remedial phase of the case to a new district court judge to determine appropriate remedies. The appeals court also raised issues relating to the wisdom of a structural remedy.
The Final Settlement
At the urging of the new district court judge, the federal government (under then-President George W. Bush) and Microsoft negotiated a proposed settlement. With minor modification, the settlement became the final court order in 2002. The breakup was rescinded and replaced with a behavioral remedy. It (1) prevents Microsoft from retaliating against any firm that is developing, selling, or using software that competes with Microsoft Windows or Internet Explorer or is shipping a personal computer that includes both Windows and a non-Microsoft operating system; (2) requires Microsoft to establish uniform royalty and licensing terms for computer manufacturers wanting to include Windows on their PCs; (3) requires that manufacturers be allowed to remove Microsoft icons and replace them with other icons on the Windows desktop; and (4) calls for Microsoft to provide technical information to other companies so that they can develop programs that work as well with Windows as Microsoft's own products.
The Microsoft actions and conviction have indirectly resulted in billions of dollars of fines and payouts by Microsoft. The main examples are: To AOL Time Warner (Netscape), $750 million; to the European Commission, $1.9 billion; to Sun Microsystems, $1.6 billion; to Novell, $536 million; to Burst.com, $60 million; to Gateway, $150 million; to InterTrust, $440 million; to RealNetworks, $761 million; and to IBM, $850 million.
Proceed from the initial charges against Microsoft under the Clinton administration to the eventual settlement under the Bush administration. Did Microsoft have designs on establishing a Monopoly in contravention of the Sherman Antitrust Act? With your knowledge of this industry was the correct outcome arrived at? Was an appropriate level of regulation used to assure adequate competition in the computer/operating platform/software industry?
Explanation / Answer
The basic objective of the antitrust law was to eradicate the privilege of monopoly enjoyed by the organizations and all the laws namely, the Sherman Act, Clayton Act and the Federal Trade Commission Act focused majorly on this point and in order to stop this practice, each and every time the law was modified. Microsoft claims that the popularity and acceptance of the product is because of its quality, convenience and innovation and this fact cannot be denied but the business practice they have adopted in order to get rid of any competition is totally unethical and is a violation of the Sherman Antitrust Act. The design of the products can be very good and if the consumers solely prefer such a product then the government cannot intervene because the monopoly law is not violated but in order to get rid of any competition, Microsoft forced PC makers illegally to use the Microsoft operating system and along with that the applications of Microsoft needs to be used. There are instances where companies have even been penalized because they promoted the software applications of other organization. This is a violation because in order to enjoy the privilege of monopoly the method is not at all fait and justified.
The district court's verdict affected Microsoft a lot because the order was to split the organization in to two, one will be manufacturing the operating system and the other the application and the objective was to cut down the influence that Microsoft creates in the retail industry because of their products. Microsoft appealed against the verdict in the higher court which confirmed that Microsoft was guilty but the split was stopped, instead Microsoft had to sign an agreement which ensures that there is fair competition for each and every organization in the industry in order to provide better service to the consumers and I support this decision because I believe that monopoly is something which is always destructive.
Yes, the higher court's verdict assured place for adequate competition which was actually missing. Microsoft is prevented from influencing any developer or seller in the industry in order to promote Microsoft products only. If there is any seller who has to sell only products of Microsoft, then Microsoft has to provide a uniform amount of royalty to the seller in order to compensate the loyal attitude. Initially there were only Microsoft icons in the desktop which can now be removed and placed as per the requirement of the customer and the seller. Microsoft also has to assist other organizations technically in order to make them enable in the industry which is surprising because through this activity Microsoft is assisting its potential customers. Therefore it can be concluded that adequate scope for competition is present in order to improve the service of this industry.